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Can Prepaid Debit Cards Curb Teen Spending?

Teen – July, 2007
By Jacqueline V. Scott
It looks like a MasterCard. It feels like a MasterCard.
But it isn’t quite what you think it is.
Prepaid debit cards are becoming more popular with parents who want to give their teens the freedom to manage their money while controlling how much they spend.
With names like PAYjr., Allow Card, and the Hello Kitty card, companies that offer these cards tout their ability to teach teenagers responsible spending. Parents control how much money is put on the card and kids learn when to say “when.”
Unlike traditional credit cards, these debit cards eliminate the worry of kids charging too much, exceeding the limit, or making inappropriate purchases. There are no overdraft fees, and parents can add money at their discretion.
Just like traditional cards, these cards are accepted wherever most charge and credit cards are accepted. Though they appear to work like credit cards, no credit is involved. Parents have already paid for the amount that has been put on the card.
Reisterstown mom Nancy Hoffman says she used a prepaid card offered through the Bank of America when her daughter, now 18, was younger.
“My daughter was 15 at the time, and we used it as a way to teach her to budget her money and not have to always be asking me for money,” Hoffman says. “It was very easy for her to use.”
PAYjr. is a total money management system for kids, says Matt Frye, president of PAYjr. His company offers a free online chore and allowance tracking system for families with kids of any age.
“That is really the core of what we do,” says Frye.
The allowance system allows parents to attach monetary rewards to daily chores and activities. Kids can log in and record chores completed, and the system keeps track of money owed to them.
“Basically, we have moved the chore chart from the refrigerator to online,” describes Frye.
Currently, 20,000 users are using the company’s online chore and allowance system.

Lucky 13
Once kids reach the age of 13, they can sign up for PAYjr.’s prepaid card. Frye says about 2500 of his clients have PAYjr. cards.
Parents can use the allowance system to upload money owed to their kids’ PAYjr. card.
In addition, kids can use the online system to budget their money and check their balances—after all, they have to stay aware of how much money is still available for spending.
“It was just like a credit card, but with a pre-determined amount of money on it,” Hoffman says about the card her daughter used. “This way she did not have the option of charging anything. There had to be money in the account for her to use it.”
Hoffman adds that her daughter’s card also had a program that family members could use to deposit money for gifts.
An added feature allows parents to go online to see how their children are spending their money.
Frye says kids seem to prefer the convenience of debit cards because so much of what they want these days can’t be paid for with cash. That includes iTunes, cell phone rings, video games, and other online purchases.
But while the debit card allows kids to use their money the way they want to, Frye adds that PAYjr. debit cards will block certain kinds of merchants who carry products restricted to those over 18 or 21. That includes firearms, tobacco, alcohol, gambling, and pornography.
Also, be warned that most prepaid cards come with activation fees, maintenance fees, and ATM withdrawal fees.
Frye says his company charges $2.95 per month for maintenance, $1.50 for ATM fees, and will charge a small decline fee (“in the amount of cents”) if kids try to purchase over their limit.

Jury Still Out
Whether or not these products actually do teach responsible spending is still a matter of debate.
While proponents see these programs as teaching tools, others maintain that giving kids “plastic” so early in life may actually have the opposite effect. Some credit counselors worry that parents who add money to the card with reckless abandon may actually be teaching their kids how to run up their credit.
Nonetheless, many parents feel that, if they are used responsibly, prepaid cards can teach kids the value of budgeting.
When Hoffman’s daughter heads off to college in the fall, she will be using a similar kind of debit card to the one she had in high school.
“We are converting her current ATM card into an ATM/debit card,” she says. “We have it set up so that she and I can go online to check balances and see what transactions have transpired.” BC
©Baltimore’s Child – July, 2007

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