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Getting a prepaid credit card for your teenager
Teach your teenager how to be financially responsible using plastic, without the temptation of seemingly unlimited spending.
When first introduced to the apparent freedom of plastic spending, teenagers can easily become reckless spenders. Prepaid credit cards can help protect teens from spending money they don’t have by allowing them to load funds onto a card, which can be used to pay for purchases much the same way as a debit card in store or online and also to withdraw funds from ATMs.
Learn more about how prepaid credit cards work and if one of these cards might be a good option for your teenager.
What is a prepaid credit card?
A prepaid credit card refers to a card that you can load funds onto and use the same way you would a debit card; you can then reuse the same card each time the funds get low simply by reloading it with more funds. Some prepaid cards can only be loaded with money once (such as a gift card), while other prepaid cards are reloadable (like a travel card).
While these cards are often referred to as a prepaid credit card, they don’t work the same way as traditional credit cards. They don’t come with a line of credit and they have much more stringent eligibility requirements than most cards.
Compare prepaid credit cards
Prepaid credit cards usually don’t have any requirements. Furthermore, most prepaid credit cards do not require credit checks, meaning you can have no credit history or a bad history and still be approved for a prepaid card. For these reasons, a prepaid card could be a good stepping stone for your teenager to understand how to manage expenses on plastic before applying for a real credit card when they’re eligible.
Features of prepaid credit cards
When comparing prepaid cards for your teenager, consider the following features to determine which type of card is right for them and their spending habits:
- Reloadable cards. It’s easy to load your card with funds at the time of purchase and again whenever your card is low on funds. You can usually add funds to the account over the phone, through an online transfer or through an online account.
- Worldwide acceptance. Prepaid credit cards from Visa, MasterCard and American Express are accepted at tens of millions of shops, online stores and ATMs worldwide — making them useful for overseas travel.
- Security features. Purchases are protected by the same anti-fraud measures and guarantees that Visa, MasterCard and American Express provide to credit cards — meaning you won’t be held responsible for fraudulent transactions.
- Contactless technology. Some prepaid cards come with contactless payment technology, meaning you can tap the card without entering the PIN on purchases up to $100. Although this is a convenient option, it is also a very risky option since it’s a very hands-off approach to spending, meaning money can be spent more carelessly.
- Monthly Fee: $0
- Transaction Fee: $0
- Rewards: 0.5% cash back
- Upgrade to a metal card
- In-built roundup feature
- Separate virtual card for online shopping
KOHO Prepaid Visa card
Apply today and use promo code FINDERCODE to receive a $20 cash bonus into your KOHO balance once you make your first purchase within 30 days of signing up.
- Monthly Fee: $0
- Transaction Fee: $0
- Rewards: 0.5% cash back
Other card options for teenagers
If you’re not interested in a prepaid credit card, some other options you could consider for your teenager include:
Similar to a prepaid credit card, a debit card is another good way for a teenager to learn how to responsibly manage money. Consider a fee-free bank account that comes linked to a debit card that your teenager can use for online purchases, in-store purchases and ATM withdrawals. With no overdraft, your teenager will only have the available funds to spend.
Additional credit card holders
If your teenager is over the age of 18, you could add them as an additional cardholder to your credit card account. They’ll have access to your credit limit and you can manage both of your spending under the one account. However, it’s important to remember that the main account holder is responsible for all transactions made on the account, so if your teenager spends money on it, you will be responsible for the charges.
5 key factors to consider when choosing a card for your teenager
Whether you decide on a prepaid credit card, a credit card with an additional cardholder or a debit card linked to an everyday bank account, make sure you keep the following factors in mind:
- Account fees. Debit cards, credit cards and prepaid cards all come with account fees, so make sure you and your teen read the relevant terms and conditions. Although prepaid cards may seem like the safest option, these cards tend to come with lots of fees.
- Foreign transaction fees. Remember that foreign transactions usually incur an additional currency conversion fee. If your teen is travelling overseas, you might want to consider a multi-currency prepaid travel card or a credit card with no foreign transaction fees.
- Daily transaction limits. Like both credit and debit cards, prepaid credit cards have a daily limit on ATM withdrawals. Make sure your teenager is aware of these restrictions, especially if they’re travelling overseas.
- Reloading times. The amount of time it’ll take for the loaded funds to appear in the account will vary with different loading methods and specific prepaid cards. Bank transfers can take up to three business days to clear, while adding money to your prepaid card online or in person at a store usually results in instantly available funds.
Unlike a traditional credit card, a prepaid credit card will not impact your teenager’s credit history. However, if you’ve added your teen as an additional cardholder on your account, you’ll be responsible for all of their transactions. Therefore, if they overspend and you’re unable to repay the full balance, it will collect interest and impact your own credit score.
If you’re looking for a card option for your teenager, a prepaid credit card can be a good way for your child to start learning how to budget, save and spend responsibly. Since there are many prepaid credit cards on the market, it’s important that you and your teenager compare a variety of options before applying for one.
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