Which Teen Financial Products Make the Grade?

Financial literacy is one subject your child can’t afford to fail.

It’s also a subject that’s taken on new weight as the nation struggles to recover from a recession brought on by irresponsible investing and overzealous spending. Now, as American students return to school, financial education is starting to receive the kind of attention once reserved for reading, writing and arithmetic.

Yet most schools don’t require, or even offer, courses in personal finance today. In fact, the Jump$tart Coalition for Personal Financial Literacy’s 2008 survey, which covered topics like credits cards and bank accounts, showed high school seniors answered fewer than half of questions correctly. Barring a wholesale change to the national curricula, that statistic won’t improve unless parents start teaching their children sound money management.

First, have a conversation about finance basics like budgeting and bank account management. “Without that understanding, [using money management tools] is like going to see a doctor who can’t understand all his high-tech equipment,” says Michael Eisenberg, a certified public accountant and member of the National CPA Financial Literacy Commission. “It’s the old ‘Garbage in, garbage out.’”

After that, look for tools, products and other resources from banks and financial literacy groups to build on those basics. A simple savings account can help even young kids learn to manage their money, says Joe Peri, the CEO and president of the Council for Economic Education, which promotes financial literacy in schools.

Looking for something a little more advanced? These three new financial products for teens and tweens earned passing grades from the money educators we spoke to:

Keep an eye on your teen’s spending with this reloadable debit card. Like other prepaid cards, users are limited to the available balance accessible via charge (anywhere MasterCard (MA) is accepted) or ATM withdrawal. Parents can monitor the account online and set alerts for low balances and declined transactions. Teens can send money to other Facecard users (say, to repay a friend for lunch) and receive money from people who don’t have an account (a birthday gift from relatives or a babysitting payment from neighbors). The company is also testing coupons that load onto the card and automatically redeem at checkout.

It’s free now, but Facecard will begin charging for its services on Sept. 21. You’ll pay a one-time fee of $5 to buy a card. There’s a $3 monthly usage fee, which is waived if you load or spend $100 in a given month. Teens will also pay $1.50 per ATM withdrawal. (It’s cheap compared with competitors such as Visa (V) Buxx, which charges up to $15 for new accounts and $3 to reload the balance depending on the issuing bank.)

Lessons: Because there’s a limited balance, prepaid debit cards can teach kids about the scarcity of financial resources and how to budget, Eisenberg says. “When the money’s gone, it’s gone,” he says. But don’t just regularly infuse your kid’s account with free fun money. Kids are more likely to spend wisely if their purchases come from their own funds, so use the card to dole out a portion of his or her allowance. Also, talk about appropriate uses for the card -- and warn them that you’ll want a sit-down if you spot bad behavior.

Users can introduce their kids to mobile banking with this joint account, which merges Obopay’s mobile payment services with a prepaid debit card. Parents can reload accounts through two free options: online or via their cellphone. Teens can spend the available balance by charge (MasterCard), ATM withdrawal or sending money by phone to any other mobile number. Rather not have your teen spend via text? Parental controls let you restrict access and monitor spending. (None of your financial information stays on the phone, and you must log in each time, says spokesman David Schwartz.)

Signing up for an account is free. Users will pay a $1.95 per month usage fee plus 25 cents each time they or their teens send money via phone to someone else. Parents can send money to their teen’s card by phone for free.

Lessons: The option to spend and receive money via phone gives tech-conscious teens one more way to track their spending, so make sure they understand the importance of doing so, Peri says. The added fee provides a lesson on the cost of convenience, too.

No need to give your teen access to your credit card for online shopping. This payment site lets teens send wanted items to their parents for payment. Parents get an e-mail about the request, can approve or deny items individually and then pay for the virtual cartload. Accounts are free, and you’ll pay a 50-cent fee for each transaction. Parents can also see requests their teen sends to other people, including friends or family. The catch? BillMyParents.com currently works only with the site’s affiliate store on Amazon.com (AMZN) and a handful of online gaming and social networking sites, including Dragon Fable and Adventure Quest.

Lessons: Using the site is smarter than handing over your account number (or card) to your teen, says Martin Higgins, a certified financial planner in Marlton, N.J., who developed a financial education program for his clients’ children. However, BillMyParents.com can encourage additional spending. “It is promoting them to go spend, to go shopping,” Higgins says. Talk about the purchase before you approve or deny it, so teens learn to discern needs from wants and budget appropriately.