Do children need 'credit cards'?

By Sarah Modlock

08 February 2006

It's been a while since I received pocket money but I can still recall the thrill at being given a couple of ten pence coins each week and cycling to the corner shop for penny sweets or a copy of Whizzer and Chip. The only personalised plastic I had was the plate attached to the brace on my teeth.

Incredibly, today's children have seen pocket money levels rise by more than four times the rate of inflation over the last year. Research from the Halifax shows that children in Wales top the pocket money league, receiving an average of £13.51 per week - well above the UK average of £8.37. The main pocket money losers are those children in the South West (£4.87 per week), Yorkshire and the Humber (£5.08) and the East of England (£5.39). Parents are not strong on equality either - boys receiving on average £8.62 per week, with girls getting £8.13 per week.

Now, one card issuer believes that plastic is the way forward for the next generation of spenders. Bluecorner is the first to offer a pre-paid debit card to under-18s, claiming it will play 'an important role in teaching money management skills' to teenagers. Backers MasterCard Europe describe the cards as a 'valuable budgeting tool'. Hmmm.

This is how they work: Mummy or Daddy, perhaps even Granny (or whoever junior holds up at gunpoint) can 'top up' the card with cash, rather like a mobile phone pay-as-you-go system. Offspring can then spend whatever is on the card, wherever credit cards or Maestro are accepted - inlcuding online - knowing that the transaction will only go through if there are sufficient funds.

Pay to put money in

So the cardholder - who must be at least 13 years-old - cannot go overdrawn or run up credit. But they can spend a tidy sum on fees and charges. This begins with a £9.95 application fee. If you choose to renew a year later this drops to £4.99 and the same amount is due if a replacement card is needed. There is currently an 85p fee for withdrawing cash from an ATM, although cashback from Tesco and Marks & Spencer is fee-free. The real cheek is that it costs parents every time they put money on the card. A top-up of less than £20 costs 85p, £20-30 costs £1 and so on - up to £4 if generous relatives want to stick £150 or more on it. Talk about taking candy from a baby.

If you have rug-rats of your own expect pester power to kick in any time now; the card is being promoted in association with teen magazines such as (the soon-to-be-defunct) Smash Hits! and Bliss, with adverts featuring a young girl jumping for joy and declaring: 'Shop 'til you drop with your very own exclusive Bliss Platinum Card'. What's next? Pre-teen loans secured against a wendy house?

It's hardly surprising that the national press and the National Consumer Council (NCC) give the card a big thumbs down. 'There is a risk that as parents are charging up these cards, children could get used to using plastic and spending money that isn't their own,' says NCC spokeswoman Janice Allen. 'This could predispose them to using credit cards when they are older,' she says, describing the enticement of children as a 'dreadfully bad idea'.

Bluecorner's Mark Kennedy says it is safer for children to carry a card than cash. He also says that the card statements will allow parents to see exactly where their child is spending and on what. Great ideas in theory but the reality is that the card he makes money from allows children to withdraw cash. They could be buying anything from cuddly toys to crack cocaine. Kennedy says his firm is considering preventing cash withdrawals but perhaps his stance would have been more believable if the card had been transaction-only from the beginning.

Common sense

Claims about the educational benefits of the card are also laughable. Young children can already learn about saving, spending and interest just by opening a bank account for their own pocket money, which does not charge them to make withdrawals, let alone deposits. Top of the independent listings on Moneyfacts is the First Save account from Bradford & Bingley. It can be opened with £10 and pays 4.5% interest to young savers whilst allowing instant access.

The good news is that Britain's teenagers are not only streetwise but also moneywise according to NatWest. The bank's new research reveals that three quarters of Britain's youngsters understand the importance of saving and those children, who save all their pocket money, are amassing over £107m a year in piggy banks and bank accounts. In addition, more than two thirds of Britain's 11-18 year olds think that they should be learning about how to manage and save money at school. In fact, far from spending money, many children and young people already have savings goals and don't expect everything to be presented to them by their parents. Financial targets include university, a car, holiday, family birthday or just for a rainy day.

NatWest's Face 2 Face with Finance is an award-winning education programme incorporating practical financial knowledge and experience within the school curriculum. It is one of several privately sponsored schemes to help children learn about money. In addition, Britain's Personal Finance Education group - pfeg - is charity whose mission is for all young people to leave school with the confidence, skills and knowledge they need in financial matters so that they can participate fully in society. It receives support from the education, business and government and is working within schools across the UK.

And not a moment too soon. With young children finally getting the financial knowledge they need, it will be even easier for them to stick to the piggy bank and avoid the corporate piggys.