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UK prepaid cards: parental guidance is key to success

27th January 2006
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A new pre-paid card product aimed at UK teens has prompted concerns that teenagers are being encouraged to get into debt. Detractors argue the cards will predispose teens to irresponsible spending on credit cards later in life, yet a more controlled introduction to the use of plastic may ultimately prove beneficial for younger consumers.

Prepaid cards for the teen market have long encountered success in countries such as Spain and the US. Now they have come to the UK.

The premise of the product is that parents are able to load money onto the card in a variety of ways, including cash, credit card and direct debit, then whenever a purchase is made using the card, the transaction amount is deducted from the available balance. The card bears MasterCard's Maestro brand, which means it can be used wherever the Maestro symbol is displayed.

At GBP9.95 the cost of the card is high. Furthermore, charges ranging from GBP0.85 to GBP3.00 are incurred for uploading money. Yet issuer Bluecorner states that the cards have numerous benefits over cash, such as better security, the possibility to use the card online and abroad, and the ability to enable parents to load cash onto the card remotely.

Nonetheless the cards have come in for a barrage of criticism from bodies such as the National Consumer Council. The concern is the teenagers could associate plastic cards with a source of endless money, particularly if parents place few restrictions on how often the cards are uploaded. This in turn could predispose teenagers to reckless spending on credit cards later on in life.

However, it can also be argued that the cards can encourage greater financial responsibility. Indeed, it is important to understand that the cards do not offer credit, and that when the money on the card is used up the card can longer be used. Arguably this is a healthy and safe way for teenagers to learn the limitations of plastic.

Obviously, for this to be the case, the onus falls on parents to not load money onto the card as and when requested, but to set regular dates and pre-defined amounts for cash uploads. It is not the product itself that is likely to draw teenagers into debt; rather it is a deficient financial education and a lack of financial parameters defined by parents.

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