We’ve all heard the horror stories.
The 6-year-old who get his hands on Mom’s iPad and manages to rack up $16,000 worth of credit charges for online gaming. The teenager with a Fortnite habit who manages to clean out Dad’s checking account via the debit card linked to the gaming account.
These aren’t bad kids necessarily so much as they’re kids that simply don’t know the damage they’re doing at the time. They don’t really connect the purchases they’re making to the costs they’re incurring because they have no visibility into the charges they’re running up and don’t have a great concept of money.
That’s something that shouldn’t be surprising, since we don’t do a great job of teaching young people about money, Step CEO CJ MacDonald told Karen Webster. Schools don’t teach that, which means kids learn it at the kitchen table from their parents. Or, he noted, in many cases, they don’t learn it at all.
More often, kids get all the way through college before they rapidly have to teach themselves everything they need to know about money as they enter the adult world — frequently with varying degrees of success.
“Money is just one of those things where I think the more educated and equipped you are early, the better decisions you can make down the road,” MacDonald said. “And you can also prevent yourself from making costly mistakes. I mean, the average American doesn’t have $400 in emergency savings and pays $350 a year in banking fees. If we can help this next generation just ultimately be smarter and more educated as it pertains to money, I think we’ll all be better off.”
Step aims to fill that hole by creating what it calls “family banking services.” The company offers FDIC-insured bank accounts and a Visa-branded payment cards for teens (aged 13-18) with budgeting features and other financial education tools built in. That way, younger consumers can learn how to use money in a digital world for spending, but also how to manage it better as they get older — all while still being overseen by their parents.
“When you can start to map out what your financial picture looks like, that to us is the foundation of the financial literacy aspect of being able to begin to use these moments as teaching moments and talking moments for parents helping their kids about money,” MacDonald said.
Rebuilding Accounts Around Families
MacDonald said he believes banks do a fantastic job tailoring their services toward financially established adults, but not so much outside that. He said he thinks neither mainstream nor challenger banks have done well building services out for families and younger pre-collegiate consumers.
That’s understandable in some sense, since that very young demographic doesn’t spend at anywhere near the level of their older and employed counterparts. But McDonald noted that they do collectively spend about $75 billion a year.
And more importantly, teens grow into adults who age into their prime spending years. Step hopes to serve those consumers over the course of their entire lives.
“I got my first bank account at 14 from Wells Fargo, and it’s still my main account today,” MacDonald said.
Creating A Balance
MacDonald said that building banking for families is a matter of balancing.
On one hand, Step is looking to create a brand that’s young, modern, hip and cool such that it appeals to those 13- to 18-year-old users. But it also has to be something that parents see as trustworthy, secure, stable and likely to promote financial literacy.
“We’re asking a parent to entrust us with their kids’ financial future,” MacDonald said. “We don’t take that lightly. The teen really only cares about the ability to spend, use Apple Pay, get a cool card and obviously send and receive money. The parent is very much more interested in security and financial literacy and building credit and all of these things that I don’t think most teens are thinking about. Most college students aren’t even thinking about building credit.”
But it’s something that Step is designed to help with, and the company has built a unique, secured credit card to handle. The fee-free card is tied to the balance in the consumer’s account such that the user can’t spend beyond what they have.
From the user’s point of view, the card functions exactly the way a debit card does.
“It runs on credit rails, but it’s not a traditional credit card,” MacDonald said. “Behind the scenes, we built a bunch of technology and whatnot. … We do an automatic payment for you at the end of the billing cycle that ultimately pays your credit card bill.”
And since the user can’t overspend or be late on a payment, it also provides a risk-free, training-wheels approach to building a credit history early in life.
2021 And Beyond
Step is still a new service in terms of how long it’s been available to the public, although it has been under construction for the past several years.
The platform publicly launched over the summer and has already seen impressive demand. More than a half-million users signed on within the first six weeks of operation.
MacDonald said parents want to help their kids grow up financially literate but have lacked useful, practical tools for doing that. He said Step is designed to give teens some autonomous control of their financial lives at a point where that’s becoming relevant because youngsters are doing things like getting their first jobs. But it’s also a framework that helps them understand how they’re using their money.
And going forward, Step’s goal is growth — both in terms of how many customers it serves and in terms of the range of services the company will offer.
“I think there are some really unique lending opportunities that would be interesting within our demographic,” he said. “Obviously, we’re not going to lend to a 15-year-old, but when a 17-year-old turns 18 and they go off to college, they need books for school or a computer. I think there are some really unique opportunities for us to be able to offer unique financial products and services to that next demographic of up-and-coming consumers.”