Indebted Eight-Year Olds
It used to be that one of the main initiations into adulthood was opening up a checking account in your late teens or early twenties. All those years of begging your parents for their spare change so you could buy a soft pretzel at the mall with your friends or pestering them to make the payment for your annual summer camp were now gone. Like cell phones and other maturing privileges, the timeline to receiving a debit card has been sped up as well. Now, companies across the country are extending their services to children of all ages. With this early start to banking, parents and bankers are also faced with unforeseen risks as children begin to swipe their cards.
The most notable pioneer for children’s debit cards is Greenlight. Greenlight and other companies like FamZoo and Wingocard, offer debit cards and apps to families, allowing children to begin their financial journey in a controlled environment. These companies pride themselves on being family oriented and promoting the financial growth of children at a young age. However, this financial growth can look very different depending on the family and the child.
You would suspect that the guardian would have to do some degree of active monitoring to ensure that the account is being used wisely. As parents search for the right debit card for their children, they may ask themselves about the features that they value and need from the service. Each platform fulfills a different bundle of needs, therefore, it is imperative that families take the time to discover which company works best for them. For example, some families would like to be able to delegate giving out a monthly allowance and even set goals for when the children can earn that allowance, like after they finish their respective chores. Another feature that both Greenlight and FamZoo offer is interest rate boosts and bonuses depending on whether the child reached his or her goal. This is a healthy and encouraging way for children to learn about good financial habits as well as gaining some extra cash from mom and dad. The platform Goalsetter takes it one step further and offers quizzes for children to take. They can be rewarded for taking the quizzes but can also be penalized, by withholding some of their money, when they do not take the quiz. The companies themselves are also offering incentives. Tanya Van Court, founder of Goalsetter, is currently working with credit bureaus to allow 18-year olds to improve their credit scores. This same company raised $3.9 million to teach financial literacy in the beginning of 2021 and it is estimated that families save about $120 month by using Goalsetter. Another company, Step, already has a system in place to allow teenagers to build their credit score. By exposing young adults to the credit world sooner, they will be able to establish a good score without the pressure of large bills. This will also hopefully balance out the advantage granted to teenagers who are linked directly to their parent’s credit cards and can automatically gain a good score through their parents. Lastly, some companies, like Greenlight, are taking it one step further and offering investment opportunities. With Greenlight, children have the opportunity to learn about investing and purchase fractional shares of stock, all under the approval of the parent.
The idea of expanding the world of credit to the younger generation makes sense with the pace that our society is moving. However, there is some concern surrounding the true intentions of these emerging companies. At the end of the day, from an investor’s standpoint, they saw the population of those under 18 as a huge group to profit off of and provide services to. Children can be vulnerable clients, so it is imperative that both parties, the family and the company, are on the same page as to what the expectations are. This idea has caught on and now new companies are emerging and selling their products to larger financial institutions to rebrand for themselves. Last year, Chase partnered with Greenlight to launch Chase First Banking, which eliminates monthly fees and is aimed at allowing parents to teach their children healthy financial habits. As children’s debit cards enter the mainstream environment, it begs the question of how this could affect child development and, potentially, even the wealth gap in the country.
Honing in on financial skills at a young age is a pathway to success for many children. Like many things in life, experience is the best teacher. However, children are more susceptible to financial risks like scams and misallocation. Additionally, it is important that parents still preserve childhood. Arguably the worst and largest responsibility of adulthood is managing finances. Encouraging children to save and properly spend at an early age can have it’s benefits for when independence arrives, but it can also place unnecessary pressures on children. On a larger scale, including children expands the population active in the financial world. The aim is to strengthen financial literacy, in hopes that the younger generation will be better off. However, this goal can only be reached if the opportunity for debit cards is offered and used by all demographics, not just the wealthy.
There are several considerations to be taken into account as more and more children begin to swipe. On one hand, there is the potential for a more diverse population to be involved in successful banking and investment, and on the other hand, there is the possibility of parents, children, or companies misusing the privilege of childhood banking. With all that being said, it is up to the families to decide what is best for themselves as they explore this new side of banking.
*Edited by Andy Colando
Works Cited
Crook, J. (2021, January 25). Goalsetter raises $3.9 million to teach financial literacy to kids. TechCrunch. Retrieved October 26, 2021, from https://techcrunch.com/2021/01/25/goalsetter-raises-3-9-million-to-teach-financial-literacy-to-kids/.
Explore greenlight max. Greenlight. (n.d.). Retrieved October 26, 2021, from https://www.greenlight.com/max/details/.
Farrington, R. (2021, July 6). When to get your child a bank account and debit card. Forbes. Retrieved October 4, 2021, from https://www.forbes.com/sites/robertfarrington/2021/07/01/when-to-get-your-child-a-bank-account-and-debit-card/?sh=41d3040cc38b.
Lieber, R. (n.d.). They want to hand your kid a debit card. what do you do ... The New York Times. Retrieved October 4, 2021, from https://www.nytimes.com/2021/10/02/your-money/kids-debit-cards.html.
