This article is part of a series on Teaching Kids About Money.
Credit cards have a bad reputation. People view credit cards as an evil doorway to the downward spiral of debt. The truth is, we should all have credit cards. Sure they’re capable of ruining our credit, but ultimately their purpose is to help our credit. The evils of credit cards really falls upon the cardholder and miseducation. One way we can introduce children to using credit cards responsibly is by providing them with Prepaid Credit Cards, where the amount you place in the card is up to you.
Prepaid credit cards don’t necessarily help your credit, though there are ways (e.g. AccountNow Prepaid Visa or MasterCard, The Public Savings Bank Secured Visa, etc.), it’s mainly a great tool to help teach kids how to use credit cards responsibly.
Here are some suggestions on how to teach kids about money management with Prepard Credit Cards (with the help from Little Eddie):
- When you give the prepaid credit card to Little Eddie, make sure you present him with a specified amount of time the amount of the card should last. For example, you can place $50 on the card and tell Little Eddie you won’t re-fill it for three months.
- Along with the tip above, you can even add an incentive for Little Eddie to not spend a percentage of his money within the alotted timeframe. So, if you chose to make the percentage 50%, and Little Eddie only spent $25 of his prepaid credit card after three months, then your next refill won’t be $50, but $51 instead. And if Little Eddie is able to stay within his 50% limit, then you’ll re-fill his card with $52 instead. This will teach Little Eddie the benefits of compound interest.
- On the contrary to the above tip, if Little Eddie uses up all his funds within a month (with no good reason), then you can reduce the amount you’re going to provide him during the next re-fill period. This will teach him to be more money conscious.
- You should also make it Little Eddie’s responsibility to approach you to get the re-fill. Providing him with a grace period of one week or ten days to do so. If he doesn’t approach you within the grace period, you can again deduct $1 from their re-fill amount. This will teach Little Eddie to be more responsible with time and simulates the idea of credit card late fees.
Do you have any additional ideas on leveraging Prepaid Credit Cards to help teach kids about money management?