When trying to teach a young adult how to manage their personal finances there are a few specialised types of cards available that might be just what they need, instead of diving straight into adult credit cards and all the risks attached.
Student Credit Cards
If you are a student yourself or a parent looking to get a sense of what is available for your child, it’s important to understand the various student credit card options in the market. Whilst not always marked as a student credit card, most banks will have a credit card in their range with a low credit limit available and lower than typical minimum income requirements. It’s also important to note than banks will require the cardholder to be over 18 years of age.
Although not strictly speaking a credit card, gift cards which are produced at a set value which cannot be topped up or exceeded, will work like a credit card within the boundaries of the value of the card. Although a young adult is not going to learn the intricacies of credit card interest and fees from a gift card, they offer a good way to get newcomers to the world of personal finance to experience safely what a card is, and how it actually works at point of sale.
There are a lot of benefits associated with using gift cards for online purchases as well. Although they are becoming less widely accepted due to international control regulations. Before buying a gift card check what it will do before assuming it will behave exactly as a normal card, but most of the named types offered by certain banks are generally accepted just as widely.
The next level of card up is the pre-paid card. These are mostly like a gift card, but always named and able to be ‘topped-up’ with money whenever required. In this way they behave similarly to a debit card connected to a bank account, but without the complication of interest, overdrafts and account fees.
The third type of card that can give a young adult the training they need to manage their personal finance is the co-signatory card. Most companies offer the majority of their cards in this format, so these can be full-blown proper adult credit cards with all the benefits and pitfalls.
The difference is that a second signatory is required to manage the account and make most purchases, also meaning that the adult consignor is essentially guarantor for any debt accrued. Check exactly what controls are on purchases with this type of credit cards, as some will not be limited to double signature purchases.
They are all slightly different and depending on the age of the young adult and the relationship to them, different methods may be used.
Although the gift and pre-paid cards will not have fees or charges once they are running, be aware that most will cost a small amount to set up, and external fees such as ATM charges will still come off the balance.