Parents Find Greater Control, Safety in Debit Cards

Article excerpt

Time was, allowances were distributed to kids in dimes and dollars.

But like so much of everything else, allowances have gone plastic.

On the heels of gift cards, "allowance cards" are making their way into the consumer mainstream.

Instead of giving their kids a cash allowance, parents can now give them pre-paid debit cards to tide them over on that high school band trip or their first semester of college. A swipe of the card can pay for textbooks, burgers or clothes.

The money is drawn from a fund set up in advance by parents, who maintain control of the account and can close or replenish it.

These "teen debit cards" have been around at least since August 2000, when Visa USA debuted the Visa Buxx card for ages 13-17. But more banks and financial service corporations have gotten into the act, hoping to tap into the youth market.

"From what I've seen, it seems pretty convenient and safe to be able to carry a card instead of a lot of cash with you when you're a teenager who's away from home," says Jamie Boerio, 18, a senior at Latrobe High School.

Allow Card of America Inc., a privately held financial services organization in Mesa, Ariz., debuted the Allow Card in February 2006. There is a $19.95 fee for each card, which is issued by MasterCard, as well as a $3.50 monthly fee. However, users pay no overdraft or late fees or interest. The minimum pre-load amount for each card is $15. The maximum amount is $2,500.

"In the teen market, it's a great way to teach teens how to be responsible with a type of credit card before they get into that world, before they start receiving credit card applications," says CEO Marla Beans.

But some critics say this plastic spending money is old wine in a new bottle.

"Nine times out of 10, parents don't stick to the limits they impose," says Lynnette Khalfani, a New York-based personal finance expert and the author of New York Times best-sellers "Zero Debt: The Ultimate Guide to Financial Freedom" (Advantage World Press, 2004) and "Investing Success" (Advantage World Press, 2004).

"They replenish the cards prematurely," she says. "The cards aren't effective at teaching fiscal responsibility and restraint -- not when the kids know (they) can tap into the Bank of Mom and Dad."

The cards can provide a safer alternative to cash or credit cards. Parents also can track their child's purchases online. Card issuers tout the card's pay-as-you-go feature as a way to teach kids financial responsibility. As a further incentive, parents and kids who log on to check their account also can learn money-management tips or create a budget.

National City was one of the pilot banks for the Visa Buxx card. …