Teach your teenager how to manage their money on plastic without the temptation of credit.
Prepaid cards allow you to load funds onto them and spend money in the same way you would on a debit card. While they’re sometimes referred to as prepaid credit cards, they aren’t technically a credit card. With no identity or credit checks required to get one and a prepaid balance rather than a line of credit, these cards can be used to shop in-store, online and for ATM withdrawals.
This guide looks at everything you need to know about prepaid cards, other options and key factors to consider when choosing a card for a teenager.
Comparison of Prepaid Credit Cards
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 reload it with more funds when the balance gets low. There are a few different prepaid cards on the market. Some can only be loaded with money once (such as a gift card) and other prepaid cards are reloadable (like a travel card).
While these cards are often referred to as a prepaid credit card, they don’t come with a line of credit and have less strict eligibility requirements than most credit cards. While you must be at least 18 years old and meet a minimum income requirement to be approved for a credit card, prepaid cards usually have minimum age limits of 14 to 16 and don’t require a credit check.
For this reason, a prepaid card could be a good stepping stone for your teenager to understand how to manage your expenses on plastic before applying for a credit card when they’re eligible.
Features of prepaid credit cards
When comparing prepaid cards for your child, consider the following features to determine which type of card is right for them and their spending habits:
- Reloadable accounts. Reloadable prepaid travel cards allow you to load your card with funds at the time of purchase and again whenever you need to. You can usually top up the account over the phone, via BPAY, an online transfer or through the card’s 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, so they can be useful for overseas travel.
- Rewards. Some prepaid cards, such as the Qantas Cash Card and Velocity Global Wallet, let you earn rewards points as you spend. If your child has their own frequent flyer account or are linked under your main account, you can link the card to this to earn points as they spend.
- Security features. Mastercard, Visa and American Express guarantee you won’t be held responsible for fraudulent transactions. Prepaid credit card purchases are protected by the same anti-fraud measures and guarantees that Visa, Mastercard and American Express provide to credit cards.
- Contactless technology. Similar to your debit or credit card, some prepaid cards come with contactless payment technology, meaning you can tap and go for purchases up to $100.
Other card options for teenagers
If you’re not interested in a prepaid card, some other card options you could consider for your teenager could include:
Similar to a prepaid card, a debit card is another good way teenagers can learn about bank account savings and how to manage money on plastic. To start, you might want to 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.
Additional credit card holders
If your teenager is over the age of 16, 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.
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 child read the relevant Product Disclosure Statement before they apply for the card to ensure they can afford it.
- International transaction fees. If you’re looking for a card for your child to use overseas, remember that foreign transactions usually incur an additional currency conversion fee. If they are travelling overseas, you might want to consider a multi-currency prepaid travel card or a credit card with no international 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. If your teenager is using a prepaid card, the amount of time it’ll take for the loaded funds to appear in the account will vary with different loading methods. For example, using your debit card or depositing money in-store will usually add the funds to your account immediately. Meanwhile bank transfers and BPAY loads can take up to three business days to clear. This is important to remember so that your teenager doesn’t spend their entire balance and are left stranded without any funds for up to three business days.
- Credit history. Unlike a credit card, a prepaid card will not impact your teenager’s credit history, but can be used to start developing good saving and spending habits. If you’ve added your child as an additional cardholder on your account, remember that you’ll be responsible for all of their transactions. As such, if they overspend and you’re unable to repay the full balance, it will collect interest and impact your credit history.
If you’re looking for a card option for your teenager, a prepaid card is just one alternative you can consider. As they don’t require credit checks and have more lenient eligibility requirements than credit cards, they can be a good way for your child to start learning how to budget, save and spend responsibly on plastic. As there are many prepaid cards on the market, it’s important that you and your child compare the options before applying.
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