March 15, 2007

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  NEWS: To Educate Teens, Prepaid May Not Be Best

  There are a plethora of prepaid debit cards available to teenagers nowadays. The supposed aim of these cards is to educate older kids about the virtues of responsible financial management using a credit card, with the safety net of not being able to spend more than you put in. Sounds great, right?
  
  Well, not so fast. Cards like the UPside card, Allow Card, Visa Buxx, and Pay Junior are designed to be highly appealing to teens, with their bright appearance and frequent partnerships with businesses that cater to kids, like MTV and many popular mall stores, not to mention their undeniable aura of "adult" cachet. There is no doubt that kids like these cards, but parents investigating their terms and conditions may find several turn-offs. First and foremost, the fees – almost all feature activation and reloading fees, monthly maintenance charges, and overdraft fees up to $20 if an attempt is made to spend more than what's left on the card. Furthermore, some of these cards feature "rewards"-like programs that give points for spending on and reloading the cards – possibly leaving the impression on intellectually plastic young adults that frequent credit card use is something to be rewarded.
  
  It may be better to add responsible teens to a joint card with their parents or guardians, say industry pros. Not only will they be able to make cashless purchases with the comparatively lower penalty of (hopefully) a decent interest rate, but they will also build their credit, providing that the monthly bill is paid on time. But don't write off prepaid just yet. Experts say that the cards do, in fact, serve a useful purpose – for a slightly older crowd. Young adults headed off to college face being bombarded with first-time credit card offers, which can tempt coeds easily into overspending and accumulating monster debt within their first semester. Prepaid cards work well for this group, for whom the costs associated are well worth the risk of spending more than one can put in.
  
  
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