Why You Shouldn’t Take Financial Advice from Justin Bieber
CUs offer better alternatives for young consumers than celebrity prepaid cards.
Say it ain’t so, Justin.
Teen heartthrob Justin Bieber is hawking a prepaid debit card aimed at teens, suggesting it will help his fans learn about responsible spending, according to CNN Money.
Unfortunately, the prepaid card from SpendSmart Payments is the very kind consumer advocates tell young consumers to avoid because of the steep fees associated with them.
“If you want to teach teens responsible spending, then there are better, less expensive ways of doing so,” said John Ulzheimer, CEO of SmartCredit.com. “Teaching teens that it’s okay to pay a fee to use your own money is the exact opposite of what you should be teaching them.”
The market for prepaid cards, however, is skyrocketing.
Other celebrities like Magic Johnson and Suze Orman—in addition to numerous cartoon characters—also market prepaid cards.
Currently, there are no consumer protections on prepaid cards, according to LowCards.com. But that may change. The Consumer Financial Protection Bureau is investigating the fees and practices of prepaid card providers and seeking input on ways to protect consumers.
The cards are particularly popular among young consumers.
People between the ages of 18 and 34 are more likely than other demographic groups to consider using a prepaid card instead of a checking account, according to a study by the Atlanta marketing-research firm Synergistics.
In that age group, 41% of people said they are either “very” or “somewhat” likely to use a prepaid card in lieu of a checking account. That percentage was steady across income ranges, according to the study.
A smarter choice
It’s hard to ignore the size and potential of the prepaid market.
“Depository institutions should not cede this place in the market to nonbank players, as many of these households may indeed become customers for traditional banking products as they improve their financial status over time,” advises Synergistics CEO Genie Driskill.
Many credit unions use prepaid services as a transitional tool to more mainstream financial products.
The Coopera Card, for example, is a reloadable Visa prepaid card built specifically for the Hispanic community that helps credit unions attract new members.
“Reloadable prepaid cards are an extremely effective way to introduce the local Hispanic population to community-based financial institutions,” says Miriam De Dios, Coopera CEO.
The Coopera Card gives Hispanic cardholders access to a secure financial management tool and eliminates the need to pay high fees to cash checks, obtain money orders, or transfer funds.
The launch of Bieber’s prepaid card comes in the middle of Financial Literacy Month, which includes National Credit Union Youth Week.
National Credit Union Youth Week focuses credit unions on the financial needs of young people and financial literacy education. The event teaches the benefits of saving and invites youth to open credit union savings accounts and make deposits throughout the year.
National Credit Union Youth Week promotional materials, resources, and giveaways are available on CUNA’s website. This year's theme, "Savings Sleuth: Solve the Mystery," employs mystery and mustaches to engage youth.
►Click here to see how credit unions are celebrating National Credit Union Youth Week.