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Teach Your Teen About Credit with a Prepaid Card

[Monday, March 23rd, 2015]

If you’ve got a teenager, you may be wondering when is the right time to teach your son or daughter about using a credit card—and how to do it. Here’s an idea: get your child started with a prepaid card.

You can think of this as a kind of “starter card” that will get your child used to using a card to pay for things, but which can’t be used to get into debt. The advantages of using a prepaid card as an allowance for your offspring are many, including the fact that you can track their spending. Here are a few more:

• Control how much money your child gets. You can load up the card with whatever amount you are comfortable with. Whether that’s $20 a week or $200, you get to decide. You’ll be able to check in and see how much is left on the card and decide whether or not to reload it.

• Give your child a safety net. By letting your child try using a card to pay for things, but not putting very much money on the card, you create a low-stakes learning environment for your child.

• Teach your child about budgeting. If you sit down and talk over how much money will be going on the card, when your child will get the money, and what sort of purchases your child will make, it gives you a good opening to educate the young person about budgets. Come up with spending categories and write down how much will be spent on each category.

How prepaid cards work

In case you aren’t clear on how prepaid cards—also called reloadable general purpose cards—work, here’s a little primer:

You load money onto the card; similar to the way you would put funds onto a gift card. The difference is, while you can only use a gift card at the store where it was purchased, you can use a prepaid card anywhere that accepts a credit card. You can get prepaid cards from Visa, MasterCard, American Express and Discover. You will then be able to use the card at any merchant that accepts that type of credit card.

When you use the card, the process will be the same as when you use a debit or credit card. There may or may not be a PIN code associated with the card; if there isn’t, then the cashier will just slide the card and the payment will be processed.

Having a card with a PIN gives another layer of security that may be beneficial for a teenager. On the other hand, if your teen is forgetful, they may prefer not to have a PIN. You may want to remind your teen that remembering a PIN is an essential life skill for adulthood. If they remember their locker combination at school, there should not be a problem remembering a PIN code. When the money has run out, the card can no longer be used until you reload it.

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