Prepaid Credit Cards For Teens
If you're trying to teach your teen to handle money or manage it more effectively, your answer may be as simple as whipping out the plastic – not your credit card, but a prepaid cash card.
What it Is and How it Helps
Prepaid cash cards (or stored value cards) look much like a credit card, but these cards must be loaded with money before they can be used to make purchases. That means before your teen can buy those cool jeans that she "just has to have," she must have cash to put on the card. "This can help teens learn the value of budgeting money," says Diane Giarratano, director of education for Novadebt, a non-profit financial management service. It can also be beneficial to parents. "Parents have more insight as to what their teens are spending their money on," she says.
Giving your teen a reloadable cash card can help to keep money in your teen's pockets and yours. Because the limit of what can be spent is no more than what's on the card, there are no worries about your teen going over the limit and being hit with overdraft charges. "Stored value" cards can be a life-saver for parents whose teens are spendaholics. "Parents can set a certain limit on the amount available on the card and can give the teen a specific time period before they will replenish the amount," Giarratano says. She believes that these lessons and experiences cause teens to think more about what they are purchasing and prepare them to make sound financial decisions in the future.
Like most things, these cards do sometimes have downfalls. In most instances, it's mainly the fees that are associated with their use. Some companies charge a "per-load" fee (a set amount that is charged each time you load money onto the card). Some charge a monthly fee whether you use the card during that month or not. And still, some others charge a fee each time you use the card. Though this is usually only a dollar or two per transaction, if the card will be your teen's sole method of making purchases, that buck or two will add up quickly.
Another common complaint cardholders have is the inconvenience of loading the cards. Though most programs make it easy to reload cards by providing online services or direct debits, some others have very limited locations to deposit funds on the card. For a teen who's anxious to get his hands on the latest gear, searching out a location to load money onto his card won't be an option.
Fees and out-of-the-way loading spots aren't the only negative staples of using these type of cards. "Another disadvantage is getting a limit too high and risking the teen spending the entire amount too quickly," Giarratano says. If you feel your teen will be irresponsible in her spending and will come back to you time and time again asking you to reload her card, you should give a set amount of money for a certain amount of time, and stick with it! If you give in when she comes back with her hand out, she won't learn the valuable lessons about financial responsibility that you were hoping to teach her.
The Right Card
Like any financial matter, deciding to get your teen a prepaid card is something you should think deeply about before doing. Include your teen in the decision making process. Let him comparison shop the different cards, and together you can decide which is best for him.
Giarratano says to find a program with the lowest fee. However, don't let a cheap price cause you to get a card that isn't right for your teen or that is such an inconvenience he won't use it. In addition to finding out fee details, Giarratano suggests you ask the following questions before committing to a specific card program:
- How often can the money be replenished?
- Where can the card be used?
- Is there a cancellation fee?
- How easy is it to replenish money?
- What protection is available if the card is lost or stolen?
By watching you make informed decisions, it will help your teen follow in your footsteps and learn to handle financial situations responsibly. It can also save you lots of money and hassles. The next time your teen asks for a little cash, don't just hand it over. Get a pre-paid card so she'll learn while she spends.