Prepaid Debit Cards: Financial Training Wheels for Teens

by Jessica Sommerfield · 0 comments

Prepaid debit cards have been around for several years, but in recent years are becoming increasingly popular, especially with teens, college students, and their parents.  Learning how to handle money responsibly and operate within a budget are important steps for teenagers and semi-independent college students before they get out on their own and are faced with overwhelming financial responsibilities.  Many teens have learned the hard way that getting a credit card as soon as they turn eighteen isn’t always the best rite of passage. The biggest trap of credit cards is that they give the illusion of access to money you don’t have — a credit limit, which is usually a lot more than teens have ever seen in their bank account.

On the other hand, dealing only in cash isn’t ideal, either. Cash is more likely to get lost or stolen without any hope of restitution, and can’t be used for online shopping and transactions, a must-have for this generation. For this reason, prepaid debit cards are a great compromise between the need to have a defined spending ceiling while enjoying the benefits of credit-card capabilities. Here are a few of the best advantages of setting up a prepaid debit card for your teen.

  • Prepaid debit cards for use by teenagers with adult supervision provide an opportunity for teens to learn how to budget their spending. Parents also have the option of receiving a statement (as with a credit card) to see where their teens are spending their money and address any concerns. This provides a natural teaching environment with room for mistakes and failures without the lasting consequences of racking up credit card debt.
  • Parents and teens may direct deposit funds, load, or transfer funds onto the card. Direct deposit is free with most prepaid debit card providers, who may even wave other card fees if funds are direct deposited.  This is much easier than always loading money on the card manually.  If you have to load manually, it can be done anywhere there are cash network services such as a local Wal-Mart or Kroger. You can also transfer funds from your own prepaid card to your teen’s card.
  • Prepaid cards are accepted anywhere that accepts Visa or MasterCard. This is a huge convenience for teens, since we all know that between iTunes, e-books, and gaming, teenagers do some of their heaviest spending online. Prepaid debit cards are even accepted when booking flights, as long as they have a Visa or MasterCard logo.

Disadvantages of prepaid debit cards

Although the advantages of prepaid debit cards are great, there are a few disadvantages.  The biggest immediate disadvantage of prepaid debit cards is their numerous fees.  Without carefully choosing a card that best fits your needs so as to minimize the affect of fees, you can easily waste a lot of money by using a prepaid debit card. Shop around online at sites that compare cards and their fees. If your teen will be using the ATM a lot, choose a card that offers free ATM withdrawals; if they’ll be using it mostly for retail transactions, choose a card that favors this usage.

Secondly, prepaid card do not necessarily teach teens how to handle a credit card later on. They may still struggle with the temptation to max their credit limit and struggle with the reality of repayment and interest fees. Prepaid debit cards will also not build your teens credit score, a vital prerequisite to making large purchases such as a car or home.

Although there  is  certainly some potential for abuse, it would appear that prepaid debit cards are a safer, controlled, and convenient solution for helping teens practice financial responsibility while avoiding the pitfalls of credit card usage.

Would you give your teen a prepaid debit card?

Bonus Tip:

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