What’s the Point of Carrying a Prepaid Debit Card?
April 15, 2013I’m a big basketball fan, so I’ve been pretty much glued to my TV the last few weeks watching the NCAA Basketball Tournament. And while I love the tournament, the only downside to catching the excitement live are all the commercials. And I have seen a ton of commercials over the last month.
Anyway, one commercial in particular that caught my eye was for the American Express Prepaid Card. There’s nothing particular interesting (or outwardly annoying) about the ad, other than the fact that it got me thinking a lot about prepaid cards; namely, What is the point of owning a prepaid card?
In all honesty, I don’t think I know a single person that owns a prepaid card. And yet, according to a survey released earlier this year by the Mercator Advisory Group, consumers will load an estimated $117 billion onto prepaid cards in 2013. Seriously. Billion – with a ‘B’.
Obviously, something was happening here that I was missing. By the Sweet Sixteen, curiosity finally got the best of me and I decided to do a little research in hopes of answering my original question; Who’s using these things, and what exactly is the point of them? That many people can’t be wrong, can they?
As it turns out, yes and no. Let’s just say that the range in quality of prepaid cards is significant. Some are absolutely riddled with bogus fees, while others – like the aforementioned AmEx prepaid card – are more reasonable and present an alternative to your traditional checking account. In fact, this might explain the demand for prepaid cards in the first place.
Remember a few years ago when the economy basically went into a meltdown? Yeah, figured that might ring a bell. Anyway, right around the time our collective trust in big banks went into the tank, the popularity in prepaid cards saw a sharp uptick in sales. According to the Federal Reserve, the $140 billion spent using prepaids in 2009 was up 21% from the year before it.
So why carry a prepaid card instead of opening a bank account? Well, they both offer consumers the ability to pay their bills, and in the last few years, many big banks have wiped their hands of truly “free” checking accounts, so either way you’re going to pay for the service. And if you’re uninterested or unable to save enough over time to start a bank account, prepaid cards are considerably easier to open (have you seen the kiosk at your local grocery store?) and don’t require a ton of maintenance. Plus, most prepaid cards have embraced technology as fast – if not faster – than their big bank counterparts, so you can upload money from your phone, via email or even Facebook with some prepaid cards.
OK, so that’s one answer: they’re an alternative to standard bank accounts. But this still didn’t really do it for me, so I researched some more. I found prepaid cards promoted by the likes of Russell Simmons, Alex Rodriquez and even Justin Bieber. That’s when it hit me: a lot of prepaid cards are made for kids!
Well, “young adults” is perhaps more accurate (and fair) than “kids.” But when you consider that prepaid cards are sort of like “training cards” for young consumers, then all of a sudden you have a pretty good reason to get your son or daughter a prepaid card. After all, they’re safer than a credit card in that there’s no risk of falling into debt, and has it ever been more important for a young person to get in the habit of using plastic responsibly for their purchases?
They also give parents a little more control over their kids’ spending habits. You can load their card with money for an overnight field trip, and if they run into an emergency where some extra cash might be necessary, uploading cash to a prepaid card online sure beats finding the nearest Western Union.
And speaking of emergencies, one last perk to carrying a prepaid is that some – the best options, anyway – offer membership benefits like roadside assistance. It’s not quite a replacement for AAA, but it’s more of an assist than you’ll receive from straight cash.
Are prepaid cards for everyone? No way. But are they useful? In certain instances, they can be very useful, especially when it comes to the financial security of your teenage son or daughter. That said, if you’re going to sign up for a prepaid card, steer clear of the cards that carry the most fees – monthly, annual, setup or otherwise.
So yes – there IS at least one reason to carry a prepaid card. Glad we figured that out before the Final Four…