A recent news report noted that the youngest generation of credit card users―teens and college students―were the least financially aware segment of the credit market.  They tend to lack savings and they often don’t understand the machinations of successful personal finance.  Obviously, this makes them far more likely to mismanage their credit or to make other mistakes that could have a lasting impact on their long-term financial well-being.

While a good education regarding the ins and outs of personal finance is clearly in order for many young people, it’s also worthwhile to consider ways to make them less likely to end up in credit trouble.  Prepaid credit cards for teenagers are one way to help meet that goal.

A prepaid credit card is basically a Visa- or MasterCard-branded card that can be used at any store that accepts either of those cards.  The prepaid card, however, is more akin to a gift card than a traditional credit card.  Spending with the card is limited by the amount of funds in its account.  The card isn’t tied to the individual teenager and its use will not have an impact on anyone’s credit report.  If the balance reaches zero, the user can fund the card, boosting its balance again.

If you think about it, prepaid cards aren’t really credit cards at all.  They’re much more like a Visa- or MasterCard-branded debit card that’s tied to a checking or savings account.  Available resources represent a hard cap on use and there’s no risk of over-extension.  While it makes more sense to think of them as “debit” or “gift” cards, they are generally referred to as credit cards because they can be used in the same fashion.

You can find prepaid credit cards for teens in a variety of locations.   It pays to comparison shop before buying a card, though.  That’s because there are often “hidden” costs involved and those can vary widely based on the card issuer.  Those costs may include a purchase price above and beyond the amount place upon the card, activation fees, regular monthly balance reductions and other expenses.  While some cards offer amazing deals, others are so riddled with these fees and charges that they just don’t make sense.

These cards serve some important functions.  They provide teenagers with a cashless option when making purchases, allow those without credit cards to make online buys and offer a great deal of convenience.  And they serve all of those functions without putting the using teen in a position where he or she may make a buying or payment decision that would otherwise have a deleterious impact on his or her credit scores.

Prepaid cards won’t serve every need.  There are times when one needs a personal credit card to transact business.  Airline tickets and rental cards immediately jump to mind.  That being said, there are a number of potential uses for prepaid options and some compelling benefits associated with them.

In a perfect world, teenagers would have the knowledge and responsibility to effectively manage their credit.  That’s not happening right now, however.  The youngest demographic seems to be the most uninformed with respect to smart personal finance.  That’s why using prepaid credit cards for teens makes more sense than handing the children “real” plastic.