Prepaid Credit Cards for Your Children

March 20, 2012 by  Filed under: Credit 

As parents, we have a responsibility to not only teach our children what is right or wrong but we are also responsible for preparing them for their adult lives where they will be forced to make decisions for themselves. A majority of the lessons our children learn and remember in their adult life are the ones they learn at home from us. With strong lessons taught at home, our children will grow up to be responsible adults. One area of focus that we as parents need to effectively instruct our children is fiscal responsibility.

Fiscal responsibility will play a major role in our children’s eventual adult lives. Having a solid fiscal responsibility could mean the difference between our children being homeless or not as adults. Being fiscally responsible not only includes paying the necessary bills to maintain their basic needs but also includes using financial tools such as credit cards wisely and responsibly. One way that we can teach this to our children is giving them a prepaid credit card which can simulate using a real one.

Since they are prepaid credit cards, you do not have to worry about them spending too much and leaving you footing the bill. You determine what the amount on the card will be which simulates the credit card limit imposed on many credit cards. Their first instinct is to likely spend the money they have on the prepaid cards without any thought as to the responsibility it entails. This is where you as a parent must play a big role in teaching them how to use it properly.

While using a prepaid credit card allows them to learn about credit limits and only spending what they have, with a little extra effort you can teach them a life lesson. When giving your child the prepaid credit card, explain to them that they can use the amount on there as they see fit but as a condition of using it, they will have to repay the amount they use on a monthly basis. This repayment can be done by using their allowance or other sources of income. This not only teaches them how to spend wisely but also that they will need to work to repay their debt.

The money that your child uses to pay back the amount they spent can then be reapplied to the prepaid credit card, minus a small interest rate of course, and allow them to continuously use the card. Create a deadline, say six months, where you both can sit down and evaluate their progress and to discuss in detail with them what has transpired over that period. Use this time to also explain to him or her how this will apply to him or her in the future and how important it is to be fiscally responsible. You might also want to explain to him or her that failure to be fiscally responsible can have a detrimental effect on their credit rating.

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