Children can outsmart parental controls by withdrawing cash and spending it how they wish. Photo / Getty Images
THREE KEY FACTS
Diana Clement is a freelance journalist who has written a column for the Herald since 2004. Before that, she was personal finance editor for the Sunday Business (now The Business) newspaper in London.
OPINION
Arming your child with their first Eftpos or debit card is a scary move. Plenty of youngsters go nuts at the dairy (or worse) given access to plastic cards.
However, it’s an important step in the gradual process of cutting the apron strings as children grow into tweens, teens, and adults-in-training.
There is a lot to be said about physical cash in a child’s financial education. The reality is that they will move on to Eftpos, debit, buy now, pay later, and most likely credit cards as time goes on.
Much financial good can come in the long term from letting children loose on Eftpos at an appropriate age and giving them controlled financial responsibility.
Their first Eftpos or debit card is a significant milestone in a child/teen’s development, offering valuable lessons in budgeting, spending, and saving. It’s best to do it in a planned way with some guardrails attached.
Minimum ages vary for Eftpos and debit cards: Some banks such as ANZ offer it from age 7, and others are from age 10 or even 13 – all with parental permission.
Before giving them that first card, questions to ask yourself include:
● Are they mature enough to handle the responsibility of managing an Eftpos card and bank account?
● Can they track their spending and understand the consequences of overspending?
The advantage of an Eftpos card over a debit card is that it’s more difficult to use online. Uber Eats, for example, requires a debit or credit card. Some stores accept online Eftpos, however. Children’s account SquareOne offers a debit card that cannot be used with R18 vendors such as vape stores.
One issue parents face is ATM use and cash back. Children can outsmart parental controls by withdrawing cash and spending it how they wish. SquareOne doesn’t allow cash withdrawals and over time with open banking on the horizon, more cards will emerge tailored to this young market.
Banqer, which provides financial education in schools, has seen plenty of good and bad examples of introducing Eftpos and debit cards to young people. Banqer Beyond engagement lead Hannah Duder’s tips for parents include:
● Don’t just give them one of your cards. They need to have access to online banking to track their spending. “That makes sure they really understand the back end of the Eftpos card and don’t see it as some kind of unlimited money pit,” said Duder.
● Talk to them about the risk of scams. “They need to feel safe to say: ‘I didn’t buy anything from this shop’. There could be shame in telling mum and dad if they do have a suspicious transaction.”
● Transfer a regular amount each week. If you only transfer money when the children need it, they don’t learn about budgeting. With this approach, the child will have to consider future needs and wants. “Should I be saving this now so I can pay for the party next week?”
If your child makes a financial mistake, use it as a teachable moment. Discuss what happened and how they can avoid similar issues in the future.
The first Eftpos card exercise often works best where lines of communication are open between parents and child/teen. Just as you might with a partner, set up a monthly check-in time to go through transactions and reflect on them together. But don’t forget that children do learn by making mistakes, so try to avoid moralising.
Key lessons to focus on in those monthly catch-ups are:
● Budgeting: Help your child create a simple budget, showing them how to allocate their funds for different needs, like savings, spending, and giving.
● Tracking spending: Encourage them to regularly check their account balance and review their spending history. Many banking apps offer tools that categorise expenses, which can be helpful for young users.
● Saving: Consider paying their pocket money into their main account, but get them to transfer, say, 10% to savings immediately. Or a percentage of what they spend. Each time they make a transaction maybe they transfer 50% of that amount to savings. Again, this is about etching good habits into their brains.
Monthly budgeting and reflection sessions are a good routine to get into for when they have a partner later in life. They’re a good time to start introducing other financial topics such as the pros and cons of buy now, pay later and credit cards, and the need for insurance.
Finally, over time, gradually give your child more responsibility over their account as they demonstrate good financial habits.
Westpac announced changes to its six-month and one-year rates today.
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