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Put Junior's allowance on plastic

A prepaid card can help your child understand budgeting and saving. Plus, you can monitor your kid's spending online.

By MSN Money Partner Sep 29, 2011 6:29PM

This post comes from Odysseas Papadimitriou of Card Hub.


CardHub on MSN MoneyParents need to put their kids' allowances on prepaid cards. Why? It's simple: Prepaid cards are uniquely positioned to give kids hands-on experience learning the tenets of budgeting and responsible spending in a low-risk environment.


And if the nation's recent financial struggles have taught us anything, it's that too few children are getting the practical financial education they need and are too often becoming adults who over-leverage themselves and engage in risky lending practices.


Why a prepaid card?

Prepaid cards are like debit cards, but rather than being linked to a checking account, they're tied to a separate account that allows you to not only control the amount of money available, but also load money in a variety of ways (for example, from a bank account, using PayPal or via cash at thousands of retail locations).


You can also monitor prepaid card spending online and thereby keep track of what your kids are buying as well as turn their spending habits into teaching opportunities.


In addition, the fact that prepaid cards typically have different fees for ATM withdrawals at in-network ATMs, out-of-network ATMs and at the point of sale will force your child to learn the importance of not wasting money on avoidable bank charges -- fees now and interest later in life. Using a combination of plastic and cash will also serve as a better proxy for real-life adult spending habits. Post continues after video.

Here's what to do: Load money at a designated time each month, and make it clear that no more will be given until the following month. That way your child will be forced to save in order to make the money last all month. If he doesn't, he'll learn a valuable lesson. Also require that your child use this money to pay for certain expenses -- cellphone bills, for example -- so he can learn to keep up with recurring financial obligations.


What's the best card?

Card Hub recently conducted a prepaid card report that examined the cost of using five of the most well-known prepaid cards on the market for a young person who is given a $100 monthly allowance and visits the ATM twice a month. Based on these criteria, American Express and GreenDot offer the least expensive prepaid cards, costing only $6.66 and $5.95 in fees per month, respectively.


More and more public schools are adding financial education to their curricula, and federally funded programs such as the Money Smart Alliance and the Financial Literacy and Education Commission are gaining support, but parents need to do their part as well.


You can begin by educating your kids about the importance of budgeting and responsible spending via use of a prepaid card, but you mustn't end there. Once your child displays an aptitude for using this method of payment, increase both his allowance and financial autonomy until the point where you feel comfortable co-signing for a student credit card.


Odysseas Papadimitriou is the founder and CEO of Card Hub, a marketplace for all types of cards, including prepaid debit cards, secured credit cards and starter credit cards.


More on MSN Money:

Sep 29, 2011 10:26PM
Open a real bank account and a savings account for them and forget about these fees with prepaid cards. The point is to teach them not to waste money, right? Hopefully they will open up accounts at their smaller community bank, where the money they put in the bank is loaned out to the community, not in the larger wall street banks. A community bank will get to know them as a customer and some day will be there for them when they need a loan for their first car or home.
Sep 29, 2011 11:22PM
Sep 30, 2011 8:34AM

What a scam! Look at who is writing this article - encouraging you to blow an extra $6 per month ($72 a year) - someone who sells these cards & collects a fee. 


A lot of banks now have teen checking & savings accounts, and often one or more are linked to the financial club in High School.  Check those out first as those are often fee FREE (Wells Fargo being one of them).


You can link it to your own account to put money in (again free) and monitor their spending online and tech them how to monitor it as well - again fee FREE.

Sep 29, 2011 11:54PM
So, to justify his job, this writer wrote a piece that urges parents to allow their children to trash the parents' credit and to accept $6/month in fees for no advantages whatsoever. Real ethical. I mean, whose name does he think those phones are in? Unless he aims to push prepaid phones as well; which are horrible deals if you can afford a real family plan.

Look, find a community bank or credit union and setup an account there for your preteen or teen. If you can't, find another way. Consider cash and a jar if absolutely necessary. Don't accept paying 6% of your kid's income in fees as a given and sure as heck, don't ever risk your own credit. My heavens.
Sep 29, 2011 11:15PM

First, not all children live in neighborhoods with ready access to banks or credit unions. Drive through the poorer ares in your hometown...I doubt you see many banks, community or otherwise. Those in lower income brackets and the poor ALWAYS pay more. For many, unfortunately, prepaid cards are all that are available. Not everyone can open a bank or credit union account, fees are a fact of life and avoiding paying those fees is not always an privilege everyone has...

Credit Unions may offer a no-fee debit card for children ages 14 - 16 (older) where such cards are not allowed under banking regulations. Our 15 yr-old gets her monthly allowance placed in her account once and is learning to monitor the balance, suffer the consequence of an overdraft, and enjoy seeing the amount in her account 'grow' as she carefully decides how to spend or save with out the cost of fees for everyday use. Yes she has made mistakes, however she is learning valuable lessons. Perhaps most importantly, she is learning to address problems, questions, or concerns with the  financial institution employees directly, without mom or dad stepping in.

She has learned to compromise and negotiate with us (not manipulate us) as to what we believe we are responsible for paying and those items that are up to her to purchase, like the latest pair of jeans that she just has to have, even if she ends the month missing a Saturday lunch and movie with friends because she spent her money on jeans...

Many community banks and credit unions also have  Assets For Individual accounts that assist lower income families by matching from $2 to $5 for each $1 saved by the parents or teen for specific goals such as education, home ownership, or beginning a business.


Sep 30, 2011 10:43AM

Plain and outright stupid. PayPal? Co-signing for a Student Credit Card? A $100 monthly allowance? That is what is WRONG with the world today; put the big bold words "DO NOT" at the beginning of this article, tell kids to Earn their money, and then it possibly makes some sense.   


This post comes from Odysseas Papadimitriou, the founder and CEO of Card Hub, a marketplace for all types of cards, including prepaid debit cards.       Imagine that...

Sep 30, 2011 8:21PM

Of course you could give junior cash and then when its gone its gone.


Much better to teach them the value of money with actual money rather than get them into the habit of handing over plastic.


How different a world would be living in if people still dealt in actual cash rather than the never never of credit?

Sep 30, 2011 1:34PM
"Juniors" fall into at least 2 categories:
- ages 13-15 when allowances and pocket money hand-outs from parents are the main source of money
- ages 16-17 when they may have temp or summer jobs and depend less on their parents as a source of funding.

Full disclosure: my company, Plastyc, offers 3 different cards for teens under parental control, under the UPside Visa brand which the author of this article has ignored:
- cards for the younger crowd with no activation and no monthly fees, which have no access to ATMs so that parents can always keep track of where the money goes
- cards for the older teens with a monthly fee of $2.99 or a yearly fee of $29.95, with ATM access.
All cards can accept direct deposits from part time jobs, so that the more financially autonomous teens can manage their own money.

Teens tend to lose things. So, when their card goes missing, we let them freeze the card from their cellphone.

Parental controls + letting teens manage their own money + charging between $0 and $2.99 /month works pretty well.
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