When prepaid cards first came onto the financial scene, they were generally thought to be geared toward consumers with low incomes or those who had no access to traditional bank accounts. However, no longer are these cards only aimed at individuals with low incomes.
TD Bank investigated and found that more than 20 percent of prepaid card users earn more than $100,000 in annual income. These individuals use prepaid cards mainly as a way to budget their money.
In addition, millennials, particularly, tend to shy away from being in debt. In fact, it is estimated that about one-third of Americans aged 18 to 34 use a prepaid card on a regular basis, according to a survey by TD Bank. One reason millennials have begun to embrace prepaid cards is that the perception of these cards has changed significantly in the past few years.
Many prepaid cards are being backed by high-profile celebrities, and fees are often lower than they were in the past. Prepaid cards have grown in popularity and are being used in millions of households across the US. Younger individuals in particular have embraced prepaid cards for a variety of reasons that we will discuss here.
Convenience
When it comes to prepaid card preferences, one major benefit cited by millennials is convenience. Survey data reported by USA Today indicated that although many individuals still maintain traditional bank accounts, many also stated that they still regularly use outside services. These include prepaid cards, payday loans, and check cashing services.
Despite the number of high-net-worth individuals who use prepaid cards, many young Americans are struggling financially. As a result, some find themselves in emergency situations where quick access to cash is essential. Vowing to stay away from long-term debt, many of these individuals turn to more short-term solutions to access credit and cash.
Although payday loans and prepaid cards are not without fees, they are still preferred by many because they enable quick access to funds with upfront pricing. Since customers are aware of all fees charged up front, they do not have to worry about fees coming back later to surprise them.
Avoidance of Credit
Approximately 60 percent of millennials surveyed indicate that they prefer prepaid cards for the purposes of budgeting, tracking expenditures, and avoiding the pitfalls of credit card debt. These consumers often turn to alternative forms of credit because banks simply cannot meet their needs; most banks are not geared towards providing short-term credit to customers. One survey even indicated about 80 percent of respondents believe that access to emergency credit was very important when choosing who to do business with.
In today's world, it is becoming easier to move throughout life only using cash, whereas it used to be that one could not do simple things such as buy plane tickets or rent cars without a credit card. Most debit cards work exactly the same as a credit card and a variety of settings. As a result, the appeal of taking on debt simply for the convenience of being able to make certain transactions has worn off.
The overall fear of a traditional credit card has been shown to be rooted in reality. According to a Bankrate survey, millennials who have one or more credit cards are less financially capable of paying down their debt. In fact, only about 40 percent of individuals aged 18 to 29 pay off their credit card balances in full each month, compared to about 50 percent of adults age 30 and over. In addition, the survey indicated that 18 to 29 year olds frequently missed their payments altogether.
Budget-conscious individuals are well aware that they can only spend what has been loaded onto prepaid cards. Once the money is gone, they know that they will need to reload before making more purchases. Using a prepaid card in this way gives consumers a level of accountability for their purchases and potentially keeps them from being in debt for years or even decades to come.
Prepaid card use continues to grow. As a result, some prepaid card issuers have even begun to experiment with more features and tiered pricing structures to meet the needs of their customers. Many millennials were deeply affected by the last major US recession. Because of this, they have become wary of relying solely on banks for all of their financial transactions.
Although using a prepaid card will not necessarily build one's credit, it will also not contribute to its decline either. For those who are struggling to get their finances back in order or are trying to repair damaged credit, using a prepaid card to develop better spending and budgeting habits is a great idea.
