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 (AXP -0.62%) and Wal-Mart (WMT -0.08%) 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 (V -0.23%) and MasterCard (MA 0.07%) 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.
