Prepaid Credit Cards: How They Can Help Your Kids
Your teenager may want the freedom to purchase items online or at the mall without the hassle of cash, and you would like the ability to keep track his/her spending. With a prepaid credit card, you can both get what you want. Prepaid cards also give parents the power to limit their child’s spending to make sure he or she is not spending frivolously. What’s more, starting your teen with a prepaid credit card will help teach financial responsibility at an early age. Think of prepaid credit cards as financial training wheels, of sorts. In this post, we’ll discuss further how a prepaid credit card can benefit your kids.
Why Prepaid Cards Are Ideal for Kids
When you think of credit card holders, you may envision responsible, wage-earning adults with an established credit history. However, with secured credit cards, just about anyone can use them fairly responsibly. These cards are perfect for kids for several reasons. For one, you limit how much they spend each month with the amount of funds you put on the card. Once they exceed this amount, the card is useless. Thus, you can use a prepaid card as a convenient way to give a monthly allowance. Secondly, prepaid credit cards are accepted everywhere Visa or MasterCard are taken. Your child can use the card to eat out, make purchases online, or buy clothes at the mall.
A Lesson in Budgeting
The big selling point for parents with secured credit cards is that it is impossible for the child to overspend or exceed the card’s limit. Consequently, you can give your child a valuable lesson in budgeting with a prepaid card. If the child knows he only has so much money on the card, he or she will learn to use it wisely. Instead of just doling out cash whenever your child asks, you can put limits on their spending and put the responsibility of budgeting in their hands. You also know that your child will always have a back-up for emergencies as long as the card has money on it. One worry that parents often have is that the child will receive a credit rating for the card or the child’s spending habits will be reflected on their own credit reports. This is actually untrue—prepaid credit cards do not appear on credit reports. Just make sure that the issuer does not report the activity to any of the credit bureaus.
Facts about Prepaid Cards
Usually, prepaid cards come with a one-time sign-up fee, a monthly fee, and then a reloading fee every time the card’s funds are replenished. These fees are typically minimal, and most cards allow parents to manage the funds online. You can even find some prepaid credit cards designed specifically for kids that block purchases of alcohol, pornography, firearms, and online gambling. In this way, you have much more control over your child’s spending than if you entrusted him or her with cash.