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

December 18, 2013 by

To read the first part of this post, please click here.

Disadvantages:

• Prepaid credit cards cannot be registered for regular or recurring payments like your mobile phone or cable bill.
• A car rental agency or hotel may accept your Prepaid Card for payment of a rental vehicle or the room, but not for the initial reservation.
• If you are purchasing gas, a gas station may only accept your Prepaid Card inside the store but not at the pump.
• Some card issuers charge a fee for live-agent telephone support. You should check the cardholder agreement that accompanied your prepaid credit card.
• Beware of card fees. In my opinion those are the biggest catch. It costs a minimum of $3.99 to purchase a prepaid credit cards and it can cost as much as $9.99 to personalize it if you are going to use it more than once. Further, there are numerous other fees associated with the card such as cash loading fee, purchase and return fee, etc. Therefore the item that you purchased will cost more than its sticker price. Each prepaid credit card has different charges, so make sure you know what charges apply to your card.

creditcard

Final verdict:

I think that prepaid credit cards can be a great budgeting tool for someone who has hard time restricting their spending. In addition, I may consider using them when travelling as opposed to carrying cash or travellers’ cheques.
However, I believe that there are better ways to teach children to be financially responsible rather than getting them one of these cards.
- Have them use cash, and teach them to manage it by showing them how a budget works. Understanding cash is the basis of financial literacy. Once your children can manage cash and keep track of their expenses, as well as stay within the budget, then you can move on to other ways of teaching them about money.
- Once your child’s piggy bank is full and overflowing, make a trip together to the bank and open up a youth bank account. Explain how debit card works, as well as the importance of the PIN and how it should not be shared.
- The world of credit cards and debt is very serious, and our children need to understand the benefits and risks before they get immersed in it. They also need to understand how credit rating and history work, as well as the danger of going in debt and not paying off the credit card balance in full by the end of the month. Prepaid credit cards do not teach them about these topics. Rather they teach how a prepaid gift card works. I believe that giving the prepaid credit card to the kids would confuse them when it comes to understanding how the real credit cards work.
- If you want to limit your child to the amount of money that they can spend, you can give them a gift card to a particular mall or store, or provide them with a debit card to a bank account that has no overdraft protection and a limited amount of funds. Make sure you watch their spending habits and teach them how to be smart spenders and budget.

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