JUSTIN BIEBER earned $55 million in 2012, according to Forbes, but in new videos for the SpendSmart Payments Company, which offers a prepaid debit card for teenagers, the singer talks about his modest upbringing.
“You know when I was a kid, we didn’t have a lot of money, so me and my family had to watch the money that we spent,” Mr. Bieber says in a video directed at his young fans. “I learned if you have $100 or $100 million — if you spend more than you have, you’re going to go broke.”
Mr. Bieber urges viewers to “have a talk with your family about money” in the video. “Managing your money is important,” he says, “and there’s a great company that can help you do that called SpendSmart.”
The video, by BrandFire in Manhattan, will be shared by Mr. Bieber beginning Thursday on his YouTube channel (more than two million subscribers), Facebook page (more than 52.4 million followers), and on Twitter (more than 37.3 million followers).
Subsequent videos, called “Real Talk,” also will feature Mr. Bieber discussing financial literacy and encouraging teenagers to share their videos.
Mr. Bieber is being paid $3.75 million for a 14-month contract, along with potential monthly royalties tied to the growth of active SpendSmart cards, according to documents the company filed with the Securities and Exchange Commission. The deal also, according to the filing, includes a stock option to buy two million shares of SpendSmart stock, which was trading at 38.8 cents a share Wednesday.
Noreen Jenney Laffey, president of Celebrity Endorsement Network, said she would have expected such a deal to earn Mr. Bieber closer to $2 million, but she lauded SpendSmart both for choosing the singer to reach teenagers and for focusing on social media rather than traditional advertising.
“The marketing strategy and the choice of talent for this is brilliant, as is merging it into his social media network,” Ms. Jenney Laffey said.
The SpendSmart card has a number of features intended to teach teenagers financial literacy while enabling parents to monitor them.
When teenagers use the card, which has a MasterCard logo, parents can be alerted instantly to the purchase through text messages and a smartphone app. Parents may pre-emptively block purchases from Web sites, and instantly lock the card after seeing anything objectionable. Real-time monitoring fosters what SpendSmart, in marketing materials, calls “teachable moments.”
Introduced in 2009 as BillMyParents, the card was first marketed mainly as a tool to let teenagers shop online with parental oversight. But for many the name BillMyParents equated parents with A.T.M.’s.
Thus, the company renamed the card and company SpendSmart to highlight its “mission of being a responsible teen spending company,” said Michael R. McCoy, who became chief executive of the company in 2011.
“Parents have an easier time talking about drugs and alcohol with their kids than the family budget and financial literacy,” said Mr. McCoy.
The average SpendSmart cardholder is 16, and the card is used most frequently to buy food (especially fast food), followed by gas, technology (like iTunes, electronics and games) and clothing.
A revamped SpendSmart Web site will be frequently updated with articles about financial literacy from Brafton, a content production agency.
There were seven million prepaid cards in circulation in 2012, more than double the number in 2009, according to CardHub.com, which monitors the industry.
A 2012 report by Consumer Reports criticized prepaid cards over exorbitant fees. Among 15 prepaid cards examined in the report, 13 charged monthly fees (from $2.95 to $9.95), 14 charged for A.T.M. withdrawals, 12 charged for checking balances at A.T.M.’s, and five charged for periods of inactivity.
SpendSmart fees include a monthly fee of $3.95; loading fees of $2.95 from a credit card or 75 cents from a checking account (a single scheduled monthly automatic payment from a checking account is free); $1.50 to withdraw from any A.T.M. (in addition to A.T.M. surcharges), and 50 cents for an A.T.M. balance inquiry; $7.95 for a replacement card; and $3 for 30 days of inactivity.
After reviewing the SpendSmart fee schedule, Michelle Jun, a lawyer with Consumers Union, which publishes Consumer Reports, said SpendSmart fees were not as high or numerous as those for many prepaid cards, but she still advised against the card.
“We would not recommend that parents use prepaid cards for their teens,” Ms. Jun said. “It doesn’t help your teen establish a credit history or a relationship with a financial institution, so we recommend going the traditional route and opening up a checking account at your bank or credit union of choice.”
In an appearance on the Fox Business Network in January, John Ulzheimer, president of consumer education at SmartCredit.com, said that fees for the SpendSmart card were lower than those for many cards. But “that’s like saying my broken arm is not as bad as your broken arm” because it is “comparing two bad things and trying to say that one is actually better,” he said.
“If you just take the monthly fee and nothing else — meaning that you do nothing else punitive so they can hit you with the fees,” Mr. Ulzheimer said of SpendSmart on Fox, “you’re still paying a little over $47 a year as an annual fee to get access to your own money.”
Before joining SpendSmart, Mr. McCoy ran the consumer credit division for Wells Fargo, and he said that during the height of the recession many consumers “got in over their heads because they just flat out spent too much.”
SpendSmart could help teenagers avoid the same fate, he said.
“Instead of trying to teach adults better spending habits, I thought, ‘My goodness, there has to be a different way,’ ” said Mr. McCoy. “We’re helping families to teach youth better spending habits.”
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