With millions of Americans falling into the category of being “unbanked” or “underbanked,” meaning they either have no bank account, or if they do, they still rely on alternative financial providers to meet some of their needs, it’s no surprise that nearly 10 million households used prepaid cards from 2012 to 2013. That number is continuing to increase and data is showing that the demographics are shifting as well. From millennials to their parents, more people are starting to use prepaid cards for a variety of reasons.
Prepaid cards have long had the reputation of being a financial tool for the economically less fortunate, or disadvantaged, but times have changed and with all the benefits prepaid cards have to offer, user demographics are shifting. According to a survey completed by TD Bank, “about 40 percent of the people who said they’d used the cards made between $50,000 and $100,000 and 21 percent made more than $100,000.” Millennials seem to be the age group leading the pack of new users with 33 percent of millennials using prepaid cards, and 60 percent saying they’d consider using a prepaid card.
Millennials tend to look at prepaid cards as a budgeting tool, allowing them to keep better track of what they’re spending and avoid spending too much at a time. “We know from our continued research that millennials favor debit cards and want to avoid overspending. Prepaid cards provide all the flexibility of a debit card, but with the added control of only spending what you load,” said Tami Farrow, SVP, Head of Retail Deposit Payments at TD Bank.
For parents, prepaid cards are a great way to teach children about budgeting, giving them access to a set amount of money at a time. The cards also give them a tool to get money to their children in college.
Another reason more people are being drawn to using prepaid cards is the safety aspect. Using a prepaid card helps protect users from fraud fraud with the Networks’1 Zero Liability Policies2, 3, giving them an extra level of confidence when shopping online.
According to a Pew Research study4, 59 percent of adults who have a checking account have used a prepaid card at least once, and 45 percent have used a credit card within the past year. When asked why people who already have a checking account would use a prepaid card, Alex Horowitz of Pew said, “to gain control of their finances, avoid overspending and overdraft fees. This way they know they can put a certain amount on the card and spend that and no more.”
Prepaid cards have many uses and benefits; they add another level of financial control for many users and provide a safe and convenient way for many people to access their money. Over and over again we are seeing the trend of prepaid cards being used as a budgeting tool for people of varying financial statuses. Whether consumers are underbanked, unbanked, just entering the financial world, or looking for a safe and convenient way to manage their money, prepaid cards are an increasingly popular solution for many people.
1MasterCard or Visa
2MasterCard Zero Liability: Conditions and exceptions apply. Please see website for more information about MasterCard Zero Liability: mastercard.com/general/zero_liability.html
3Visa Zero Liability: Visa’s Zero Liability Policy covers U.S.- issued cards and does not apply to certain commercial card transactions, or any transactions not processed by Visa. You must notify your financial institution immediately of any unauthorized use. For specific restrictions, limitations and other details, please consult your issuer.
5http://www.cnbc.com/2014/02/07/why-prepaid-debit-cards-are-appealing-to-so-many.html
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