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How Teens Can Do Better Than the Bieber Card

Whatever you think of Justin Bieber as a celebrity singer, few people would see the teen star as a financial expert. Yet that hasn't stopped him from producing a series of financial-advice videos for a company that offers a teen-targeted prepaid card that leaves much to be desired. Fortunately, you can take the good parts of Bieber's message as a teaching tool about money -- while using different products that won't break your teen's piggy bank.

What Bieber got right
There's no denying that teens need education on managing their money. With the Internet and mobile devices making it easier than ever for shoppers of all ages to buy things, the temptation to spend beyond your means is stronger than ever. Moreover, young people are getting access to credit cards at earlier ages, and without the proper guidance, it's easy for them to dig themselves into a financial hole before they even get their first job.

Source: Wikimedia Commons.

SpendSmart Payments, the company behind the SpendSmart card that Bieber is endorsing, wants to be a facilitator between teens and their parents to help them talk about money. Some of the features of the SpendSmart card include the ability for parents to monitor spending on the card and to block purchases from certain online sites. If spending gets out of control, parents can even lock the card entirely. And of course, because the SpendSmart card is prepaid, teens can't spend more than the balance on the card.

2 better choices than SpendSmart
The problem with the SpendSmart card, though, is its cost. Fees of $3.95 per month are bad enough, but additional costs to load money onto the card more than once a month and to make ATM withdrawals can add up even faster. The card even charges teens for not using it, with a $3 fee if the account remains inactive for a 30-day period.

Those fees aren't as bad as those of some other prepaid cards. But you can still do better. Here are a couple of alternatives to pursue:

1. Cheaper prepaid cards
If you're convinced that a prepaid card is the best way to teach your teens about money, you can get cards that won't sap your children's purchasing power with high fees. The Bluebird card from American Express (NYSE: AXP  ) and Wal-Mart (NYSE: WMT  ) is free if you register online, and it comes with no monthly fee or inactivity fee. Adding funds from a checking or savings account is always free, or you can add cash at Wal-Mart locations at no charge. Moreover, the card has a network of ATMs that offers fee-free withdrawals if the card has direct-deposit associated with it.

2. A simple savings account
Savings accounts aren't popular among financial institutions because they aren't big revenue generators. The profits from prepaid cards come from merchant charges that Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) collect, keeping a portion and giving the rest to card-issuing institutions. That's likely where SpendSmart expects to get the money to pay Bieber's $3.75 million endorsement fee.

Encouraging cash use isn't nearly as lucrative for financial institutions, but it's a good idea for teens. With cash, there's no way to overspend, and it's a lot harder to fall prey to impulse buys online. Moreover, it's a lot harder to overdraw a savings account than a checking account, especially if you don't tie electronic payments or a debit card to the account. With many local banks and credit unions offering fee-free savings accounts -- some of which even earn modest interest -- a savings account can get your teen started off on the right foot.

Talk about money, but don't waste it
Teens need to be able to communicate with their parents about money in order to get the guidance they'll rely on throughout their adult lives. But encouraging kids to waste money on unnecessary fees is the wrong approach for parents to take. Alternatives will help your teens hang on to more of their cash, and that's a lesson everyone can benefit from.

No matter how young you are, making the right financial decisions today makes a world of difference in your golden years, but with most people chronically under-saving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. Learn about The Shocking Can't-Miss Truth About Your Retirement. It won't cost you a thing, but don't wait, because your free report won't be available forever.


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  • Report this Comment On April 12, 2013, at 4:46 PM, MainLineMike wrote:

    Or, you can do what I did with my teens. I opened a trust checking account. At my bank, it's a free account, and we get a Visa debit card which my child can use. It also teaches them about check-writing, keeping a check register and reconciling a bank statement. By starting this when they were in 9th grade, I'm confident that they will be able to handle this on their own when they go off to college.

    When my oldest turned 18, we closed the trust account and opened a joint checking account. This way, he builds banking experience in his own name, but in case of emergency, I can electronically transfer funds to him without the delays of a ACH transfer.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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