My son, who recently turned sixteen and got his driver’s license, also just scored his first part-time job. For the first time in his life he will have the responsibility of scheduled work shifts, but will also enjoy a biweekly paycheck. With a steady income, as well as the expenses of gasoline, car maintenance and insurance that come with driving privileges, he will be traveling new ground in financial responsibility. When he came home from the required drug test for his new job he was told that he could have his paycheck direct deposited into a bank account.
My son asked if he could have his own account with a debit card.
After talking it over with my wife, the three of us hopped in the car and went to our bank to set up a teen account. It was exactly what we were looking for as he would be able to manage the account online, and have his own debit card, but Vonnie and I would also be able to see the account through our online bank portal.
I was barely able to get into the van before I opened the cornucopia of information he needed to know about having is own bank account with a debit card.
During the account setup process, the banker had him select a PIN number. I had him write it down in the folder of introduction material the banker gave him. He cannot forget his PIN number, or he may lose the ability to use his debit card until he gets a new one assigned.
The Security Code
My son buys video games through an online service periodically. Each time we make a purchase, it asks for the security code. I showed him where the three digit number is located on the back. I told him that this proves to the online merchant that you are holding the card in your hand, and that the number wasn’t just obtained through devious means.
Sign The Card
I showed him the space on the back of the card where he needed to sign the card, which I had him do immeidately.
“Why do I need to sign my card?” he asked.
Good question, let’s talk about that.
Debit vs Credit
My son needs to be aware that when he uses his debit card, he may be asked if the card is debit or credit. If he selects debit, he will have to enter his PIN number. If he selects credit he will have to provide his signature which would then be matched with the signature on the back of the card. Having the signature is for his protection, to prevent someone else from forging his name. There isn’t much difference between selecting debit or credit as far as he’s concerned, except for one major thing he should be aware of. If he selects debit, the transaction will likely post immediately to his account. If he selects credit, it could take a day or two before it posts.
“Why do I care if a purchase shows up online right away or not?”
Great question. Let’s explore
We got my son signed up with the online banking portal, which he can use to look at the balance and transaction history of his account. The banker also told him about an app he can install on his smart phone. Then she said something that left me in shock.
“You can use the app to quickly tell if you have enough money before you make a purchase. It’s really convenient, because who balances their checking account in a paper register these days when you can just look at the balance online?”
The first thing I did when I got in our van was to tell him to forget she said that. They had not given him a checking account register, but I told him that we would get him one, and I would show him how to use it. I told him the online app is NOT a good way to figure out if you have enough money to make a purchase or not.
For example, let’s say he wrote me a check for his car insurance for the month, and then paid at the pump to put gas in the car (which is always processed as a credit transaction). Neither of those transactions would post for days. If he spent the entire balance stated in the app, he wouldn’t have the funds to cover the gas or his check when those transactions posted. He would overdraft his account and have to pay the consequences.
“How much would an overdraft cost?” he asked.
I knew this was a lot of information at once, but this one was important.
What happens when an account is overdrafted depends upon the bank. The best case scenario is that the bank “covers” you, but charges you an insufficient funds fee, usually around $30. Worst case scenario is that he gets slapped with the $30 insufficient funds fee, and a check is sent back to the retailer and they hit him with another $30 fee.
“Just make sure you keep track of all your transactions in your register, and keep your balance above zero.” I said.
I warned my son that when he makes a deposit, that doesn’t mean the money is available right away. Usually a cash deposit will be available immediately, but a check deposit’s availability will depend upon what time of the day he walks into the bank, and how large the deposit is. If the deposit is made after 2pm at our bank, it won’t be available until the next business day. If the deposit is large (usually over $1000), the full amount will not be available for several business days. Bank tellers normally mention this, but I told him to get in the habit of asking when the funds would be available.
Once I got started, I was surprised at how many topics we had to cover. I’m excited for our son’s future, and this opportunity for him to learn and practice using financial tools while he’s still under our guidance. I’m sure not all of this sunk in, as it was a lot of information. But I look forward to going over it again and having him take the next step in learning how to handle his finances successfully.
Have you taught your child about finances through the use of a debit card? Or do you remember when you got your first debit card?