Trust Kids to Make Online Purchases

Tweens and minor teenagers are sophisticated consumers. They should be allowed to have credit cards of their own or use prepaid vouchers to buy e-tail merchandise. Pro or con?

Pro: A Good Lesson

An important part of my financial education as a youth came from having to earn my own money and in turn, being able to spend those funds on things I desired, such as music, arcade games, food, and movies. I strongly believe that tweens and teens today should have that same freedom to spend and learn.

The problem now, however, is that a significant portion of what teens want to purchase doesn’t exist at the local store. Modern teens purchase MP3s, play and chat online with friends, and watch the latest TV and movies on YouTube (GOOG) and Hulu. Teens have vibrant online lives. Spending at appropriate websites is as important today as buying music at the record store was in my youth. When used correctly, debit and prepaid cards play key roles in providing online access and financial education for today’s tweens and teens.

One of the prime components of these financial instruments is that unlike credit cards, they give access to a limited pool of funds, which helps youth learn that when the last buck is spent … it’s gone. Youth debit cards can easily be set up with appropriate spending limits. Cards and vouchers are value-limited and are also well understood, with 85 percent of teens having purchased gift cards, according to a 2007 study by Comdata, a company that specializes in electronic payment solutions.

A vast majority of parents trust their kids to use cash wisely for local purchases, so let teens have this same freedom online, where their connected lives are unfolding.

Con: The Wrong Teachings

As a mom of five children in the prime online-buying age (7 to 17 years), I’m all in favor of kids’ using the Internet in supervised settings. Two weeks ago my sister-in-law turned me on to a fantastic programming language for kids, Scratch.mit.edu, which is teaching and entertaining my younger children.

I don’t view on-the-spot, prepaid online purchasing by kids as a learning experience or as a way for them to appreciate the value of money. I see online credit cards and prepaid purchase cards for kids as just the opposite—another manifestation of the "I need it now, it’s just one click, and it’s fake money anyway" culture. As more and more video games and online gaming sites feature purchases paid for not in chips and points, but in old-fashioned U.S. greenbacks, kids can grow less and less aware of the concrete (and finite) nature of disposable income.

The last thing I want my child to do is click to buy tchotchkes online with Mom and Dad’s money, under the caption: "This will teach them what things are worth." I’m not buying that. The fact is, another weapon for your imaginary video game hero isn’t really worth anything, but a smart game designer and e-commerce professional working together have temporarily persuaded you that it is.

My answer is to shut off the PC and give the child a rake or a broom. There are plenty of three-dimensional opportunities to offer kids lessons about the value of money. By some good fortune, the universe grants me at least one of those a day.

Opinions and conclusions expressed in the Debate Room do not necessarily reflect the views of Bloomberg Businessweek, Businessweek.com, or Bloomberg LP.

Reader Comments

David Marquis

How is a kid/teen purchasing something online with a prepaid card any different from them being able to walk down to a 7-11 and use their cash to buy candy? Parents actually have greater potential to monitor what their kids are doing online (at least at home) than they do when kid walks down to the store with friends.

I agree with Ted that as long as we are not talking about extending credit to kids and teens, there is a very simple "when it's gone, it's gone" lesson that is learned with pre-paid spending. This applies whether you're talking about those prepaid funds being used to buy a real or virtual good.

Liz's assumption that virtual goods have no value just shows how out of touch she is with our current culture. That exclusive game item I feel I have to have is no different from the baseball card I wanted as a kid. Both have a perceived value to their owner. Burying your head in the sand and pretending virtual spending is not worthy of discussing rationally with purchasing strategies is a foolish strategy when you know it is commonplace already. It's a bit like refusing to talk about sex education with sexually active youth because you think abstinence is better approach. The horse has already left the barn.

Squeezebox

Kids need to learn the value of money. They should be given chores that allow them to earn money. They should be taught to put 10% of that money in a bank account and give 10% to the church or charity of their choice. They should also be taught to set short and long term goals. If they want a video game system, they should save their money until they have enough for the game, then shop around online, on classified ads, and in brick-and-mortar stores for what they think is the best deal. They should convert their money to a prepaid card if the item they want is online. Then they buy it, and if they get ripped off, it's one more lesson.

Patrice Peyret

Even those teens who seem to spend most of their waking hours in front of a PC or phone screen actually spend most of their money in the "real world," not online. A network-branded (Visa / MC / Amex) prepaid card is a good way for them to spend their own money both online and offline. A small number of prepaid cards come with parental controls built in, and the ability for parents to set up automated allowances while retaining the power to withdraw card privileges when the grades coming back from school are not good enough.

Amit Jolly

I personally feels credit cards should not be given to teens. Teens do not have proper knowledge about the products, they just see what their friend have. Everything will be just a click away from them. Demand will rise too much and the result will be high Inflation. And there will be more waste as the same child will buy two or more of same product from different companies.

Rich

I think kids should be allowed to spend money they earned themselves (not their parents' money) any way they want, online or at the local store. As long as they earned the money with their own labor, I’m okay with them blowing it on $20 worth of bubblegum. It'll be a good lesson for them.

Aswathy s.Kumar

Kids who have a good knowledge of the value of money and quality of products can purchase things either by online or any other way they like.

Janet H

My niece is 22, a college graduate who has a job, a car, a bank account and a credit card--an adult who is financially responsible.

She found a pair of Sea-Doo jet skis supposedly on eBay Motors for $2,650 which seemed like a great deal, so she bought them. Then, she called me to ask if I would contribute a little to the Jet Skis (it could be her birthday present), and she mentioned that she had to wire the money via Western Union to pay for the jet skis. The minute I heard that, I knew it was a scam. You should never wire money to a stranger for an online purchase. I checked with eBay and the BBB and both confirmed that it was a scam. So although she is an adult with plenty of online usage experience, she was not aware of sophisticated online scams and it was my knowledge and experience that saved her from losing $2,650.

There are so many scams online, that I think kids especially and even young adults should have parental involvement/oversight in online purchases.

Monicker

When all is said and done, who will be fiscally responsible for a child's inability to handle credit?

george

Anyone that would let their children buy anything online has something very wrong with them. If it is money they have earned, let them give you the money and you use your own credit card. To give a kid that responsibility on the internet makes no sense. Lord knows they have plenty of time in life to do that. Let them be kids and enjoy while they can. You're only a kid once. You're an adult for ever.

Tina

Teaching financial responsibility is unquestionably a necessity for all ages. An economy is an interesting animal, and history is the best classroom. Take the roaring 20s and the stock market crash in 1929. People were living it up. The financial institutes were advancing 10 times or more on an investor's dollar and the "picture" spelled success. The reality was inflation of the dollar and the responsibility fell to the investor. Same thing just recently happened when again we see creditors advancing credit to those unproved of it, just because we wanted to "be fair" to the downtrodden who hadn't been able to afford credit cards or homes before. Credit cards given to college kids who had no job; credit on homes to people without jobs, whose credit history was horrible was handed out like candy and so our economy once again was just a "pretty picture," not the reality. Responsibility fell to us once again. No accountability to the finance companies. They even got bailed out with our tax dollars. Now, you want to give our teens a false sense of power through some pre-paid card which sounds nice, but somehow responsibility will not be on you, the finance company but who? That is right, the parent. Don't be gullible. The finance companies want more money; they don't want the responsibility. It's all an illusion.

raytune

Allowing kids to do online purchase without parent's monitoring bears great risk. (Of course they are not aware of the value of money just given, not earned by themselves.)

Young kids often become the target of crime committed on internet. They are not knowledgeable about many problems happening among economic transactions. Also, some people intend to take advantage of the inept buyers via the impersonal character of internet. My 14-year-old cousin is one of the victims of e-deceit. He wanted to have a new cell phone and found a seemingly good deal on internet site. It said: "Brand new phone for free." My cousin was so fascinated by the advertisement that he placed the order on the spot using his mother’s credit card. Frustratingly, the deal brought my cousin a heavy monthly bill containing a fee of more than $100. The e-tailer intentionally hid the options that impose the monthly charge. In despair, my cousin struggled to gather the money, but eventually he had to tell his parents. It took a couple of months for my uncle to claim the cancellation of the deal, causing emotional damage to all his family members. Letting the minors do their own shopping from the internet is a dangerous idea considering the many e-tailers out there with intentions to deceive.

aviva

I think kids should be allowed to spend money they earned themselves (not their parents' money) any way they want, online or at the local store.

Shelia

The trend is indeed that teens won't or can't pay for music. It would be a great help for the music industry if there would be fewer illegal downloads.

Surveys That Pay Money

I started taking surveys a couple of months ago and continually to make small change each and every now and then, but nothing to survive off of like they claim. I largely just make small purchases on-line through PayPal once I get paid so it's not too lousy.

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