Not a Fan of the Justin Bieber Prepaid Card

When Justin Bieber puts his name on a prepaid debit card, it’s time to hang on to your wallet. Other celebrities -- Suze Orman, Magic Johnson, the Kardashians, to name a few -- have endorsed prepaid cards, but none with such a direct link to impressionable teens. And word is that the kid heartthrob will make full use of social media to promote the SpendSmart prepaid card to his millions of Twitter followers and Facebook fans.

The card is affiliated with a Web site called BillMyParents.com, aptly named in this case because parents will no doubt end up footing the bill. Prepaid cards are notorious for tacking on a long list of fees, and Bieber’s is no exception. For starters, the SpendSmart card has a monthly fee of $3.95. It costs $2.95 each time you load the card from a debit or credit card, or 75 cents when you load it from a checking or savings account. At the ATM, it costs 50 cents for a balance inquiry and $1.50 per withdrawal. There’s a replacement fee of $7.95. And if you don’t use the card for as little as 90 days, you’ll pay a $3 inactivity charge.

Prepaid cards are becoming popular with adults as a way to control their spending or opt out of the banking system (see Prepaid Cards Flooding the Market). For adults who want to use a prepaid card, we at Kiplinger like the Bluebird card from Wal-Mart and American Express. You can pay your bills online and deposit checks with an app on your iPhone or Android smart phone, and the card has no activation or monthly maintenance fees. Plus, you can authorize up to four users with customized spending limits.

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Not a fan. But I have never been a fan of prepaid cards for kids (see Why I Don't Like Prepaid Cards for Kids. Sponsors of these cards claim the high-minded purpose of teaching kids to spend responsibly; Bieber will reportedly produce a number of videos touting this theme. Call me a skeptic, but I’ve always thought the real purpose is to make it easier for kids to spend money -- on Justin Bieber paraphernalia, perhaps? -- and for parents to pick up the tab.

I always tell parents that when you are dealing with children and their finances, you need to think like a kid. Adults may consider a prepaid card to be a convenient alternative to a credit or debit card, but kids think of it as a direct line to Mom and Dad’s wallet. This point was brought home to me a few years ago, when I received a question from a young woman asking about another prepaid card aimed at kids: “Where can I get that card that my parents can top up when it runs out of money?” she asked.

A better way. Over the years, some parents have persuaded me that prepaid cards can be useful in specific situations (assuming you aren’t eaten alive by fees), such as if a teen is managing his or her own earnings from a part-time or summer job, a student is going out of town on a class trip or studying abroad, or a college student chronically overdraws his or her checking account.

But overall, I think kids are better off with a regular checking account and a debit card, possibly from a credit union or community bank that charges reasonable fees (if any) -- see How to Teach Kids to Handle Credit Cards. And establishing a relationship with a financial institution can be beneficial when your child is in the market for other services -- for example, a credit card. (Contrary to what you may have heard, prepaid cards do not help build credit.)

The best way to teach kids good financial habits is simply to make them responsible for managing their own money and making their own choices -- and you don’t need Justin Bieber’s help to do that.

Follow Janet's updates at Twitter.com/JanetBodnar.