Kids’ allowances go digital via debit cards

Parents worried about coming up with cash for a child’s allowance can now choose from a rapidly expanding menu of prepaid debit cards to give them digital oversight of their children’s spending and saving habits.

The latest offerings include cards with slick companion apps from financial startups like Greenlight, Current and goHenry. Unlike traditional debit cards, which are directly attached to checking accounts, all must be loaded with money by parents.

“Prepaid has really evolved,” said Christina Tetreault, a staff attorney with the financial services program at Consumers Union.

The digital tools aim to fix an increasingly common problem: Parents don’t always have cash on hand. So they can be caught short when a child needs money for an outing with friends, to put gas in the car or to complete a chore. With an app, parents can put money on a child’s debit card with a few taps on their phone.

Details vary by card, but typically parents sign up for the account, then link their checking account or debit card as a way to fund the child’s card. Parents can give cards to multiple offspring, even those of tender age. (GoHenry recommends its card for children as young as 6.)

Parents can use the apps to establish allowance transfers, set spending limits, or offer payment for chores and a dizzying array of other tasks. Parents can get text or email messages when their child makes a purchase. And parents can quickly tap the app to disable the card if the child loses it.

Financial advocates say that beyond all the bells and whistles, the main benefit of the “smart” prepaid cards is that they can prompt parents to talk with their children about money.

“These cards are a great tool to learn about money management, if they’re used right,” said Will deHoo, founder and executive director of the FoolProof Foundation, a nonprofit that promotes “healthy skepticism” about financial products.

That means emphasizing budgeting and saving, not just spending — which, after all, is a debit card’s main function.

“A debit card never met a sale it didn’t like,” deHoo said.

Promoters say the cards do encourage saving. Greenlight lets parents automatically match money the child sets aside in a savings account. Rates on bank savings accounts are still low — 2 percent is considered generous — making compound interest a hard sell. But parents can direct the app to pay the child their own, personal interest rates — say, 20 percent or even 100 percent — as an incentive. (The card account itself doesn’t pay any interest.)

Greenlight also allows parents to supervise spending by choosing the type of stores or restaurants where children can shop. Money on the card is put into two categories: for spending anywhere, or for only preapproved stores and websites. If the child tries to buy something at a nonapproved store — or tries to spend more money than is available on the card — the purchase is declined.

Children with mobile phones can get their own version of the app, which lets them check balances or seek a parent’s permission to buy a specific item.

Greenlight, with financial backers that include Amazon and two big banks, became available in 2017 and now has about 200,000 paying customers, said Tim Sheehan, the company’s chief executive. Next week, the card will add new features, including the ability to use the card at ATMs.

Current, backed by investors, including an arm of Fifth Third Bank, lets parents offer their children the option to earn money by doing chores. One example: “Mow Lawn. $10.” Once the chore is done, funds are transferred. Stuart Sopp, Current’s founder and chief executive, said his 9-year-old daughter had a card and often told him, “I want more chores.”

“It’s a parental toolbox,” he said.