Originally published March 26 2005
Prepaid credit cards for teens and preteens do a poor job teaching kids about credit
by Mike Adams, the Health Ranger, NaturalNews Editor
Many banks are now offering prepaid credit cards for the teen and preteen crowd, but they are not an effective tool for teaching kids about credit. Not only do they tell kids that plastic comes in the form of free money, they are expensive for parents. With high setup fees, monthly fees, and extra charges for putting more money on the cards, they are not a cost-effective alternative for parents, either.
Teens spent an estimated $175 billion last year, according to Teenage Research Unlimited, a market research company specializing in young adults.
Now credit card companies are rushing to capture that audience with prepaid cards, featuring celebrities such as rapper Usher and actress Hilary Duff, as well as cartoon characters like Hello Kitty.
Parents register children for a card and then load it up with money.
Some use the cards to give their kids funds for events such as back-to-school shopping, while others use it to dole out weekly allowances.
They can also monitor their children's spending habits via the Internet.
Although touted as a great way for teens and preteens to learn how to manage money, this is one "money tool" you should steer clear of, advised Janet Bodnar, executive editor of Kiplinger's Personal Finance.
Kids aren't using such cards to learn about credit or money management, she said: "They want it because it's cool."
These prepaid debits also carry hefty charges.
Not only will you pay for a card setup fee (anywhere from $20 to $50 per card), but you'll also pay monthly maintenance charges (about $5).
And many cards charge $3 to $5 each time you reload the accounts.
Those fees add up quickly, especially if you use the cards for your child's allowance.
Stick to cash until your teenager has his or her own job, Bodnar recommended.
Then let him or her open a checking account with a real debit card.
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