How young is too young for a prepaid card?

By Marianne Curphey

Would you let your 8-year-old have a prepaid card and use it to go shopping? While there are already specialty prepaid cards on the market designed for teens, a company called PKTMNY recently launched a prepaid card for children as young as 8.

So are we about to have a generation hooked on plastic, or is the concept of learning about spending and budgeting one that primary school children need to learn?

A careful balance
When it comes to paying with plastic, a potential problem for both children and adults is that using prepaid cards doesn't feel like spending actual money, says Paul Crayston, spokesman for the Money Advice Trust.

"I can see that there could be educational benefits from children learning how to use plastic, but it can be easier to spend on a card because it doesn't always feel real," he says. "However, if children recognise from an early age that plastic is proper money and they learn how to handle it, then that will be of benefit for them."

Another problem: The money you load onto a prepaid card for your child isn't the only money you'll be spending. Prepaid cards generally come with a variety of fees, incluing annual, sign-up, transaction and reloading fees.

If a card charges per transaction or ATM withdrawal, that could become a problem, as young children may not comprehend these per-use costs.

"The charges could make it quite expensive if children made a lot of small withdrawals, which they are likely to do," says personal finance expert Andrew Hagger of MoneyComms. "On the plus side, as a society, we are moving away from cash towards plastic so it is helpful for children to get some education on this early on."

PKTMNY: The details
  • For ages: 8 to 16
  • Loading fees: From bank account (free); from credit card (1.21%); from debit card (50p)
  • Set-up fee: £5
  • Monthly fee: £1
  • ATM fee: In UK (50p); abroad £2
  • Transaction fee: In UK (free); abroad (2.75%)
  • Card replacement fee: £5
  • Max balance: £6,000
  • Max daily spend: £4,000

What age is appropriate?
Whether your child is old enough to handle the responsibilities of plastic is a question each family must answer on its own. MasterCard's MeCard and the Splash Plastic Maestro card require card users to be at least 13 years of age. The newly released PKTMNY card, however, moves the minimum age down by five years to age 8.

"We are not advocating giving every child a PKTMNY card.  It is entirely up to the parent as to what is appropriate for their child and at what age," says Mark Timbrell, founder and CEO of PKTMNY.

The key to extending plastic to a younger group is giving parents extra control, according to Timbrell. The PKTMNY card comes with numerous safety measures designed for young users, and Timbrell encourages parents, if they choose to use the card, to use it as a tool for saving, not just a tool for spending. Children can use the card's online features to set up savings goals and wish lists. Parents, meanwhile, can choose how much goes on the card and set per-transaction and per-week spending limits -- or adjust the card's settings to prevent it from being used at ATMs.

"It is controlled at all times by parents who set the account up for their child and can view at any time graphical statements that summarise spending and progress towards savings goals," Timbrell says.

So what would a child as young as 8 need spending money for? Timbrell says PKTMNY worked with a clinical child psychologist in analysing children's spending patterns. Children reach a "tipping point" between age 10 and 11, he says. Before that, they spend on toys and sweets, and, after that, they aspire to buy things that make them seem older, such as games consoles, music and clothes.

Whatever children are using the card for, and whatever age they might be, parents need to use prepaid cards in the wider context of teaching their children about money management, says Tracey Bleakley, chief executive of the Personal Finance Education Group (pfeg), an organisation that advocates for financial education for young people.

"It's not enough just to top up the card and let them spend," Bleakley says. "We are increasingly a cashless society -- young people are going to be using card payment mechanisms later in life, so it's important that we teach them how to do this safely, by setting a proper budget and sticking to it, from an early age."

See related: How to make your adult children financially independent, Parents do more harm than good by shouldering children's debt


Published: 3 January 2013