Prepaid Credit Cards for Kids & Teens – Yey or Ney? (Part 1 of 2)

December 17, 2013 by

In light of upcoming holidays a dear family member asked me if I thought it would be a good idea that she gifts my children prepaid credit cards such as MasterCard, Visa, etc. She explained that she wanted to gift them something that will teach them about financial literacy.

I thought that was very thoughtful idea. Since my children are only 4.5 and 6.5 years old, I told her that I will research the prepaid credit card and find out if it is age appropriate gift idea for my kids.

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So this is what I found out (if you don’t want to read the details of my research, but only want to know if they are appropriate for kids, you can just skip to the final verdict, by clicking here):

Prepaid credit cards only look like credit cards, but are gift cards. In order to use them for making purchases, you have to load funds into the prepaid card account. If your purchase amount is greater than the balance on your card, your transaction will get declined. If you don’t have enough money on the card to make a purchase, you may be able to split the cost between your prepaid credit card and other forms of payment. In order to do this, you have to let the store know how much you wish to pay using the card before you swipe it. You can only use funds that are loaded onto the card. Since you are using your own funds, there is no interest charged.

Advantages:

• Paying with debit cards and credit cards has become very convenient as people do not like carrying cash. However, this can lead to overspending. Therefore if you want to budget your spending, you upload a budgeted amount of cash onto the prepaid credit card, and will be limited to that amount in terms of spending.
• Great for travelling. You can budget how much you are going to spend on your vacation and upload only that amount of cash on the card. It’s a convenient and safe alternative to traveller’s cheques. Also it is accepted worldwide.
• The prepaid credit card provider usually offers free protection from theft and fraudulent use that comes with the same built-in security features as any credit card.
• Items bought with your prepaid credit card are automatically insured against theft for 90 days. Therefore you do not have to buy extended warranty.
• Great gift card as it allows the person who receives it to shop anywhere. The purchases are not limited to a particular store or shopping mall.
• Since this is not a real credit card and you are not given credit, no credit check is needed.

Click here to read Part 2.

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