Prepaid Credit Cards for Teens – More Pros than Cons

Learning to use credit wisely is a necessity for young people today. Credit debt is an enormous problem today for many adults who did not learn how to manage credit when they were young.

That is understandable as use of credit card accounts on a daily basis is a fairly new phenomenon in our society. It wasn’t long ago that obtaining a credit card required excellent credit history. For that reason, most of the consumers using credit did understand how to budget and manage personal finances.

As the restrictions and qualification requirements eased credit became more widely available to those with little credit history or with black marks in their file. Many consumers began buying everything on credit without thought to how those bills would be paid.

We understand and accept the prevalent use of credit today. That knowledge demands we teach our youth how to manage credit rather than just turning them loose with a credit card and no training in personal money management or budgeting.

A parent who has suffered from the burden of credit debt himself does not want his child to go through the same experience.

The pros and cons of prepaid cards for teenagers is a subject being addressed by many financial counselors and economists. These experts think teens should have access to use of credit while they are young and while parents can use credit cards as a tool to teach financial responsibility.

The Pros

There is peace of mind for parents in knowing their teen has funds available to use in an emergency. This is especially true today when driving is a daily activity for young people. Cell phones allow children to phone home when they need help but there are areas without cell phone reception.

If a teen is stranded with a flat tire, the ability to use an emergency credit card for repairs not only teaches money management but also helps the young person learn to solve a problem. Phoning home only calls for a parent to come to the location and solve the problem. There is no education in that experience.

For college bound teens, the prepaid card allows parents to set limits on purchases while providing the opportunity for the college student to make choices of what he buys and where he buys it.

The card can be funded quickly by the parent if more money is needed but can also be used in a disciplined way to keep the student on budget.

It’s important for college students to learn how to manage their money. It will teach them key responsibilities to help them succeed in any universities or accelerated programs like Belhaven Jackson.

If the goal is to establish a credit file for a young person, the prepaid card will not be useful. However, the alternative is to provide a secured credit card which is also prepaid by a monetary deposit at the time the account is established.

A secured card has significantly more costs associated with it than a prepaid credit account but is often reported to credit rating agencies.

The Cons

The prepaid card can eliminate the necessity of carrying cash for your college bound student which is a good security precaution. However, if you fund the card on demand it will not serve as a money management tool.

Before obtaining a prepaid card for your teen, it’s important to talk about how the card is to be used and educate the teen on how to use credit. Help your teen open checking and savings accounts in his name at a local bank.

This will teach him how to balance a bank account. It will also teach spendthrift teens a financial reality – you cannot spend more than you have on hand. He may also use a debit card attached to his checking account which will get him used to using a plastic card in a responsible way.

If your teen is headed for college, explain the funding of his prepaid card. Help him establish a realistic budget of expenses for books, supplies, food and entertainment and explain how those expenses will be funded on his prepaid credit card.

With a workable budget and the funds to buy what he needs, your college bound student will be able to use his credit card as needed but you will be able to monitor how much is spent.

You will be able to keep the spending in line with his needs and provide ongoing advice to help your teen learn to manage credit wisely. Prepaid credit cards can help parents provide lessons in money management that will ease the teen’s growth into adult responsibilities.