family graduation photoIt's easy to see the appeal of prepaid debit cards for people with teenage children. They make it possible to track spending, can be used anywhere, are safer than cash and teens can only spend what's on the card. What's more, the cards, some decked out with images of celebrities, cartoon characters or video game stars, have a certain "cool factor."

But according to Lori Mackey, author of Money Mama & The Three Little Pigs, the handy cards have a darker side: "Peel back the marketing messages though, and it seems the credit card companies have found another way to reach our youth with plastic," she argues. "Prepaid cards are the gateway to credit cards."

Scam or Training Wheels?

Prepaid cards targeted to teens are under the microscope, particularly after the brouhaha late last year over the Kardashian Kard, which had a $99.95 annual fee and $7.95 monthly fee before it disappeared from the market. Part of the scrutiny comes from the exploding popularity of the prepaid market. The total dollar amount loaded onto prepaid cards will reach $672 billion by 2013, which is more than double what was loaded in 2009, according to research from Mercator Advisory Group's prepaid market forecast for 2010-2013.

There's a reason the market is growing so rapidly. "Think of prepaid credit cards as training wheels in the world of credit. They are best for teaching teens to control spending and the conveniences of how and where to use a credit card, without the risk of falling into debt," says Nicole Mustard, senior vice president of strategy at Credit Karma.

Then, too "There is no more handing out cash that can be lost and difficult to account for by the teen and the parent who can easily forget how much money has been forked over," says Jim Collas, president of BillMyParents, which offers a reloadable prepaid MasterCard (MA) for 13-18 year-olds. The father of four, with two teenagers says, "I've found that my teens now understand how to live within their means and that they are accountable for their expenses. They are on a monthly allowance, so it helps them be aware of how much they have to reserve to make it through the month," he adds.

A Teaching Tool

Bob Gutermuth's 21 year-old son has been using a prepaid card since he was 16. "It's been positive because it allowed me to cut him off financially as a device for grounding him (easy as a click), allowed me to funnel emergency money to him when needed, and family members could give him money directly into his card, rather than gifts that he didn't want."

Prepaid cards have also worked for Sally Treadwell and her family. "The hope is that kids will associate plastic with considering how much money they can actually afford to spend. I start them with a smaller amount and then raise it to cover other needs (like a gas allowance for the older child), once they show me they can spend intelligently," says Treadwell. Each month the money for their allowance is automatically deducted from her Visa card and that card is automatically paid from her checking account at no charge.

Katherine Mulhearn, a spokesperson for Visa (V) says Visa Buxx cards are designed as tools for parents to teach their teens about financial responsibility. Without question, a prepaid card can be just that, especially "If parents start talking about the limitations of credit and debit cards. Discuss what happens if you don't make a payment, and it's also not too early to talk about credit scores. It's only a money management tool if there's ongoing conversation," says Katherine Liola, an Ameriprise financial advisor. Regularly reviewing statements to track and discuss purchases is also a good idea.

Unconscious Spending

But, even the best intended use can go awry. "There's a psychological numbing that occurs with the use of cards. It's much easier to spend unconsciously with the swipe of a card, whether it is credit, debit or prepaid. Laying down cold hard cash tends to make us think through our purchases," points out Brad Klontz, a financial psychologist and author, Mind Over Money: Overcoming The Money Disorders that Threaten Our Financial Health.

The major problem with cards is that they're similar to chips at the casino, says H. Jude Boudreaux, a certified financial planner with Upperline Financial Planning. "It doesn't feel like you're spending money, just swiping and signing your name. Cash is a much better tool to teach teens about using money."

Kim McGrigg, a spokesperson for Money Management International, worries that because prepaid cards look like credit cards, teens might get a comfort level with using credit and not respect the potential for financial ruin if or when they switch to a traditional credit card.

And for all the hopefully teachable moments that might arise, the biggest drawback of a prepaid card is that the card activity isn't reported to the major credit bureaus, so they don't help young people establish and build their credit. "For teenagers, building credit is one of the most important financial steps they can take in their young lives, and the sooner they start building a credit history, the better," says Mustard. She believes a secured credit card is a better teaching tool for teens because they learn how to use and build credit.

High Price, Low Return

Another problem is the huge matter of fees. "We have seen that these can be dangerous fee-harvesting products attached to clever marketing gimmicks and celebrity names. Pay very close attention to the numbers," says Bruce McClary, a financial educator with ClearPoint Credit Counseling Solutions. "What are the costs of using and owning these cards? There is no benefit to your credit score or credit history, so what do you hope to gain from using these products?"

Costs for specific fees vary from company to company, but the cards commonly carry fees for activation, loading (to add more cash), monthly (for the ability to use it), and inactivity (not using it), says Alex Matjanec, co-founder of For example, BillMyParents charges a monthly membership fee of $3.95 and tacks on another $0.75 to load funds. According to Collas, he's much cheaper than the norm, where a one-time activation fee can be $19.95, and the card carries monthly membership fees of $9.95, load funds fees of $4.95, $25 overdraft fees, $1 signature purchase fees, $1 PIN-based purchase fees and $2 charges for ATM transactions. In other words, the financial education your teen gets may not come cheap.

Quite frankly, says McGrigg, "There are a lot of ways to teach kids about money. How about a good old-fashioned checking account?"

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We assume that teens need guidance in the field of finance and money management and they learn that from their parents and their educators. In order to ensure that they are soaking in the information that we tell them is, for them to apply what they've learned by showing us their management skills. Obviously it is not a good idea to put a prepaid cash card in the hands of a teenager that does not understand financial literacy. However, that call is ultimately up to the parents. Prepaid cash cards make life easier for parents that want to be able to help their kids financially when they are far away, maybe off to school, or close by with a job that they get paychecks for but the teens can't cash them on their own. By transferring money electronically, the funds are readily available and the parents save them a trip to a western union kiosk wherever they are. Prepaid cards are a smart way to go, you've just got to find a great one to get them! offers cards that can be personalized with the teens favorite brand and they have very low fees compared to their competitors. Check out the site for more details if you'd like.

July 23 2012 at 7:48 PM Report abuse rate up rate down Reply

Instead of getting my now adult teen a prepaid card, I gave him a duplicate card on one of my accounts with a low credit limit when he was 14. I never used that card, so it was basically his account. Authorized purchases were things that I would pay for---such as, you can spend up to $100 for new shoes. Unauthorized purchases, such as a CD, were things he would have to come up with money for through working odd jobs or from money he would be getting from relatives for his birthday or Christmas or part-time job when older. Any abuses would end his use of the card. I never had a problem because he was always a responsible kid who didn't have to have instant gratification.
I would never gave his brother, who is 16 years older, a card of any kind as money always burned a hole in his pocket. If grandma sent $5 for him in a letter, he was out the door to buy candy and gum at the QuikTrip 5 minutes later.
Before giving a card of any kind to a teen, it's important to assess their basic personality. If your kid's been a whiny foot stomper who wants everything right now, he's not a good bet for a card. If your kid can wait until after dinner to have a bowl of ice cream without pitching a fit, then he'll probably be responsible enough to have a card. To teach the "instant gratification" personality kid financial responsiblity, giving him a card isn't the way to start.

February 21 2011 at 11:28 PM Report abuse +1 rate up rate down Reply

I agree that secure cards are a better first step in building credit but they are not the whole solution... While prepaid have their flaws they are better then most starter bank accounts (hello checks! - hello fees!) in teaching kids to spend what they have. As far as fees go the best card I have seen is the Money manager card ( Check out their fees... very nice... No other card like it I could find. The drawback to the money manager card is you have to contact them to get a card as they work through employers... Also they don't have all the bells and whistles of some other programs but when it comes to the basics they are the best.

February 21 2011 at 11:44 AM Report abuse +1 rate up rate down Reply

my parents were so poor they couldn't load a debit card for me if they wanted to. I searched out and found jobs to earn the money I had. Kids now days sit in their rooms and play computer games. Their parents give them a card and load it with money and think this is what they should do. The kid learns nothing about money, how is is aquired. If they had to work for it they would remember that when they spend it.

February 21 2011 at 12:28 AM Report abuse +3 rate up rate down Reply

More Rip offs of middle class american parents, who have been baited into buying their kids all kinds of things ,such as, cell phones then they also get the monthly sevice bill. The Banks want your very last nickel---don't give it to them.

February 20 2011 at 10:43 PM Report abuse +4 rate up rate down Reply

If you wanna teach responsibility with money, buy your kids a book called "Managing Debt For Dummies". It tells you how to set up a budget, what is good debt, and what debt is bad, and starts you to learn about controlling your debt. As well as the difference between Non profit Consumer Credit Counseling ?Services, Vs, What it calls "Debt settlement firms, which are usually all about fees that can be excessively high. Check out the AOl money advice, as well as money books you may be able to get used for little monney. Knowledge about money is very powerful. Oh yeah, If your deeply in debt , you aren't alone. That's my personal opinion.

February 20 2011 at 9:13 PM Report abuse rate up rate down Reply

Caveat Emptor. These csrds and similar are deivised for the benefit of their creators, not the users thereof. What happened to will power and self control? Why the need of other (devices)to perform that which you shold be able to do as a maturing individual?

February 20 2011 at 6:01 PM Report abuse +1 rate up rate down Reply

These are cookie cutter stories. How about options trading. ETF's such as DIG or ERV. What sectors are hot. Maybe some forex trading. stories on the best banks, oil, companies, real-estate, fertilizers. How to make money not how to save money.

February 20 2011 at 9:37 AM Report abuse -1 rate up rate down Reply