Why Millennials Are Embracing Prepaid Cards

American consumers loaded approximately $65 billion onto reloadable, prepaid debit cards in 2012—an amount expected to grow by 42% each year.

What’s one of the biggest drivers behind this growth? Millennials and their ease with embracing new personal finance tools, from online banking to peer-to-peer payment apps like Venmo. Count prepaid debit cards among this generation’s favorite things.

According to a survey from TD Bank, one-third of 18 to 34-year-olds use prepaid cards, compared to one-fourth of the general public.

“I'm using the prepaid card to manage my expenses,” explained Laura Lavens, a 21-year-old who is currently pursuing a master’s degree in business engineering from KU Leuven in Belgium. “As a student, my budget is tight. With the card, it’s easier to manage a weekly and monthly budget.”

Lavens’ experience mirrors those of the majority of prepaid debit card users. In a 2014 report from the U.S. Federal Reserve, 59% of cardholders agreed the cards helped them spend less and better manage their money.

“These cards are fantastic for controlling spending,” said Brian Lombardo, a certified financial planner based in San Jose. “You can make sure that you only spend so much in categories like groceries, dining, discretionary spending—without having to keep track of your receipts or use a spreadsheet.”

For that reason, Lombardo recommends prepaid cards to his clients who seek more control.

“I actually tell them to get two or three,” he explained. “That way, you can use a different card for each expense. One for groceries, one for dining, and so on.”

In the past, many families used envelopes of money to stay within a budget, Lombardo said.

“Once the money in the envelope ran out, you were done,” he explained. “Prepaid cards are like electronic envelopes.”

This is primarily how Lavens uses hers.

“I use it to pay my regular expenses, like groceries, housing, and transportation,” she said. “It’s just a very easy way to manage my expenses.”

Like 63% of U.S. millennials, Lavens doesn’t possess a credit card. She was not eligible for one.

There are a couple reasons credit card usage is disproportionately low among young adults.

Since the passage of the Card Act in 2009, it’s become more difficult for Americans under 21 years of age to be approved for credit cards. Secondly, growing up during a recession and facing historically high amounts of student debt has made millennials wary of spending money they potentially don’t have.

Prepaid cards fill the gap between cash and credit cards, Lombardo said. They’re more convenient than carrying cash, but offer more control.

In addition, you can use prepaids card online—and not just for shopping, but for cashing checks, receiving direct deposits, paying bills, and sending money to friends or family members.

“Prepaid cards are also appealing because you can deposit money in them from various sources,” Lombardo explained. “You can go to the store and deposit cash into the account.”

Regarding concerns about fees, Lombardo said it’s fairly easy to avoid almost all fees by using the ATM network, choosing paperless billing, and using the card at least once a month.

“You can avoid almost all fees but the fairly low monthly one,” he added. “It’s usually $5 to $10 a month.”