Should you get a prepaid card for your child?

By Emma Lunn

Handing your children cash each week is one way to make sure they have spending money. Yet it's impossible to know if they're using that money on lunch -- or sweets.

A prepaid card can therefore be a convenient way to give your children spending money while also teaching them how to budget. It lets Mum and Dad keep a watchful eye on their children's spending -- and step in to correct any bad habits before the kids grow up and get plastic of their own.

The perks of prepaid
A prepaid card is pre-loaded with money and then used in the same way as a bank debit or credit card to withdraw money from ATMs and make purchases. Prepaid cards are much more secure than cash, as a PIN is needed to withdraw money or make purchases in a store or online. child-prepaid-card

What makes a prepaid card a useful budgeting tool is that cardholders can spend only the amount loaded onto the card. Instead of simply handing over cash whenever your child needs spending money, reloading a prepaid card just requires going online, making a phone call or visiting a retail location. This can be a good excuse to check the account history -- and find out why your child needs a re-fill half way through the week. And that, in turn, presents a good reason to talk with your child about spending choices, budgeting and making the money on the card last longer.

"By giving your child money in the form of pre-payments on a card, parents are gradually giving responsibility, which puts them in a better position to manage their student finances or household budgets later," says Celia Allaby, programme and policy director at the Personal Finance Education Group (PFEG). "The card in itself doesn't teach kids good money habits. It is the backup and guidance from parents that will teach them."

Prepaid products
There are several prepaid cards aimed at children and teenagers. These include the MeCard prepaid card from MasterCard, the Splash Plastic Maestro card and the Blue Sky pay-as-you-go card.

David Aungier, founder of MeCard, says the idea came to him when he realised he needed a way to teach his five children about money.

"The trouble is the younger generation aren't really taught about money and it's something I am passionate about," he says.

Aungier says he got prepaid cards for two of his children, but the cards he chose did not allow him to track their purchases in real time. That's what makes the MeCard unique.

"Every time the child uses the card, at an ATM, in a shop or online, the parent receives a text message telling them what the child spent the money on. So it's a good way to track your child's spending and educate them," Aungier says.

The MeCard account can also be accessed online, where transactions and a running balance can be viewed.

Tips for parents
One of the downsides of prepaid cards in general is the fact that they often come laden with fees. These vary considerably by card and often include reloading fees, service fees, balance check fees, inactivity fees and ATM fees.

For example, the MeCard has a £9.99 issuing fee and a renewal fee of £9.99 a year. Cash withdrawals cost £0.75 each in the UK and £1.50 abroad. An SMS balance request is £0.15. Loading the card is free by BACS, but £1 by debit card and 3% of the load amount by PayPoint. And although the card comes loaded with a £10 credit, this is wiped out by a £10 fee to close the account.

The Blue Sky pay-as-you-go MasterCard has similar fees. The card allows teens between the ages of 13 and 18 to have a "companion card" on a parent's primary card account. The accounts are linked, meaning the parent can share money with the children's cards as well as monitor what they spend their money on.

The card costs £9.99 upfront, £0.99 per load via bank transfer, £1.99 per load at the Post Office and 3% via PayPoint. Using the card costs £0.66 online or in a store. ATM fees are 1.5% of the withdrawal amount, with a minimum of £0.99 and maximum of £1.50.

Be sure your children know how much it costs to use the card -- and how a trip to the ATM or a simple swipe at a restaurant will chip away at their budgets. Also, be sure to ask your bank if the card allows overdrafting (in other words, allowing the child to spend more than what's on the card in exchange for a fee). Some cards do, and could therefore quickly become expensive if you and your child don't keep track of the balance.

See related: Parents do more harm than good by shouldering children's debt, 5 creative money lessons for kids

 

Published: 2 July 2012