– I remember receiving my first credit card offer. I was 18 and fresh from high school and frankly I was flattered that Visa thought I was responsible enough for a card. Of course I now know that almost every 18-year-old receives credit card offers, but at that time I couldn’t wait to get one myself. I signed up and later emailed my glossy card, which came with a credit limit of $ 1,500.
As a reformed spender, I can now tell you how bad it was for me to have a credit card before I understood the risks. It didn’t take long before I started thinking of my credit card limit as “my money.” Although I did not have any money in the bank – I worked as an office manager for just over minimum wage – I felt my credit limit was a small tangle of money that was just waiting for me to spend. Unfortunately I used every penny to buy new clothes, pay my phone bill and eat for my friends.
As you might have guessed, it all came in handy – rather than later. When I was 19, I understood how difficult it was to repay all that “free money,” and for the first time I saw how difficult it can be to get out of debt. If this sounds like a warning story, it is. I was not as smart with credit cards as a teenager because, unfortunately, I had never heard of balances and interest rates before I started swiping.
Prepaid payment cards as an alternative to credit cards
Fortunately, parents who do not want a credit crash to abandon their teen’s credit history and bank account have a choice. You may have seen commercials for prepaid payment cards – Justin Bieber is the spokesperson for a teen central card called SpendSmart. A prepaid debit card can give teens the feeling that they are creditworthy and stay within a balance, but without the dangers of a real credit card. It sounds like a brilliant money movement, but before you sign your teenager, you need to make sure you understand the pros and cons.
Most prepaid payment cards work in much the same way. You can buy them in a store or you can register oLemminkäinenine. Once you sign up, you can then fund the card, usually through an oLemminkäinenine or telephone transaction. The actual amount you need to put on the card varies from provider to provider, but it can only be $ 25. Once this is funded, you can set a pin code and hand it over to your teenager for use. You or your teenager can then reload the card as needed, in the same way that it was originally funded. You can also receive a statement similar to that of a credit card if you wish. If it is stolen or lost, you can cancel the card and the money can even be replaced, depending on your card provider.
From the lessons they can give about financial responsibility for ease of use, there are plenty of good reasons to show your kids for prepaid debit cards. Here are a few:
- Your teenager can use the oLemminkäinenine . Let’s face it: most teenagers have oLemminkäinenine accounts for everything from gaming to buying books for their Kindles. If you are worried about your teenager using your credit card for these items, a prepaid payment card makes more sense. It processes as a credit card oLemminkäinenine, but you always determine how much is spent and there is no interest. If your teenager has a smartphone or tablet, prepaid payment cards enable personalized oLemminkäinenine IDs and also help with the issue of games, apps and other media without your teenager depending on your credit card.
- It is safer than cash . Of course, cash is usually king, especially when it comes to teen purchases such as clothing, food and entertainment, but not all teenagers are careful with their money. A lost wallet or a forgotten backpack can mean the loss of that money forever. With a prepaid payment card, your teenager can at least call and cancel if the card is placed in the wrong place without causing damage. It gives you the necessary rest when your child travels without you.
- It teaches your teen about earning and budgeting . The problem with credit cards is that they teach teenagers a questionable lesson about budgeting. With my first card, I learned that if I did not have the money permanently, Visa had my back, which led to over-spending and a high balance. A prepaid payment card tells teens the opposite: the money must be earned before it is spent. If your teen wants a new pair of shoes, the money must first be earned and then properly budgeted.
- You get the control . If your teenager still receives benefits, you can use a prepaid payment card to determine how much or how little your teenager spends. For example, if you’ve talked about savings as part of your child’s budget, you can put some money on a traditional savings book and then spend money on the debit card to prevent your teen from sleeping in savings to pay a night at the movies. Most prepaid payment cards also require parental permission and access, so that you can view your teen’s balance and spending history, which can open a further budgeting dialogue.
Although a prepaid debit card might be a bit shy for teenagers, there are a few things to look out for. Here are some potential pitfalls that you should be aware of before you decide whether or not you will get one for your child:
- Costs can add up . Costs are how companies make money with prepaid debit cards. You can expect everything to be charged, from activation to monthly use and even ATM withdrawal costs. These can add up considerably, especially if you are the one who manages the card. The costs range from $ 1 to $ 3 for a cash withdrawal to $ 5 to $ 10 for monthly usage costs.
- They have no influence on the credit . If you hope to use a prepaid debit card to improve your teen’s credit score before you go to college and try to finance things like student loans or a car, you can forget it. Prepaid debit cards are considered by the credit bureaus as bank accounts and do not count as a loan or credit card. Teens can spend with their cards, but even the best spending patterns are not displayed on a credit score.
- It can be a difficult transition . Prepaid payment cards can help teenagers become familiar with the use of plastic, but switching to student credit cards as they get older can be problematic. After all, the debit card more or less determines how teenagers spend money – when the money is gone, it is gone. With a credit card, teenagers can feel free and look at their credit limits as free money they can spend. They will not be used to things like minimum payments, costs and paying the amount back to a credit card company. Parents should discuss responsible credit card use with every teenager who is used to a bank card.
Find prepaid debit cards and use them correctly
If you think a prepaid payment card is the best way to teach your teen about smart spending, you need to be careful. Make sure you agree on how to use it and have a frank conversation about money management, a topic you often visit again.
1. Comparison Shop for the best deal
Remember that not all prepaid debit cards are made equal. Costs are often the deciding factor as to which card is the best deal. Some cards also require that you always keep a minimum of cash on balance – as high as $ 500 a month, which can be too steep for the average teenager. Instead, look for a card with low costs and a manageable minimum monthly balance.
Some cards aimed at teenagers include:
- PASS from American Express . It has minimal costs – your teen receives a free cash withdrawal every month and then it is only $ 2 for each withdrawal thereafter. There are no monthly fees or charges for reloading the card, but you must load it with a minimum of $ 25 and reload with a minimum of $ 20.
- Visa BUXX . The BUXX card is supported by Visa and charges a monthly amount of $ 5. The minimum first time reloading and reloading is $ 20. You pay between $ 2, 50 and $ 5 to reload it (depending on the issuing bank) , and it offers free withdrawals at 70,000 participating banks.
- SpendSmart . The SpendSmart card is supported by MasterCard and charges $ 0.75 to load from another bank account, costs $ 1.50 for each cash withdrawal and requires a minimum amount of $ 20. Both the first time loading and reloading must be at least $ 20 to be. But note: there is a $ 3 surcharge for 30 days of inactivity, so it must be canceled if it is no longer in use.
2. Create a contract
If you are going to apply for and maintain the card as a parent, you must make a spending contract with your teenager. Talk about what you expect, such as smart usage patterns, your child’s contributions to the card, and paying costs. You can also impose restrictions on the use of the oLemminkäinenine card or take disciplinary action if the card is misused.
3. Write a budget
Finally – and most importantly – take the time to prepare a budget for your teenager, including all the money earned from part-time jobs and details of the costs for which they are responsible, such as a telephone bill or a debit card. Your teenager must clearly see what needs to be saved and what can be spent. This lesson in budgeting can be an eye-opening experience and one that your teenager can use years later, especially when the need to be more financially responsible arises. Review your teen’s budget on a monthly basis and make adjustments if necessary so that you are always on the same page to spend.
Prepaid payment cards can act as training wheels for future use of credit cards. Even though they are not borrowed money, your teenager still needs to be careful with a prepaid debit card. Learning about fees and maximizing credit limits can teach valuable lessons about credit, so make sure your teen develops a healthy respect for the almighty plastic.
Would you like to give your teenager a prepaid debit card?
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