Credit cards, Internet team up to give kids lessons in how to manage spending

BY LARRY MAGID
Special to the Mercury News

Several months ago I wrote about PocketCard, a Visa card for kids that parents could recharge via the Internet.

PocketCard is about to fold, but there are several alternatives that give kids a convenient way to make cash-less purchases and parents a way to keep track of them.

Unlike most Visa cards, the PocketCard wasn't really a credit card and it wasn't really a debit card, either. Instead of drawing money against a line of credit or a bank account, a kid's PocketCard had to be recharged by his or her parent.

My kids would use it when they went shopping at the mall, but they could only spend as much money as I put into the card. If they ran out, the card stopped working and, if they called me and gave me a convincing enough reason, I could log on to PocketCard's Web site, transfer money from my checking account to the card, which would be immediately available to them.

PocketCard is no longer allowing parents to transfer money into their kids' account as they ``wind down the service.'' The company ``just ran out of runway,'' said CEO and founder William C. Scheurer despite the fact the company ``earned more money in the past five months than we spent, we looked to be profitable throughout 2001, and we had contracts with major industry players.''

PocketCards can be used through the end of February and, if there is a balance, the company says it will issue a check for the unused funds.

Although PocketCard pioneered what it called ``sponsored payment cards,'' there are other options including a relatively similar type of card, called Visa Buxx, that's issued by Bank of America, Capital One and U.S. Bank.

It takes about 15 minutes to set up a Visa Buxx account and, once you've set one up, you can add an additional teen in about five minutes. You need to enter the name, address, e-mail address, phone number and Social Security numbers of yourself and of each teen who get a card. The card will come in the mail in a few days.

You also have to determine how you want to transfer money to the teen's card. You can transfer funds from either a checking account or a MasterCard or Visa credit or debit account. If you use a credit or debit account, the funds are available immediately. If you transfer from a bank account it will take several days for the funds to clear.

Before they can get a card, you have to certify that your kids have taken the ``Be Centsible Quiz.'' The quiz consists of eight lessons on saving, credit, interest payments, the difference between a credit, debit and stored value card and the importance of maintaining a good credit record.

The lessons are pretty detailed -- perhaps too detailed to keep the attention span of teens, but they're generally pretty good lessons even though they don't apply directly to a card like the Visa Buxx because it isn't really a credit card. Nevertheless, it's never too early to start teaching your kids about credit and how not to abuse it. You might want to try the quiz with your teen to help him or her understand what's being said and why it's important. The actual cost of having and using a Visa Buxx card depends on the bank.

U.S. Bank, for example, doesn't charge a monthly or annual fee or a usage fee, but it does charge you $2.50 each time you add money to the card unless you transfer the money from a U.S. Bank checking account or credit card. Bank of America charges a $15 annual fee plus $2 every time the card is loaded unless you load it from a Bank of America credit card, check card, checking account or savings account. The card can also be used to get cash at ATMs, but the issuing bank will charge a fee in addition to whatever fees the ATM operator imposes.

As with PocketCard, you can go to the Bank's Visa Buxx Web site to review recent transactions -- in most cases minutes after the purchase is made. It's almost like tracking your kids at the mall, without actually being there. Unlike PocketCard, Visa Buxx doesn't send e-mail each time the card is used.

There are a couple of nice extras with the Visa Buxx card. For one thing, you can set it up to fund the card on a recurring basis as an ``allowance'' for the teen. Another advantage is that you can authorize others, such as relatives and friends to add money to your teen's account so they can use it to give your child a gift.

The M2Card (www.m2card
.com) is a similar service that's actually free to use. There is no charge for the card, no charge per use and no charge to ``refuel'' the card. The company is proud of its ``rewards program'' that gives kids points for every dollar they spend. I'm not against rewards programs -- I take every frequent flier mile I can get, but I'm not 100 percent sure it's a great idea to emphasize rewards for spending on a kids' first Visa card. Seems to me that kids should be encouraged to use the card sparingly, at least at first. The Web site gives parents the ability to monitor their teen's spending, but it's a flexible approach. Parents can opt to be able to monitor all activities, charges more than $100 or just summary data.

One downside of the M2card is that your child may have to wait up to four days after you refuel before the money is available.

Another option -- one my wife and I selected for our daughter Katherine -- is to give your child a regular credit card that's linked to one of yours. Most credit card companies will issue extra cards for family members at no additional cost. Your child doesn't need to qualify for credit because it's just another card on your account.

The advantage is that you don't have to bother refueling it. The card is good as long you haven't exceeded your credit limit. The obvious risk is that you have no immediate control over your child's spending. He or she can go crazy and get you into serious debt. We don't worry about Katherine abusing the credit card, though she has expressed some concerns that she may be using it too often.

Actually, I would rather she learn how to use credit now under our watchful eyes than find herself misusing it when she's older. We monitor her use on the bank's Web site and make her pay for charges other than those that my wife and I have authorized. American Express, Discover and many banks that offer Visa and MasterCard let you see charges on their Web sites between statements.