At some point, all teens become adults, at which point they need to quickly learn how to manage the money they’re making. But developing money management skills can be challenging when they can’t get a credit card. To help out, many parents now give their teens prepaid credit cards, which can be used anywhere that accepts regular credit cards. Simply load the money onto the card and your teen can spend until the money is gone. However, if a teen decides to try to get a prepaid card without a parent coming along, there could be an issue.
In most cases, you will need a parent's signature or verification if you want to apply for a prepaid card before 18 years old. Prepaid cards also don't help build credit and may come with small fees, including activation fees and monthly fees.
If a teen wants to purchase a card, the reloadable prepaid cards found at retailers such as Walgreens may be an option. However, if you read the fine print, you’ll find these cards almost always say that you must be 18 to register as the primary cardholder. Green Dot, which is one of the more popular prepaid cards found at retailers, requires the primary cardholder to be 18 or older and any secondary cardholders to be verified. Even if a teen can get away with walking up to the register and paying cash for a card, she will be at risk of violating the terms of service of the card.
Generally, parents purchase the prepaid card for their teens. Although they’re ultimately responsible for any activity on the account, they can load money onto the card, and the child is added as an authorized user. This can be especially useful if you’re still issuing an allowance as it allows you to load the money onto the prepaid card whenever you need to. Some prepaid cards even allow parents to monitor activity, which can come in handy if you’re concerned about your teen building responsible spending habits. Best of all, you can connect the entire family’s cards to one account, making it even easier to move money around.
There’s good news and bad news when it comes to prepaid credit cards. The good news is that it doesn’t require a credit application, so you and your child won’t have to deal with pesky credit checks. That’s bad news, though, since the card also won’t help build credit. If credit is your concern, consider adding your teen to one of your credit cards and closely monitor the activity on that account.
Of course, you won’t get any type of spending card without at least a small fee. Green Dot charges $4.95 at activation and $5.95 a month under most circumstances. You’ll see similar fees with other cards, but if you get a prepaid card through your bank, you may find that relationship waives any fees you would normally be charged. Before purchasing the card, check into any fees your bank might apply when you transfer funds to the card. You also should consider, when choosing a card, the convenience of reloading funds onto the card, since you may find you’re doing so far more often than you’d planned.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.