Prepaid credit cards may establish smart spending in youth

Parents trying to teach their kids about smart spending habits are increasingly turning to prepaid credit cards, Money magazine reports. Rather than handing teenagers a credit card with high limits - which can create a false sense of reality while damaging the cardholder's credit report - the magazine states that prepaid cards provide a valuable lesson about making sound choices. Banks traditionally do not issue debit cards to teenagers 18 years or younger. The new form of plastic is fairly similar to a traditional debit card, but parents can upload money onto the card when needed, giving their children a set spending limit. Meanwhile, the spending limit makes it impossible for teenagers to rack up large sums of debit or overdraft an account. There are still warning signs, though, says Consumers Union. Suzanne Martindale, associate policy analyst with the San Francisco office of Consumers Union, told the Columbus Dispatch that prepaid credit cards may come with numerous hidden fees that young consumers may not be aware of. Nevertheless, the warning call has not slowed the popularity of prepaid cards. According to Money magazine, the industry saw a 45 percent increase in use from 2009 to 2010, making it a $42 billion industry.