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Prepaid Children's Debit Cards and Consumerism

Jill Papworth in The Guardian writes about digital pocket money, or more accurately prepaid debit cards for children and makes a very interesting observation - that "we risk raising a generation of mini-consumers". We would have liked to have more analysis on the issue, but unfortunately that is really the extent of it. The article goes into an analysis of the features of 2 of the providers and sidesteps the topic.

The comments however shed a little more light onto the subject. At one end of the spectrum we find ID8660785:


Or perhaps a little less extreme

Unfortunately comments are closed, but we think that it deserves further debate. Is there a real place for prepaid cards for children? Do they offer value over the alternatives?  Do they offer the level of protection we want or do we risk being blind sighted? And to come back to the original issue - are we created the next generation of consumers doomed to repeat the mistakes of our generation? 

A sceptical view suggests that it is the card companies that stand to benefit, so it is in their interests to push cards into new users hands as soon as possible. Well known for their political lobbying, the stakes are high and with new digital money appearing everywhere they need to be on the front foot using whatever means possible to reach the consumer first.

For more on the card companies you can read Mastercard's  - "Creating a Debit Card Payment Habit"

A further argument is that banks tend to limit debit cards to a certain age for good reason, so there is a market for anyone under the bank's cut off. Enter the prepaid debit card market to help with the "problem". I wonder - do you let your 8 year old go down to the high street to do some shopping by themselves or with friends? Are there enough situations where there won't be someone to advance them their pocket money for something? When I look, I see other parents wondering about  letting the children out of the house at that age, so I wonder in what situation they need to have their own card.

The opposing view would be that children are going to purchase the items they need somehow, so it is irrelevant whether it is made with cash or cards. As money can be lost or stolen, cards can be replaced very simply.  But we risk getting distracted as The Guardian did in the analysis of the issue.

Consumption Consumption Consumption

There's not a great deal of research on the subject of debit cards and consumption. There is however on credit cards and I think we can safely say that that debate is firmly closed. So what of the debt card - if I am only spending what I own and not able to get into debt, how is that an issue and  more importantly does it increase my consumption beyond what I would have done with cash?

If I think about my experiences then i believe this is still a problem. Let me explain - When I pay with cash, I see the money flowing out of my hands. I can account for where it is going and how much I have spent. I can't say the same thing with my visa debit card. Sure I know that it is coming  out of my bank account directly, but I feel detached from the process. It is easy to keep charging it and it is not until the time I look at my statements that I grasp the reality of what I have spent. Sure I can check online with my banking app, but am I really going to do that? Maybe.... if the card stops working.

OK, what about my Amazon account? Very clever Jeff Bezos has spent a lot of money ensuring my shopping and check out experience is second to none. I don't even have to reach for a card as its all there - a few clicks and its on the way to me. Not sure - I can save it in a  wish list for later purchase, while being reminded of other things that might be useful with it. How simple is life?  But hang on - would I have purchased all those things otherwise. Hmmm.... highly unlikely. The more detached I am from the payment process the more likely I am to spend without thinking about it.

Cash is king

Having grown up with cash I have a preference  to hold and spend it so I can physically keep track of it. Now if I didn't and my only experience was through cards would I have the same awareness with my money? I am not sure that I would, which is exactly what the card companies, the advertising agencies and the retailers want - a separation or disintermediation of the cost from the benefit.

I also believe using cash helped me with mathematics. I can remember trying to add up items and calculate the change that was due from a  young age. I find it sad now to see people having to use calculators for the most basic of calculations.

But its inevitable some will say and I don't disagree. Our children will use alternatives to cash significantly more than previous generations, but what's the rush? Why do we need to get them into the habit of purchasing with a piece of plastic so early, particularly as it is not clear that it is a good habit? Further why do we need to pay for the privilege? Surely someone should be paying us?

The Banks

It's not likely to come as news when I suggest that banks may not be the benchmark of moral standards (search "Bank Fine" if unsure).  However one thing banks do well is to provide a free debit card with children's accounts typically from the age of 11, which strikes me as a reasonable age. As banks benefit from the fees (Interchange fees) every time a debit card is used, don't you wonder why they don't they provide debit cards at an earlier age? One thing I do know is that they would have spent a lot of money to answer the question. 

Get with the program!

Coming back to those that claimed it is inevitable, I would now respond by asking  "If you think that cash is redundant, then why do you want to push old technology into their hands"? Even if they cannot use them all now, at least introduce them to their future - digital cash - as this is what they will be using, not pieces of plastic that can also be lost or stolen. PayPal, Near Field Sensors (NFC), phone apps, Bitcoin are just a few examples of where we are going. And where are they more likely to use them - online of course.

What to do? What to do?

So am I going to be giving prepaid debit cards to my children as soon as I can? I very much doubt it. Instead they will be given cash until I feel they understand the value of money, earning and spending. At which point they will also understand the financial benefit of the free bank card they will be allowed to own. Now I'm off to close my Amazon account.



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