Don't Take Financial Advice From Justin Bieber


Following celebrities is a mostly harmless pursuit. But following their financial advice can be hazardous to your wealth.

Recently, Justin Bieber became the latest celebrity to link himself to a growing trend in the financial industry: prepaid debit cards. And although the concept behind prepaid cards definitely has merit, especially for teens, cards that pull in customers based on celebrity popularity are rarely the best choice among all the alternatives you have.

What's up with the Bieber card?
Recently, BillMyParents signed up Bieber to promote its SpendSmart prepaid card. Given the card's focus on teens and carrying a message of encouraging responsible spending, Bieber's broad-based appeal among the company's target demographic makes the celebrity a natural fit with the card company's business plan.

But Bieber's deal is far from the first time a prepaid card has tried to use celebrity power to bring in customers. Back in 2010, the Kardashian sisters launched the Kardashian Kard, a prepaid debit card that tried to use the same message.

The problem with the Kardashian Kard was that it charged truly outrageous fees. As initially proposed, just getting the card involved having to pay a "membership fee" of $99.95 for the first year, with ongoing fees of nearly $8 per month. Tack on plenty of other fees, including charges for ATM withdrawals, billpay service, and money transfers, and the Kardashian Kard raised so much negative sentiment among consumer groups that it died a quick death.

Do prepaid cards for teens make sense?
Let me be the first to say that teaching teens how to be smarter with their money is a great goal. Given the almost complete lack of financial literacy among young people, anything that encourages teens to be more responsible financially for their actions deserves at least the benefit of the doubt.

BillMyParents is definitely trying to tap into the wish for parents to know what their kids are doing with their money while keeping the process of giving an allowance as simple as possible. With the ability for parents to get alerts that tell them what their kids are spending money on, it's easier to hold kids accountable for their actions. Moreover, if teens don't do what they're supposed to, the SpendSmart card lets parents put a temporary freeze on the card or even permanently block its use for certain stores.

But why pay?
Admittedly, the SpendSmart card's fees aren't nearly as bad as what the Kardashian Kard charged. But you still have to deal with a constant drain on your money. There's no way to avoid the monthly $3.95, and while that includes regular monthly recurring cash deposits to the card, you'll pay more if you have to make an emergency cash addition to the card. Fees also apply if you need to have the card replaced or don't use the card for 90 days or more.

But the fact is that every prepaid card funnels money away from you and the places you spend your money and toward card networks Visa or MasterCard , which benefit every time you use the card to make purchases, as well as the card issuers like BillMyParents.

Perhaps more important, you can do better than the Bieber card. Last year, American Express teamed up with Wal-Mart to offer its Bluebird prepaid card, which has a huge advantage in fees. Bluebird charges no monthly fee and allows free additions from any checking or savings account. You can even set up the account for free if you register online.

Be your own celebrity
Teen financial literacy is a noble cause, but the Bieber prepaid card isn't the way to achieve that goal. By using a cheaper alternative like Bluebird or even sticking with traditional cash, you can instill important financial values in your children while not having to pay through the nose for a celebrity endorsement.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends American Express and Visa. The Motley Fool owns shares of MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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