Credit Cards (Photo credit: 401(K) 2012)

The average college student has over $3,100 in credit card debt. Is a prepaid debit card a good way to teach your child about how to manage a credit card and avoid the norm?

Many young adults head off to college thinking the credit card in their pocket is magical. Suddenly, there is no waiting to make purchases. You simply swipe a mystical piece of plastic and you’ll get a bill one month later, but for far less than what you would have paid at the register in cash. A store purchase for $500 might be a $10 credit card payment.

At first, a credit card looks like a futuristic shrink ray that makes those big purchases shrink until it’s so small, who cares if you need to pay a couple of ten dollar bills monthly. Then several months later, you notice that it’s getting hard to keep making payments. The balance only seems to grow and even when you stop spending, it never seems to shrink. A few months later life is coming at you fast. You have to fix your car, buy a new text book and insurance payments just went up in cost.

I know all about this, because I’ve been a college student swimming neck deep in credit card debt. My struggles with credit cards were directly related to my inexperience. There was no check register that came with the card to help me track spending. I just kept things in my head and hoped for the best when the credit card bill arrived every month. I didn’t respect the need for tracking spending and the dangers of high interest rates until it was too late.

Many parents recognize this danger and seek out good ways to teach their children about managing consumer credit and electronic money. Thankfully, there are great credit tools available online to help this new financial generation learn needed skills. However, are new financial products like prepaid debit cards a good way to train your young adult?

Prepaid Debit Cards are Getting Better

Traditionally, a prepaid debit card has not been a good choice as a teaching tool. In general, these products come with monthly fees and various hidden charges that drain the card’s balance. For the most part, prepaid debit cards are a lesson in how bank fees can drain your account like sand emptying an hourglass.

However, not all cards are fee-ridden money pits.  For example, the American Express Prepaid Card has no monthly, annual or overdraft fees. They even reward new card users with $25 for loading $200 on their new card.

You should still be wary of prepaid cards, but not all cards are guaranteed to be bad financial tools.

Why a Prepaid Card is a Good Tool for Learning

Everyone is different and not all methods for tracking spending are the same or work for everyone. Some people like spending journals. Others, like me, record their receipts. There a number of free, online tools that will automatically track a card’s activity. Since credit card statements come monthly, responsible users need to have a system that works for them so that their credit purchases are less than their income.

A prepaid debit card is good practice for this important financial responsibility. Young adults still need to manage purchases to avoid exceeding their card balance. However, since it is a prepaid instrument, there is not a risk of getting deep into debt if mistakes are made.

If your child can master the art of balancing their prepaid debit card purchases, they’ll have the tools they need to handle tracking purchases on a credit card.

Why a Prepaid Card is a Limited Tool

A prepaid debit card can be great practice for helping your young adult learn an effective way to track electronic spending. However, it’s a limited tool and doesn’t teach your college student all the aspects of credit card usage.

A prepaid card won’t give your college student practice making timely credit card payments. It also shields your child from heavy rates of interest. This is beneficial for learning, but it’s also a crutch. A credit card isn’t going to simply run out of money so that you don’t overspend. In fact, credit card companies frequently raise maximum credit lines as you approach card limits. With a credit card, it’s much easier to spend beyond your means.

This doesn’t mean that you should skip training on a prepaid card, but you’ll want to find other ways to reinforce timely bill payment and the sting of interest payments

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Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program