He may not be your boyfriend (or your daughter’s, thankfully!), but maybe Justin Bieber could be your financial strategist. Recently, personal finance site GoBankingRates.com named the Biebs as the ‘Best Celebrity Financial Strategist’ of 2012. Seriously. This happened.
What on earth has the Canadian–born pop icon done to deserve such a title? According to the website, Selena’s on-again, off-again, ex-boyfriend “makes informed financial decisions”; “knows how to grow money”; “his lavish items are still economical”; and, “he’s not afraid to be frugal”. (Guess they missed the story about J-Boy’s $200,000 Ferrari 458 Italia, but anyhoo…)
Allowance goes plastic
The accolades were, of course, neatly timed to coincide with the launch of a new prepaid debit card in the US called SpendSmart. The card is issued by BillMyParents.com and features the shiny mug of Justin Bieber as its celebrity endorser. The idea is that Biebs’ smiling face will make the card appealing and fun to use among the tween set, while giving parents some oversight on their kids’ spending.
Giving kids a prepaid debit card rather than cash can be a wise move. For one, it forces kids to learn to budget; much like an iTunes gift card, they have a finite amount of funds they can spend. Second, their purchases and withdrawals are tracked, so parents can peek in and see where their money goes. Third, unlike a credit card, kids can make cash withdrawals for pocket money without incurring the notoriously high cash advance fees of credit cards.
However - there’s always a ‘however’, isn’t there? It’s worth being wary when you see a celebrity brandishing plastic. The added endorsement and caché of the celebrity’s shiny image will nearly always mean higher fees than the run-of-the-mill plain vanilla card.
Hilary Duff had a card, along with Usher, Carmen Electra and the cast of the Twilight series. But the most infamous was perhaps the Kardashian Kard – a prepaid MasterCard with exorbitantly high fees that caught the attention of the Attorney-General of Connecticut. Between the investigation and the bad publicity, the K-Kard was shut down.
Weigh the options
Prepaid debit cards in general tend to be fraught with extra fees and the Justin Bieber SpendSmart card is no different. There are monthly fees, loading fees, ATM fees and inactivity fees.
In Canada, the MuchMusic Prepaid MasterCard sounds like a credit card, but it is actually a prepaid debit card. It has an annual fee of $34.95, an initial $5 loading fee, then subsequent re-loading fees of $1.50 and ATM fees of $1.00.
When choosing a card for your kid, take the time to compare the costs and benefits of using a prepaid debit card versus a no-fee credit card, or even a plain old-fashioned (but possibly less cool) chequing account.
For an older teen or young adult, another option might be a secured credit card. You put a security deposit down (or better still, make your kid do it with all those funds they’ve saved!), then your son or daughter can spend on the card and be responsible for paying the bills each month. Once your kid has demonstrated a responsible spending (and bill paying) track record, they can graduate to an unsecured card and you can typically get the deposit back.
Make it a family decision
The cards-for-kids market seems to be just getting started. One US research company estimated that teenagers spend more than $200 billion annually. Clearly, this is a market financial institutions have got their eye on.
The best part of all these cards is that they provide the opportunity for a first lesson in personal finance. Go through the choices with your kids and discuss the reasons why you chose the card you did. Depending on their age, you can let them choose a card and ‘sell’ you on their rationale and the card’s benefits. Just don’t blame us if they choose the Biebs!
GoldenGirlFinance.com is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.