With the passing of the Credit Card Act, it became a lot more difficult for banks to market credit cards to college students under 21; but now they've got a new target audience - teens. The credit card industry has rolled out an aggressive campaign to hook teens with prepaid credit cards, promoting it as an opportunity for parents to educate young people about money and debt. But are these prepaid credit cards which often have hefty monthly and ATM fees sending the right message about managing finances to young people?
Let's take a look at some of the money management lessons teens may be receiving:
- "It's not only okay; but cool and hip to charge things to credit cards." Yes, prepaid credit cards are just that, prepaid and draw upon money deposited into the account; but don't believe for one moment that credit card companies plan to end the relationship there. When teens use prepaid credit cards they are being groomed for a mindset that will make it easier to convert them to taking on credit card debt once they reach 18 years old.
- "It's smart to pay for the "privilege" of accessing my own money." Prepaid credit cards come with hefty fees, even the ones marketed to teens. Some charge $3.95 a month just to use the card, while other charge for every time the consumer uses an ATM machine. When parents allow their teens' money to be chipped away by high fees, they are normalizing it. It may be better to get your teen a bank account and teach them the benefits to vetting banks for the best possible deals.
- "It's okay to spend money without thinking first." It has been proven through numerous studies that people spend more money when they use their debit card or credit card because they really don't have to think about it the same way they do when they're using cash. Parents who want to teach their kids about money may want to use a checking account to teach their kids how to keep track of spending and balance their books.