The growing appeal of reloadable prepaid debit cards may have more to do with controlling household budgets than an inability to get a bank account.
The National Foundation for Credit Counseling on April 3 released results of its annual financial-literacy survey that for the first time explored how and why many individuals use prepaid debit cards.
The Washington, D.C.-based nonprofit foundation joined forces with the Montvale, N.J.-based Network Branded Prepaid Card Association to shape the survey. The association has a vested interest in seeing the network-branded prepaid card market proliferate.
In a telephone survey Harris Interactive Inc. conducted March 16 to 19 involving 2,007 U.S. adults older than 18, some 15% of respondents said they had used a prepaid debit card within the previous 12 months.
Far more consumers opt to use a prepaid debit card for convenience and budget-management than because they lack access to banking and other financial services, the survey data suggest.
Some 13% of those who had used a prepaid debit card within the previous 12 months did so to pay for groceries, gas, dining out, paying bills or shopping online. The majority, or 78%, cited convenience as a top factor for using a prepaid debit card, while 72% said such cards also help them control their spending and 73% said the cards are safer than carrying cash.
One-quarter, or 25%, of respondents said they used a prepaid debit card within the previous 12 months because they had “no other payment or banking options."
More than half, or 53% of respondents said they had “other banking options" but preferred to use a prepaid debit card for routine purchases.
Seventy-four percent of respondents said they believed their prepaid debit card was "a better value" than a credit card or regular debit card, and 70% said they felt "more in control" of their money using a prepaid debit card than a regular debit card issued by a bank or credit union.
The crossover between financial-literacy education and prepaid debit cards is "a natural bridge," a spokesperson for Network Branded Prepaid Card Association tells PaymentsSource.
"As prepaid debit cards gain popularity with consumers, we are digging deeper into finding out why and how they use these cards," the spokesperson says. "Increasingly, people are citing budgeting and cash management as one of the top reasons, along with staying out of debt."
Meanwhile, fewer consumers are revolving a credit card balance from month to month, the foundation says, citing its survey data.
More than one-third, or 39%, of respondents said they had outstanding credit card debt, down from 40% who said so last year and 41% who did in 2010, the foundation said.
Fifty-six percent of respondents said they did not have a household-spending budget, while 33% said they did not pay their bills on time.
Some 39% of respondents said they had no savings beyond what they earmarked for retirement, the foundation said.
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