You’ve probably seen the commercials for prepaid cards that tout convenience and quick access to your money. At first these cards were positioned as alternatives to cashing your paycheck, but as they have grown in popularity they are being marketed as alternatives to bank accounts. But is it good for building wealth? I can’t help but notice these cards are marketed more toward the working middle class and blue collar workers who typically live paycheck-to-paycheck. However, these days that’s just about everyone. They are also marketed to parents as a way to help teach their children about money. They can put their allowance on the card and once the money is out the child has no more to spend. If these cards are such a great idea for managing the household finances then why aren’t they marketed to the upper middle class and the wealthy?
The debate here isn’t whether prepaid cards are better than bank accounts, the debate is do prepaid cards help minorities (or anyone for that matter) build wealth. Russell Simmons invested millions of his own dollars to create RushCard according to a blog post he wrote for Yahoo Finance’s Daily Ticker in September, 2013. The primary purpose of the RushCard and others within the prepaid industry are to reach the millions of Americans who have been turned away by mainstream big banks or prefer not to use them. There has been an effort to be transparent and reduce fees associated with using the card. Generally speaking, banks tend toward being less transparent and hiking fees, hence the passing of legislation that banks had to provide more information on credit card statements.
Perhaps the marketing campaigns of some of these prepaid card companies makes it seem as though they are preying on low-income households and minorities. Why put your money in the bank when you could give it to Russell Simmons and for small fee he’ll let you use your own money? There are definitely mixed emotions when it comes to using prepaid cards as your main money management tool. There is a fee to activate the card, maintain it, reload it, use it at the ATM, etc. These fees can mount up quickly and, depending what type of card you have, can cut into money to spend on groceries. If you go this route, you have to do your research in order to get the best deal. Consumer Reports has done most of this work for you. They also cite that prepaid cards are the fastest growing payment method in the US and also used by people with bank accounts. By the way, banks charge you exorbitant fees to use your money as well. Credit Unions are better and growing in popularity. Prepaid cards make great gifts as well adding to their growing usage.
But what about wealthy people, do they use prepaid cards for anything other than gifts? The answer is maybe. People who have bank accounts and use prepaid cards do so to help maintain their budget. The best way to get wealthy is to make sure you don’t spend more than you make. A person may have their paycheck direct deposited to their banking account, pay the bills from there and move discretionary income to their prepaid card. That way once the “fun” money is gone, it’s gone. This limits overspending. If you’re able to manage the money in your bank account without overspending then maybe a prepaid card isn’t for you. The drawback to using a prepaid card as your sole money management tool is that it doesn’t account for savings. If all of your money goes on a prepaid card where do you save money? 75% of Americans don’t have enough saved to cover six months of living expenses according to a survey released by Bankrate. Wealthy people have money saved up for emergencies and even vacations. Where does the prepaid card industry help with this statistic? They help with spending but perhaps not with saving.
There are merits to having both a prepaid card and a bank account in your wealth-building plan. Look for cards and banks with low or no fees, understand what you’re being charged for and shop around. There are at least three places you should be putting your money every month to build wealth – savings, retirement account such as an IRA or 401k, and covering your monthly bills. If having a prepaid card helps you stay within budget by all means add that to your arsenal, but it must be part of a plan not the whole plan. Wealthy people manage their money the best way for them. Figure out what that is, create a plan and execute.
Black women have the least amount of wealth in the United States and are the least prepared for retirement. We need to be better prepared for the future. What are your thoughts on prepaid cards versus traditional bank accounts, comment below. We want to hear from you.
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