Debit Card For Kids? PayPal’s Banking On It

Got a kid heading to college in the fall? Now that credit cards are harder for young people to get, here’s a potential solution.

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Now that credit cards are fading as a campus spending source (see No More Extra Credit on Campus), parents are reaching for a way to put plastic into the hands of their kids.

PayPal may have found it.

PayPal’s “Student Account” functions like a normal PayPal account with one major difference: Other accounts can be added to it. It also comes with a debit card. However, unlike other PayPal accounts, this one isn’t linked to any outside checking accounts. Instead, all transactions flow through the parent’s PayPal account. The parent can set restrictions on spending and access to online purchases, plus view transactions by the student.

Mom and Dad can also make cash transfers via a new Apple iPhone application.

Here, directly from the PayPal website, is how the debit card program works:

  • Teens get an actual debit card (with their own name on it) that they can use anywhere Debit MasterCard(R) is accepted.
  • Anyone 13 years or older can have one if a parent opens an account.

The company is also pushing the control issue on student banking, offering these benefits to parents:

  • They can see everything that happens with the account, and even get low balance and high-spending alerts.
  • Only the parent can open a student account for the teen.
  • The teen can’t spend more money than the parent puts into the account.

The account is free except for a $1-per-transaction ATM fee. And there are no worries about overdrafts. If Junior tries to spend money that’s not in the account, the transaction is simply declined at the point of purchase. Try that in the real world, and the purchase might go through – with a $36 overdraft fee on the back end. (At least until August: see Time to Choose: Declined Card or Overdraft Fee?)

The PayPal Student Account doesn’t actually link to a teen’s bank account, if he or she has one. That means in order for the student to make a deposit, the money will have to go to mom and dad first. But if you’re looking for a safe “controlled” banking experience for kids and one where parents can manage their kids’ spending from afar, this one may be just the ticket.

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