Lessons in Prepaid: Open-Loop Cards as a Parenting Tool

Allowance and Financial Responsibility Through Prepaid Cards

Date:Sept. 10, 2019

When is a gift card not just a gift?

We know from our research1 that 28 percent of consumers purchased open- or closed-loop gift cards for self-use. But even cards that are given aren’t always gifted – at least not in the traditional sense. We’ve found that 55 percent of consumers who purchased open-loop prepaid cards gave those cards to their immediate family – but those shoppers aren’t just spending for holidays, birthdays and graduations. Oftentimes, parents are using the cards to instill valuable lessons with long-term rewards far exceeding the monetary value of the card itself. Those lessons are in financial responsibility, a foundational life skill – and open-loop prepaid cards can be excellent teachers. When asked why they gave children open-loop prepaid cards, 29 percent of our respondents indicated financial responsibility was an important factor.


InComm image


Our prepaid card solutions, such as OneVanilla, function like debit cards; they can be loaded with money at checkout and spent anywhere their network is accepted. With these cards, parents can contribute to a well-regulated allowance during routine shopping trips, and distribute the cards in an amount and timeframe that works best for them.




The Modern Allowance

A child’s weekly allowance is a sepia-toned tradition, one which still resonates today. According to T. Rowe Price’s Parents, Kids & Money Survey, 61% of adults reported receiving an allowance when they were young, and Finder reports that some 50 percent of parents are carrying on the tradition, to the tune of $41 billion annually.


Parents have all sorts of different methods of delivery and amount variances, but their purpose typically hearkens back to development of financial responsibility and instilling the value of a hard-earned dollar, with allowance meant to impart some level of understanding of the fiat currency, fiscal self-control, and general microeconomics.


Some parents believe that allowance should be directly earned, whether on a per-chore basis (finally quantifying the dishes vs. laundry debate) or as a salary of sorts for total completion of household duties (hopefully for the nation’s kids, 2016’s going rate of $4.43 per hour2 has risen to meet inflation). Others feel a blanket sum is the solution, believing that while chores may or not be expected, they shouldn’t be tied directly to financial gain.


A general rule of thumb for allowance delivery seems to be $1 or $2 per years of age on a weekly basis, but there’s no “correct” method for allowance. And while cash has been the historical tender, there’s no reason to for parents to remain tethered to physical currency (sorry, piggies). Our research shows how parents have used open-loop prepaid cards to add flexibility and simplicity (one less reason for a bank trip) to the process. In fact, 15% of our respondents stated that they used open-loop prepaid cards for allowance, with benefits such as “[the cards are] easy and they are able to purchase what they want” (including cashless options like in-app purchases and online retailers) or “they don’t lose it like cash” (everyone remembers the first $20 bill they lost as a kid).




Financial Teaching Tools

Not all parents responding are using prepaid cards to deliver regular allowances. Sometimes, cards were shared explicitly as a teaching tool to impart financial responsibility.


Financial literacy is important3, but until more U.S. high schools start incorporating money management programs4, financial education in America is up to parents. Comprehension of higher level concepts like debt ratio, risk diversification, and asset liquidity begins with the basics – spending, saving, budgeting and self-control – all of which can be assisted with prepaid cards. With open-loop cards, parents can load money as appropriate and either involve themselves by monitoring spending and developing a budgetary plan or take a laissez-faire approach and let their kids learn life lessons the hard way (with no risk to anyone’s credit score).


Parents reported using these cards to teach children how to shop online, or to help them with a purchase, thus demonstrating budgeting and the relative value of money. Of our respondents who indicated they gave an open-loop prepaid card to their child, 13 percent said they used it to monitor spending, an option more manageable with cards than cash. About 21 percent said they used the cards to set a limit on spending, letting their children budget out of the agreed-upon funds. And 38 percent of parents said they used the card to help their kid pay for something, choosing cards because of their convenience and versatility, and to avoid using cash. Said one respondent, “I want to teach them to be responsible with money, how to use a card, and to keep track of purchases and how much is left.” Another parent stated they used prepaid cards to teach them “how to control spending.”




Cashless Is King

Prepaid cards continue to be used as gifts, of course. The majority of our respondents preferred open-loop cards that allowed kids to buy whatever they want, often stating that their children preferred a prepaid card to a conventional wrapped item; many parents also supplemented that gift cards were more personal than cash in these situations. In addition, parents sent prepaid cards with kids on school trips and to summer camps, where organizers preferred kids not to bring cash.


At InComm, we’re continuing our research to help understand how open-loop prepaid cards are being assimilated into the family economic dynamic. Since last year, we’ve seen an 11 percent increase in consumers who gave open-loop prepaid cards to their immediate family, and the percentage of parents who “frequently” use open-loop prepaid cards to help their children pay for something has risen from 57 percent to 63 percent. With the benefits outlined above, it’s a good bet that those numbers will keep increasing as more parents become aware of the value of prepaid; yet another lesson to pass on through the generations.


Intrigued? Check out our infographic on Kids and Prepaid.

Want to learn more about our prepaid card solutions?


1 Except where otherwise noted, statistics for this article were provided by InComm’s 2019 Open-Loop Gift Card Study.

2 Four in Five Americans Say Allowance Teaches Financial Responsibility: New Survey.” American Institute of CPAs, 28 April 2016, https://www.aicpa.org/press/pressreleases/2016/four-in-five-americans-say-allowance-teachesfinancial-responsibilty.html.


3 Urban, Carly, et al. “The Effects of High School Personal Financial Education Policies on Financial Behavior.” Economics of Education Review, 2018, https://www.sciencedirect.com/science/article/abs/pii/S0272775718301699. Accessed 2 July 2019. 

4 The Case for High School Financial Literacy.” Report: National High School Financial Literacy. Champlain College, 2017, https://www.champlain.edu/centers-of-experience/center-for-financial-literacy/report-national-high-school-financial-literacy/the-case-for-high-school-financial-literacy. Accessed 2 July 2019.