Teaching your teen about debit cards
Before you give your teen their own debit card, it’s important they know how to use it responsibly. Help them understand how a debit card works, and the risks that go with it.
In this video we’ll be focusing specifically on talking to your teen about debit cards that are linked to checking accounts– how they work and some of the risks that can go along with using them.
First, make sure your teen understands that any time he uses his debit card to withdraw cash at an ATM, or purchase something at a store or online, the money for that purchase will be taken directly from his checking account.
We look at talking to your teen about checking accounts in another video…
And, while having easier access to a checking account can be very convenient, there are also risks that come along with using a debit card.
Some basic safety tips to teach your teen include being aware of her surroundings when using an ATM--especially at night--and to only use ATMs in brightly lit, public places.
When she receives her card, it will usually come with a PIN number. Her PIN is a safety measure- it’s a key that allows her to withdraw money or make purchases at some stores. The PIN number she receives will be random, but if she chooses to change it, make sure she picks a sequence of numbers that are difficult to guess. And though it may seem obvious to you, she might not be aware of the risk of keeping her PIN number written down in a place that’s easily associated with her card- like on her card or in her wallet. She should also be careful not to share her PIN with anyone- including her friends.
And she should be aware that there are some thefts that might be beyond her control. Debit card information can be stolen from a store’s records after a purchase for instance. It can also be stolen through a common scam called “skimming,” in which a thief can steal card information when a card is swiped at a machine like an ATM or a gas pump.
While it can be next to impossible to prevent some types of account theft, reviewing account statements and online account history regularly can help your teen identify any suspicious activity.
If your teen does notice strange transactions on her card, or if her card is lost or stolen, she should contact the bank immediately so the card can be deactivated.
It’s possible to limit her responsibility for fraudulent charges if she reports a lost or stolen debit card immediately. If the card is reported missing before any unauthorized activity, she may not be responsible for any charges. But, depending on her bank’s policy, she may be responsible for a portion of the charges if she waits too long. So if her card is lost, make sure she reports it as soon as possible.
It’s also important for your teen to be aware of the fees that she could be charged when using her card.
For instance, although she can withdraw money from almost any ATM with her card, this might not be the smartest idea. She might think that the fee she accepts on the screen when withdrawing money from another bank’s ATM or from a privately owned ATM at, say, a store or gas station, is the only fee she will be charged, but she could be charged an additional fee by her own bank as well. She might not realize that she could be charged four or five dollars in fees each time she takes out twenty or forty dollars— so it’s important she knows the terms of her account and what fees can apply to her debit card use, because over time, those fees could add up.
To avoid some of these “third party” fees, your teen can make sure she withdraws money from her own bank’s ATMs or she can keep some emergency cash on hand. Many banks also have smart phone apps that can help your teen locate nearby ATMs.
She might also avoid a fee by getting cash back when she uses her debit card to buy something at some stores.
Another thing that teens might not realize as they’re learning to use a debit card is that certain bank transactions can take a few days to finalize. For example, a merchant may not send a debit card purchase to the bank for a couple of days, and they might hold more or less than the amount of the purchase until the final amount posts to her account. A common example of this is when she pays at the pump: if your teen puts $20 dollars worth of gas on her debit card, the next time she logs into her account online, she might see a pending transaction for as little as $1 or as much as $125 – though this much isn’t necessarily the norm. Either way, it might take a few days for the final transaction to post to her account.
Making your teen aware of the delays that can go along with these transactions will help her understand how important it is to keep track of her transactions and not run her account balance too low. For example, if she has $30 in her account, and she buys $20 worth of gas at the pump, the gas station might place a hold of $50 on her account. So her next withdrawal- even if it's only $5, might result in an overdraft if she makes it before the final amount of the gas purchase posts.
Now, the rules around overdrafts can vary based on the terms of your teen’s account, but they’re important for him to understand. Explain to your teen that overdrafts can occur when he withdraws more money from his account than he has available. Depending on how the account is set up, his transaction might be declined or he might be charged a fee.
To help avoid overdrafts—or having her card declined at an important moment, encourage your teen to regularly check her online transaction history and the balance on her account to make sure her balance includes all of her outstanding transactions. Most banks now have mobile banking apps she can use to check her balance whenever she wants—and some banks have text and email alerts she can sign up for that can warn her when her balance is getting low.
Some parents choose to have overdraft protection from another linked account, on their teenagers’ accounts. This can help your teen avoid being declined and give him access to more funds if there’s an emergency.
But it’s important for your teen to understand that overdrawing an account can result in some large fees. And if he accidentally overdraws his account without noticing and continues to make purchases, he might be charged multiple overdraft fees--even if the transactions are small. Now the account you set up might not have fees for overdraft services, or you may decide to pay them yourself. Regardless, consider enacting some kind of penalty so he can learn to avoid overdrafts.
By understanding how a debit card works and by learning to always keep track of account balances, your teen will be best equipped to use his or her card responsibly and securely.