Introducing your child to the real-world use of money often means hacking together half-baked solutions: jars stuffed with bills combined with repeated trips to the A.T.M. and teenage misuse of the parental credit card.
So the right piece of prepaid plastic — loaded by parents who can set customizable limits — makes all the sense in the world.
You have plenty of options, many of which you may never have heard of before. There’s Greenlight, which this year raised $260 million from investors who valued the company at $2.3 billion, along with FamZoo, Goalsetter, Till, Gohenry, Step, Wingocard and Copper. Larger enterprises are sniffing around the idea, too, including Apple, Fidelity and Verizon.
Frequently, they cloak their offerings in a superhero’s cape of financial literacy through practice. That’s a great concept, in theory. But any time a company seeks profit on the backs of our offspring, we ought to raise our eyebrows and put our hands on our wallets. That’s especially true when most of them want us to hook our bank accounts directly to their products.
You might be scared off by this, but I’m not. There’s a way to do it well and pick a product that works for you. Features matter — but not as much as how they align with your financial philosophy. Every conversation about money is a conversation about values waiting to happen, and these products can help inspire those discussions with your child.
But as valuable as those fireside family chats are to your kids, they’re not particularly profitable to the financial world. So it’s crucial to begin by examining why these companies have proliferated and how they make their money.
Training-wheel products haven’t really been a priority for banks, which could generally rely on their adult clients to take their children in and set up an account when the time came. From there, it was often sink or swim — and a whole lot of overdraft fees.
But recently it has become easier for start-ups to build products for beginners without becoming an actual bank, by renting all the back-end infrastructure that would be costly to build. (In a twist, some banks are now using the start-ups’ products and slapping their own labels on them, as Chase is doing with Greenlight.)
Some frustrated entrepreneurs — and equally frustrated venture capitalists — sensed opportunity, with good reason. The potential customer base is enormous: There are tens of millions of people ages 8 to 18, and they very much want to have some agency in their financial lives. These kinds of products can allow them to ditch the piggy bank and spend the way their parents do.
At the same time, the rise of mobile phone use among children and the mini-economy that emerged around consumption-inspiring apps has heightened the need for some kind of spending vehicle with parent-managed guardrails.
“Those vendors are not afraid to hoodwink kids into spending,” said Bill Dwight, who was among the first to build a kid-focused debit card when his FamZoo card debuted in 2013.
So how do these companies make money? Generally, they earn a handful of pennies on each transaction out of what merchants pay to accept plastic. Some, including Mr. Dwight’s FamZoo, charge a set monthly fee. Greenlight, which claims 4.5 million paid users and counts both kids and parents in that figure, operates the same way.
Goalsetter, with 250,000 users, asks them to pay what they wish. It could not provide an accurate count of what the average is, since many users are new and it doesn’t make the request until a few months after they’ve started using the product.
Till is not charging a monthly fee, at least for now, but has two other revenue streams. It’s hoping to graduate its older customers to grown-up financial institutions and take a bounty when they sign up. And there’s also a data play: The company says it uses anonymized spending data to identify merchants popular among its users, who number in the “tens of thousands,” according to the company. Then it gets those merchants to offer special deals to Till customers, and Till takes a cut when they keep spending there.
This feels a bit creepy, but Till isn’t directly selling data. And it’s probably not spreading around any more information about your children than they might do themselves in a few hours on Instagram. In any case, Till lets parents toggle those offers off.
So if you’re ready to consider using one of these products, first ask yourself this: Which is most likely to force you to check in with your kid the most? These conversations help children learn what we stand for — why we limit our spending in certain categories, save more for some things than others and give where we can.
Then, a few basics. If you’re seeking regular allowance distribution and management, most services can handle that. But if you’re paying your children for chores and want to check tasks off on a line-item basis before pushing money onto a kid’s card, that’s a feature that you should select for specifically. Gohenry does this, and FamZoo helped pioneer it.
Also, what financial behaviors do you wish to encourage — or change? Many parents like to reward savings with automatic interest-rate boosts or goal-based bonuses. “That allows parents to exaggerate the point to make the point,” said Tim Sheehan, Greenlight’s co-founder. So check for that feature if it’s important to you. Greenlight offers it, and FamZoo has a strong offering, too.
Then, there’s the goal of overarching financial literacy. Tanya Van Court, the founder of Goalsetter, has poured resources into that side of her business. “A card is actually an incomplete solution,” she said.
Goalsetter allows parents to pay their kids extra for doing well on financial literacy quizzes and hold money back when they don’t complete them. She’s also trying to persuade credit bureaus to reward 18-year-old Goalsetter customers who are particularly well informed.
“It’s not fair that some kids get added to their parents’ American Express accounts and develop a fantastic credit score when they haven’t spent a dime,” she said. (Step already has a system in place to allow young users to begin building good credit.)
Consider the help you may need, too. “Everyone underestimates customer service,” said Mr. Dwight, of FamZoo, which has a fairly modest roster of 13,000 family clients. “When your teenage daughter is stuck at a gas station, you kind of don’t want a bot.”
He would say something like that, given that his is a sort of home-brewed product, where he and his partner respond to customer inquiries themselves. FamZoo also earns bonus points for the granularity of the F.A.Q. on its website, which bestills my dorked-out heart for the way it anticipates nearly every use (and misuse) case. Test out any start-up you’re considering by sending a message with a question to see what kind of response you get.
Finally, not every one of these products incorporates opportunities to try out investing. But Greenlight does, and Goalsetter plans to soon.
These cards and the companies behind them will come and go. And, in between, they may evolve. So it’s not possible or reasonable to name the one that is best. You’ll need to figure that out for your family — and it will be on you to make sure it’s still aligned with your goals after any such evolution.
Mark Bruinooge, who helped start Tykoon, one of the companies that has already come and gone in this area, expressed some doubt to me in an interview this week about the future of these services.
“I don’t think you can make money and do good in the family banking space at scale,” he said. “I think you have to sell out; to say, ‘Here’s customer data’ or something that sweetens the pot for people trying to move goods and services.”
He freely acknowledged that he might be wrong. And his definition of “at scale” doesn’t match the more modest definition of success that, say, FamZoo has aimed for with its small roster of clients.
Let’s hope he is incorrect, since these companies have the potential to do more than merely peddle a plastic product that enriches its owners at the expense of the rest of us.
“We are trying to bridge the knowledge gap so that we can bridge the wealth gap,” Ms. Van Court said. “I really believe that if every kid out there just has a debit card, we’re creating the same problems we’ve had in America for the last 100 years.”