By Gina Roberts-Grey

 Prepaid credit cards and gift cards are popping up in junior and senior high graduation cards and birthday card envelopes of children as young as 8 years old. While they are well intentioned gifts, the slim and trendy plastic may have some parents seeing red. A fiscally immature child may be playing with fire.

Fans of prepaid credit cards and gift cards champion the fiscal lessons they are able to teach young children. Others point to research that prepaid credit cards are setting unrealistic precedents and can be costly later in life.

"I 'bought' the gift and prepaid credit cards my daughter received for her first communion from her, and had her deposit the money in her bank account," says mom of two, Liselle Santaro, "She received over $400.00 in plastic, and was no where near mature enough to handle the shopping responsibility that went along with those cards. She didn't even comprehend the fact that she couldn't use them to purchase something that cost exactly that much because she needed to pay sales tax," adds Santaro. And teaching those lessons is crucial for parents allowing kids to pay with plastic.

Cashing In on Money Smarts
Many believe that because prepaid credit cards give parents the complete control and visibility into the card's usage and activity, this is a great option to teach fiscal responsibility from a distance. David Jones, the CEO of PAYjr, a company that specializes in prepaid credit cards says, "Giving kids a prepaid card is a great way to give them an opportunity to learn with hands on experience prior to having their own credit card in the future."

According to a recent survey conducted by Jump$tart Coalition for Personal Financial Literacy, "Students who used an ATM/debit card for their purchases had scores that were a remarkable 3.4% higher than those who used credit cards for their purchases."

Jameel Webb-Davis, personal finance educator and trainer for adults and children, and Principal of Start Money Smart (www.StartMoneySmart.com) supports the notion of children carrying pre-paid cards. "There are excellent pre-paid debit card programs specifically designed for parents and their kids. They allow the parent to control when and how much money is loaded on the card." Many of these programs notify you via e-mail every time your child uses the card. Webb-Davis says, "This is a great way to give kids an allowance and teach them to budget the money they have."

Misconceptions and Misuse
Baylor University's Dr. James Roberts, a well-known expert in the field of credit card use and compulsive buying, has studied children using prepaid credit cards. His research shows that credit card misuse is growing exponentially and is rampant among teens and college students. "About 10 percent of Generation Y is compulsive buyers; and this is double the amount of the number of Generation X compulsive buyers, and, 3-4 times higher than those of the Baby Boomer generation," says Roberts.

Experts like Roberts caution giving prepaid credit cards to adolescents and children makes spending and money management even more abstract for kids than if they were spending cash. "We've found that children and teenagers who use credit cards are less price sensitive, spend more, and over-estimate their available wealth compared to those who write checks or pay cash," Roberts says.

The Gifts
Like the Santaros, many parents wrestle with their children receiving or stock piling gift cards. Jill Hough also 'buys' the gifts cards her children receive with the understanding that they will put half the amount into their saving's account and can 'responsibly" spend the other half. "We discuss the purchase, its cost, and turn the purchase into a math lesson by calculating the sales tax before we ever leave the house." Hough also talks to her kids about whether a purchase is a "need" or a "want". "Sometimes it's OK if it's a "want" purchase, but, they are not allowed to make impulse purchases. So, wants will wait until the next time we go to the store, whereas a need may receive higher priority."

Ultimately, it becomes a personal decision whether or not to allow your child to use a prepaid card, but, even if you choose against using them yourself, you need to prepare your children for the possibility of receiving them as gifts. "These cards are replacing the $20.00 bill that grandma used to slip in a birthday card," notes Webb-Davis.

Striking a Balance
The decision to allow your child to utilize money cards-gift, credit or otherwise is ultimately in your hands. But one of the most important lessons kids need to understand is that plastic does not equal 'free spending.'
Jeanine Holmes, a Newark mother of three, listened to the experts, but customized her approach to giving each of her children prepaid credit cards. "My oldest was our first experiment with prepaid credit cards," says Holmes, "And it was a disaster." Holmes now realizes her son was not prepared for this type of fiscal responsibility. Her second child is a bit more financially responsible, however, Holmes worries that being able to receive or load his allowance on a prepaid credit card doesn't urge him to work for his money as hard as if he were receiving cash. "I need to push him to work because otherwise, he's content to have whatever money is on the card and doesn't have the desire to make more. He doesn't have the visual reward of seeing the money in his hand." Her youngest child is thrifty and, at almost thirteen, has already developed business savvy, so prepaid credit cards have provided valuable lessons in fiscal responsibility. "She adds the money from her babysitting business onto the card. And the allowance we put on her card is a little more than her brothers because she works harder to earn it and the ability to go shopping."

Read the Fine Print
"Parents should compare signup fees, monthly fees and load charges associated with prepaid cards," cautions Jones, "There are many fees that are required to be disclosed as part of a teen prepaid card program, but the majority of these fees are never incurred with typical usage."

The fees that do come into play with the majority of programs are monthly fees and load charges. Some people feel that prepaid cards for teens are expensive but feel the charges associated with prepaid credit cards are less expensive than risking non-sufficient funds fees teens run the risk of incurring with a checking account.

Some cards also carry age and usage restrictions. For example, the PAYjr Prepaid MasterCard can only be used by children age 13 and over.

Although credit card usage may be unavoidable, debt -- and fiscal irresponsibility is not. Dr. Roberts emphasizes, "Whatever spending method is exercised, children need to learn how to budget, save and be accountable for their spending habits."

Learn more about specific prepaid credit cards at indexcreditcards.com/prepaidcreditcards.html.

Gina Roberts-Grey is a freelance writer living in Baldwinsville, and frequent contributor to GVP.