Have you heard about the pre-paid debit card where the company behind it says it’s good for kids? And have you heard that pre-paid debit cards help build credit?
Marketing around these pre-paid debit cards is getting stronger and stronger, with companies even using teen celebrities like Justin Bieber.
One company, SpendSmart even boasts the card will teach young people about spending money. “Bill My Parents is the responsible teen spending company,” says CEO Mike McCoy.
But others, like Preston Cochran, former CEO of the AAA Fair Credit Reporting say the card is expensive. “So you’ve got a loading fee, you’re going to have an inactivity fee if you don’t use that card, you’re going to have a set-up fee, a replacement fee if you lose the card, things of that nature will typically add up,” says Cochran. Other fees might include a monthly fee just to have the card.
One misconception circulating is the pre-paid debit card will allow you to build credit, Cochran says that simply is not true. “Building credit is going to be reported on the credit bureaus based on a credit card or loan, even bank accounts don’t report to credit bureaus.”
Cochran instead recommends teaching children the value of a checking account and how to manage it. When they familiarize themselves with that, move onto a credit card that you monitor and set spending limits on.