Teenagers have not yet developed financial skills. It is tough choice to determine when it’s the right time to give them a modest amount of financial responsibility. On one hand, they need to begin understanding what it is like to save money and pay for things, but on the other hand you don’t want to give them a lot of funds to waste. If you feel this way about your child and aren’t sure what to do about it, a prepaid card may be the solution.
A Helpful Alternative
What you definitely don’t want to do is give your kid a credit card. There are many horror stories of young people getting a credit card when they are too young. The often spend way too much with it. Don’t let this happen to you. It is possible to use your child’s need for relative financial independence as an avenue for teaching financial responsibility.
An alternative to credit cards is the prepaid card. With these debit-like cards you can load a small, appropriate amount to monitor your child’s spending. This way you can give them what they need, but no more. Not only do prepaid cards teach limiting spending on the most important things, they provide the child a real look at what it means to be low on cash.
Advantages of Prepaid Cards
To get the most out of prepaid debit cards, it is best to understand their advantages and disadvantages. There are a variety of benefits found in prepaid cards when a teen needs money. One is that they can use it online. With a prepaid debit card you can monitor spending online for things like games. This also allows you to control how much they are spending on non-essentials.
According to specialists at the site MoneyPug, which is used to compare prepaid cards, using prepaid cards is also safer than cash. You don’t want your teen walking around with a bunch of money that can be stolen. Losing a wallet or backpack can throw money in the trash. If your teen loses their card you can easily cancel it and get a new one usually for a small fee.
Perhaps the most enticing reason to get a prepaid debit card is to have control of the child’s allowance. You can load the card with a precise amount, providing financial lessons through limitations. Controlling this process is key for using prepaid cards to teach your kids. It is also possible for them to learn about savings by having them put money into a savings account. Of the money that the teen receives every month, a certain portion of it should be saved in order to teach financial responsibility. By only keeping the loaded spending money on the card, you can make sure your child doesn’t overspend.
Disadvantages of Prepaid Cards
Though prepaid cards are generally a good idea for teens, they do have drawbacks and pitfalls you should avoid. First, the fees associated with the card can add up. This is how these companies make their money. You can be charged for activation, monthly use, and withdrawal fees at ATMs. All of these charges can add up and range from a little to a lot.
Prepaid cards don’t affect your credit. This can be a good thing to avoid your credit dropping, but it also prevents you from using the credit to take out a lease on a car or financing student loans. In this way, your teen’s financially responsible habits will not be rewarded.
Once your child is used to using a prepaid card, transitioning out of it can be difficult. For example, switching to a student credit card might have the young person feeling financially liberated and moved to spend more than they should. They will also not be used to minimum payments, fees, and paying back money spend with credit.
To avoid a difficult transition, it is best to instill rigorous financial responsibility as we as good spending and saving habits. If you don’t use the card just as a way to spend but a way to give your teen lessons about the real world, they will not only benefit from the convenience of prepaid debit cards, they will benefit from the lessons they learn. Taking this knowledge into the world, these skills will remain with your teen forever.