Amex Targets Teen Credit Card Consumers

American Express (Stock Quote: AXP) has been getting increasingly aggressive about targeting younger consumers with prepaid credit card deals. Now, they’re aiming at the teenybopper set with a new card called PASS. It’s being offered to teens and their families at $3.95 a month, and it has some potentially helpful — and not so helpful — aspects to the deal.

Amex is heading into the youth credit card market facing some stiff headwinds. While the card giant does have a prepaid credit card for college students (called ZYNC), studies indicate that younger cardholders are having a tough time managing those cards.

According to an April 2009 study by Sallie Mae entitled "How Undergraduate Students Use Credit Cards," the average balance for student cardholders was $3,173, the highest point ever tracked by Sallie Mae. The median balance for college card customers was $1,645 — up from $946 in 2004. And 21% of student cardholders had balances between $3,000 and $7,000.

Against that backdrop, parents may well wonder if their teens actually need a credit card — even a prepaid one. But that’s not stopping American Express, who is acknowledging the potential anxiety parents may have about their teenage children getting a credit card.

For starters, teens may not fully grasp the nature of credit card usage — that any funds extracted from the card to pay for purchases will actually have to be repaid. Then there is the safety issue. Any parent who has spent hours looking for a teen’s cell phone understands that a credit card can just as easily be lost or stolen.

But Amex promises full parental controls that should mitigate overspending and allow the card to be disabled for access if lost or stolen.

Here, directly from the Amex website, is a look the account controls put into place for PASS:

  • View real-time transaction history and monitor spending.
  • Receive e-mail alerts about low funds or notifications when a transaction has occurred.
  • Disable/enable ATM access.
  • Inquire about card balance 24/7.
  • Load funds for teen's immediate access, with loading up to $2,500.
  • Schedule reloading of funds automatically.

Parents can also set up text alerts — for themselves and their kids — to let them now when funds are drawing low and need to be replaced. A real-time transaction tool lets parents know when funds are being drawn from the card and the nature of the transaction.
There are some fees involved, as follows:

  • PASS has a monthly membership fee of $3.95. (But there are no fees for activation, reloading, balance inquiries, alerts or card replacement, Amex says).
  • Kids have the option to customize the card with an image upload for a one-time $9.95 fee.
  • Parents can disable/enable ATM cash withdrawals, but a fee of $1.50 applies for each withdrawal.
  • While card companies typically don’t charge reload fees, some third-party agents like Western Union usually do.

To help teenagers learn about money and the responsibilities of credit card use, Amex is partnering with Junior Achievement to help kids up their knowledge of money and finance.

Amex is hardly alone in the teen credit card market. MasterCard (Stock Quote: MA) has its Allow Card, a prepaid card that transmits financial lessons to kids via e-mail. And Visa (Stock Quote: V) has its Buzz reloadable prepaid card for kids age 13 and up.

So if parents can stomach their teens sticking a credit card in their shorts, that might be half the battle. The other half — access to a card for a teenager — is already here with products like Amex PASS.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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