Prepaid Credit Cards for Teens

Your children need a financial education just as much as they do an academic one. Unfortunately, it’s a topic that’s rarely, if ever, covered in a classroom, so the responsibility for teaching your children how to manage their money falls squarely on your shoulders. Many parents take the easy way out and simply hand over their credit card to their teenager, but this does little to teach them the value of money, or the consequences of irresponsible spending habits.

The results speak for themselves in these eye-opening statistics:

¨      One third of all twelfth grade students use a credit card and at least half that number use cards with the student’s name on it. This was revealed by a study done in early 2008 by a company that encourages financial education called Jumpstart Coalition.

¨      More than two-thirds (nearly 80%) of students in college own credit cards, with an average balance of $3,200. This information comes from Nellie Mae, a company that makes student loans. Even more shocking is that one student in 10 has already acquired nearly $8,000 in credit card debt.

¨      In 1995, the percentage of young adults under the age of 25 who filed for bankruptcy was less than one percent. Today that percentage has increased to over five percent.

To keep your teenager from winding up as part of these statistics, it’s important to teach them how to manage their money. And you can do that long before they head off on their own for college. An excellent way is to provide them with a prepaid credit card designed especially for teenagers.

Some of the major credit card companies have made it extremely easy for you to do just that. Visa has their ‘Buxx’ card and Mastercard offers the ‘Allowcard’. Here’s how they work:

You load the card with whatever amount of money you wish. You can even allow relatives to put money on the card instead of sending your child a check or handing them cash for birthdays and other special events.

Monitoring their spending is easy and can be done by calling the company or viewing the card statements online. That way you know if they’re showing frivolous spending habits and can speak up and offer guidance before it gets out of hand.

The card can be reloaded at any time over the phone or by going online and there are no worries about overdraft charges, late fees, or interest payments. It’s safer than giving cash to your child, since most companies have a guarantee to protect you from unauthorized spending. You know your child better than anyone else, so only you can determine if it’s wise to put large amounts of money on the card.

Instead of just handing over a full card, you can tie it in to chores around the house and have your children earn their money. This helps teach them responsibility, good work ethics, and the value of money.

It should be made clear that once they’ve spent all the money on the card, that’s all they get until they’ve either earned more, or some specified amount of time has passed. Running out of money is one of the best ways there is to teach a child how to spend wisely and stay within a budget.

Prepaid credit cards for teens is a great way to allow your teenager to become more independent by being in control of their money and allowing them the flexibility of spending freely, but only to a predetermined point that you still control.