Image: Woman with mobile phone and credit card, smiling © Pando Hall, Photographer

Allowances are great for helping children learn to manage money. But cash is analog, and we live in an increasingly digital world.

Much of what my 10-year-old daughter wants to buy these days -- music, games, modifications (or mods) for those games -- is purchased online. We can handle these transactions in a number of ways, including:

●I charge the purchases and she pays me back with the crumpled dollar bills she’s earned.
●I add her as an authorized user to one of our credit cards.
●I get her a prepaid debit card and load it with her allowance so she gains some experience managing digital funds.

A couple of years ago, I wouldn’t even have considered the last option because prepaid cards had a deservedly terrible reputation for charging excessive fees. Prepaid cards hit their nadir in 2010, when the short-lived Kardashian Kard debuted with a $100 annual membership fee, plus an $8 monthly fee.

Today, there are much better options. They just don’t include the card from BillMyParents that teen idol Justin Bieber is shilling.

According to Odysseas Papadimitriou, the founder and CEO of the card comparison site Card Hub, some prepaid cards offer a combination of utility and supervision that are a good fit for older children’s allowances.

“Parents can give their kids an allowance on a prepaid card, while requiring that they cover some of their own discretionary expenses and thereby teach them how to budget, make purchases with plastic, use ATMs and manage a financial account in such a way as to avoid incurring unnecessary fees,” Papadimitriou said.  “Parents will also be able to review their kids’ spending habits with them and offer tips as needed.”

Prepaid cards are an option for children who are too young for their own checking account (our bank requires kids be at least 13) or who need more experience managing money before venturing into the world of potential overdrafts and other exorbitant bank fees.

For example, Allison Chappell of Salt Lake City set up her 16-year-old with a checking account and a debit card after the teenager got a job. Chappell got her younger child, who’s 13, a prepaid debit card with USAA Bank.

“It's worked out great,” Chappell wrote on my Facebook fan page. “She's learning to budget herself and watch her balance.”

However, if you’re considering a prepaid card for a child, you need to pick the right one. Some are so laden with fees that they could eat up most of your kid’s allowance, while sending the wrongheaded message that people should have to pay through the nose to access their own money.

That’s why Anisha Sekar of NerdWallet, another card comparison site, doesn’t think much of the SpendSmart card being promoted by Bieber. The card’s fees include:

  • A $3.95 monthly fee.
  • A fee of $1.50 for each ATM withdrawal.
  • Loading fees of $2.95 from a debit or credit card and 75 cents from a bank account.
  • A $3 inactivity fee if the card isn’t used for 90 days.
  • A $7.95 replacement fee to replace a lost card.

“It really sends entirely the wrong message to your kids,” Sekar said. “It prioritizes marketing and flashiness over sound financial sense.”

In other words, if your kid really likes Bieber, get her a poster instead.

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