Feb
14
Teen Prepaid Cards : The New Marlborough Man? Or a Budgeting Tool?
February 14, 2008 | 1 Comment
A common new trend is the Teen Prepaid Card: a card is pre-paid, and a portrayed as a good substitute to an allowance. I think it is useful if used with caution. It is a time-bomb if used without it.
First the pros: Your kid doesn’t has to carry cash, you can transfer money to him/her even if he/she is away from home (camp, or staying with relatives). In a society that is slowly turning cash-less, it is not such a bad idea to give some small plastic to kids. My wife even pointed out that there is an even more important reason to give a card rather than cash: you can track spending — limit their privacy essentially. Sounds fascist, but it could be a great tool to prevent kids from spending allowances on unintended purchases (like alcohol and drugs, for example). David (a reader, and fellow entrepreneur) also suggested that these cards are easier on the pocket: no Non-Sufficient Fund (NSF) fees if you try to use them and they no longer have cash on them (unlike traditional debit cards).
Now why I am not convinced (not necessarily cons):
- There are other alternatives: What about a debit card? A checking/savings account combination where the kid can manage his own money (transfer back and from savings, preferably from checking/allowance to savings)? It may also work as an ATM for those places where they do not accept cash (or for cash so that they can split a bill with friends).
- I prefer the word “Debit” on them: The idea of a card that magically refills itself is dangerous. (It is not necessarily magically refilled, the parent has to do so. But I do not like the marketing. I like kids to know they are spending money out of their bank account.
- It Hooks ‘Em Up Early: These cards are a great tool to teach kids about money. I am afraid it will just hook kids on the convenience of using plastic and the difficulty of counting how much is left or gone. I think is a way of preparing a new generation for a life of debt.
I think it is good that they are in every parent’s arsenal. I think they should be used with caution, if used at all. They should be accompanied with a lot of hand holding, and teachings about money handling. My dad gave me a credit card with my social security number when I went to college. It did helped me build credit and get lower rates on car loans and house loans once I graduated. It was useful. But I also was very well educated on money matters.
For some reason, when I started seeing these adds, I reminded myself of the other add you see to the right.
Some places where you can get these cards:
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Your a bit off on a few of your comments so I wanted to lend some expertise. Prepaid Teen cards, are in fact debit cards and even do carry the word “Debit” on them as you suggest. In many cases the cards are used in place of checking accounts because who needs to write a check these days? The prepaid cards can be used at ATM machines as well; you also suggested they couldn’t.
The major “Pro” for prepaid and the main argument against your post is that a prepaid debit card acts exactly like a checking account (you can even set up savings), except unlike the banks who claim to provide “free youth checking” and then slam you with $35 NSF fees, prepaid cards cannot be taken over balance and are much less costly for teens and parents. Stats show that teens go over balance on a teen checking account on average 3 times per year – that is $105/yr for a teen checking account.
Prepaid Teen Cards ARE Prepaid Debit Cards.
Consumers should realize that the prepaid teen card providers are actually the “good guys” in this industry. Our whole mission statement and corporate culture is governed by education and doing what is right for youth – not back-dooring you with fees. I think you might look at who you are routing for here…
Take a look at my post on the topic when you get a chance: http://www.choresandallowances.com/2007/10/well-fargo-launches-teen-checking-pilot.html
Dave
CEO – PAYjr
http://www.PAYjr.com
http://www.Buxx.com
http://www.ChoresandAllowances.com