Prepaid debit cards are an easy target, but they are making a splash on the financial scene.
In the past few months I’ve gotten a decent amount of Off the CUff posts writing about the Kardashians and their infamous prepaid debit card. The sisters are an easy target, but to be fair, prepaid debit cards are making a splash on the financial scene. According to CNN Money and research firm Mercator Advisory Group, consumers loaded $42 billion onto prepaid cards in 2010. This is an estimated 45% increase over 2009.
In my initial post, Bill Vogeney commented: Prepaid cards have the potential of changing the landscape, and in turn, taking advantage of the consumer in ways not imagined just a few years ago. (read my second post here)
This is true, and ventures such as the Kardashian Kard show just how predatory these products can be. But there is another side, too.
This week, CBS’ MoneyWatch offered up prepaid debit cards as one of four ways to beat high bank fees (credit unions were another option), while CNN Money evaluated whether prepaid debit cards were a good way to monitor a child’s spending and budgeting.
According to MoneyWatch, “Even prepaid debit cards can be a smarter choice than a checking account from Chase at $6 or $12 a month.” The article warns readers about fees and suggests consumers compare prices and read terms and conditions before choosing this option; however, it also acknowledges that low usage and monthly fees offered by some prepaid debit cards make them a competitive alternative. It’s all about the consumer making an educated decision.
CNN Money breaks down the trade-off of using a prepaid debit card as a financial education tool. On the one hand, kids have the convenience of plastic without running up debt; on the other hand, those pesky fees ($20 to activate, $10 a month for maintenance, $2.50 for ATM withdrawals, etc., etc., etc.). “In spite of the costs,” the article says, “Prepaid plastic is worth considering if you’re giving a younger teen a chunk of money — for a school trip or to learn to budget a month’s allowance.” The article advises parents to shop around and choose a card that offers low fees and does not allow users to overdraft.
Education plays a major role in teaching consumers (i.e., your members) how to be financially savvy. Tell your members about your great offerings and help them steer clear of predatory products. Arm them with knowledge, and even if they choose to use a prepaid debit card in certain circumstances, they’ll do so in a responsible way.