Few sane parents would hand the kids their plastic. But rational moms and dads are considering letting tweens and teens carry prepaid credit cards . These parents log online every month to load their kids’ cards with a set, earned allowance. And, once the money is gone, the child’s card shuts down.
"It is not like a credit card because you cannot overspend," explains mom Chris Gettle of Franklin, Michigan. She and husband Brian have allowed their three kids, now in their teens in 20s, to use them. "It’s really like giving children a gift card that you can use anywhere."
With parents’ co-signatures, kids as young as 13 can make purchases with Visa Buxx, PAYjr or Obopay by MasterCard, to name a few. MYplash even sports images of the hottest music artists, athletes and brands.
For parents, zero interest and lessons in accountability are lures. But before your teen or tween starts swiping, be sure to add up all the factors.
Many 18-year-olds are bombarded for the first time by credit card offers. Before long, though, the appealing deals and minimum payments can lead to big debt.
Prepaid cards can help by introducing the concept of using plastic responsibly at an earlier age, says Tonya McNeal-Weary, executive director of the Redford-based Young Entrepreneurs Series, Inc.
"That’s where a lot of our young people go wrong, because they have no prior experience," McNeal-Weary says. "This is a great opportunity to teach them, so when they do go off to college, they will know how to be responsible with your traditional credit cards."
For one thing, there’s access on both sides. Parents and teens can pull up an itemized statement online. This should be a gateway to conversation, says Rose Evers with OUR Credit Union in Royal Oak.
"Use that as a teaching tool, to show the teen how they are spending their money," she says. "Today, we can use a card at a fast food restaurant, not just a clothing store. Is (the purchase) something that’s still tangible and available to you?"
Kids also learn to log on the web and check their funds before heading out. When kids have a firm limit, they learn to budget, too. It becomes harder to bum bucks from mom and dad.
Prepaids also have parental controls, from viewing spending history to the ability to cut off funds before the max amount is reached. Many tout lessons in money management, too, and a few offer a financial literacy component.
Approach with care
While the marketing is alluring, whether your kid is ready for a prepaid depends on how he or she views the cash, says Life Underwriters Training Council Fellow Luecricia Granberry, who works in financial planning at AAA Michigan‘s Warren Branch Office.
"I think the prepaid cards are good with regards to the kids funding them, not the parents," she says. If not, she adds, kids get instant gratification, and "It doesn’t really prepare them for later. It just takes them that much longer to grasp the idea of earning what you spend."
Also, avoid using the cards as a catchall. Set clear boundaries as far as allowance income – which should always be earned – versus money for school supplies, class trips and other travels, or general emergencies, Gettle says.
Experts also suggest kids first dip their toes into money management with a checking or savings account. Most banks and credit unions offer special perks for tweens and teens. And an individual child’s maturity is crucial, too.
And since prepaid cards’ limits can run from a few hundred to thousands of dollars, parents also have other costly factors to consider. First, look for hidden fees, Evers says. There’s usually an activation or annual charge, along with reloading costs that range from quarters to a few bucks. But some cards also charge for overdrafts, inactivity or other convenience services. Be cautious of online purchases – another prepaid perk; ensure websites are secure.
Ultimately, though, the lessons can pay off, Gettle says.
"We’ve got this system where they get so much; they know that," she says, "and so they feel very confident with having to live within certain means."