It is important to realize the responsibility that comes with a credit card. The American consumer has a tradition of spending more than they earn and the result is credit card debt. The interest rate on a credit card can be high and by living within your means you could end up having more money available for spending each month, since you would not have to pay interest on any credit card debt.
Teaching your teenagers about finance is a vital step to prevent them from making the mistake that millions of people have made. Starting out with a prepaid credit card is an excellent way for a teenager to learn about money management without the risk of overspending, since you can’t spend more than the available balance on this type of card. This approach also forces your teenager to make a budget or there will be no money left over at the end of the month.
Student credit cards are very popular because it is easy to get approved and there is always access to cash, but many parents experience a phone call at the end of the month when the credit card bill is due. If your teenager is carrying around a prepaid credit card on campus instead of a student card you can prevent this unpleasant surprise and should they run out of money it is a simple process to fund the prepaid card with a small balance in order for your kids to get through the rest of the month.
Most prepaid cards come with no annual fee and they will give you the ability to fund the account for free through direct deposit and also include an option for free online bill pay and free account alerts. There is no risk of damaging your credit, since these cards do not report to credit bureaus and you are also guaranteed approval, because you can only spend your own funds, which means no risk for the card issuer.