Cash is far from king for teenagers. And as society moves away from paper and coins, banks and tech companies are ramping up the competition to get children aged between 13 and 17 to manage their spending online.
Last week saw the launch of an account aimed at teenagers from gohenry, a pre-paid card provider that lets kids manage their money within controls set by parents.
The online account tells parents when, where and how much their offspring are spending, and sets tasks to earn pocket money. It’s the latest product in a busy market – and there are other apps offering similar features to gohenry.
How to spend it
Along with gohenry, other companies such as RoosterMoney, nimbl and Osper operate apps and prepaid cards. They all work in a similar way: money is loaded on the cards and both parents and the child can monitor how much they spend via the app. Money can be divided into various “pots” to allow for saving; limits on spending can be applied, and blocks put on places, such as where there is alcohol or cigarettes on sale, or on gambling sites.
Parents can restrict spending and ATM use, and limit exactly where the cards can be used – online, on the high street and at cash machines, for example. There’s a monthly fee, up to about £3 per child. Gohenry says 720,000 children use its existing app – which is aimed at six- to 18-year-olds – mostly in the UK, with some in the US. The new account, specifically for teenagers, offers the same features as the existing account but lets employers pay wages on to the card.
The banks have their own range of current accounts for children, although they typically start later than the apps at age 11.
Some, such as Barclays Young Person’s Account, start at 16. Usually parents will have to open the account for those under that age and there are no overdraft facilities, so they cannot go into the red. But if the card is used aboard, they may be liable for withdrawal fees.
A review of the accounts on the market by consumer group Which? named Nationwide, Metro Bank and the Co-Operative Bank the best performers of the high street banks.
When is too young?
Many parents may be concerned that the new-found independence of a teenager having their own bank card, even one with limits, could lead to the child burning through their money quickly on online games or impulse spending.
Greg Davies, head of behavioural science at consultancy Oxford Risk, says contactless cards can result in teenagers spending without realising how much is leaving their account.
“We never see or psychologically feel the money leave us, and this can easily lead to uncontrolled spending on short-term whims,” he says. “This is a problem for all of us, but likely to be exacerbated in teenagers, for whom impulsivity is often higher, and focus on long-term habits lower.”
However, the various limits and monitoring that the apps can offer can teach children how to spend, adds Davies. “If there is sufficient functionality over and above what you’d get from a bank account with regard to education, spending management tools, nudges and prompts on overspending, etc, then there is certainly a case to be made for them,” he says.
Educating without paying
MoneySavingExpert’s Martin Lewis has said that financial education has a huge impact on the future wellbeing of young people. In 2018, he donated £325,000 so that all 3,400 state-funded secondary schools could get 100 free copies each of a financial equation textbook.
A survey from the Money & Pensions Service showed that children from low-income families were much less likely to receive education on their finances at home. But providing a financial education does not necessarily mean parents have to spend almost £3 a month per child on an app.
The Money Advice Service suggests one way to start children’s education on budgeting is to use three containers – one for immediate expenses, one for savings and one for a fund for rainy days. As the child gets older, this idea can be transferred to the bank, where they can have a few accounts for the same needs.
As children start to use cards for their spending, they should be keenly aware of limits. From April of this year, the spending limit for contactless went from £30 to £45. Monzo and Starling Bank have contactless debit cards for 16- and 17-year olds.
“It’s vital that when kids tap their cards they realise that the money they’re spending can drop quicker than they realise. Also, if a card is pinched, or leant to a mate, it can be maxed out very quickly by people spending just under the limit on contactless,” says Martyn James of complaints website Resolver.
A key part of a financial education for a teenager is to allow them to develop maturely with money, says Davies. “The key is a safe environment – limits on the available amounts to spend, the size of individual purchases and the spend within given time frames,” he advises. “And making sure there are trade-offs and that these are visible and that they need to choose between things: If you buy this now, you can’t also buy that other thing; or if you buy this smaller thing now, you won’t be able to save for the larger, more important thing you will otherwise be able to get later.”