Debit and Credit Card for Children: The Ultimate Parent’s Guide

Teaching children about money is one of the most important life-skills that we can empower our kids with. By enabling them to lead their financial journey early-on, we help them build a positive relationship with money and finance. Debit or Credit Card for children is a critical aspect of this educational journey. Despite the importance of the matter, less than 1 in 5 children between the age group of 8 to 14 have a credit card. While it’s common to observe elementary school children with the latest smartphones, there is still a sense of hesitation in our society when it comes to providing them with a card.

Let us look at the concept of debit and credit card for children holistically, evaluate pros and cons, the ideal age for card ownership and determine if our child is ready for one. This ultimate guide will also cover expert advice on marking the right choice when it comes to selecting the appropriate debit or credit card for your child.

Benefits and Pitfalls of Getting a Credit or Debit Card for Children

As we know, teaching about money to children goes beyond numbers. It’s about imparting the essence of responsible spending and establishing a solid foundation for lifelong financial well-being. When used wisely and appropriately, a debit or credit card for children becomes a powerful tool in their journey towards financial prosperity. After all, these are one of the most primary tools in their financial kitty to navigate the complexities of life. As with any endeavor, there exist both promising advantages and potential pitfalls when it comes to introducing plastic money to your children.

Benefits of Getting a Debit or Credit Card for Your Child

• Financial responsibility: Introducing your child to a debit or credit card can teach them about managing their own finances responsibly. They’ll learn how to track their expenses, budget, and make informed spending decisions.
• Build financial decision-making skills: As children start utilizing a debit or credit card, they learn to lead their financial journey. They understand the impact of mistakes like overspending their budget or carrying unpaid debt
• Convenience: cards provide a convenient way for children to make purchases or withdrawals, reducing their reliance on cash.
• Safety: Carrying a debit or credit card is usually much safer than carrying cash in most circumstances. Moreover, these cards also come with security features that can provide valuable lessons about online security, identity theft and phishing at an early age.
• Emergency situations: A card can be a helpful resource in emergencies, giving your child access to funds when needed
• Building credit history: For older teenagers, a credit card can help establish a credit history, a crucial step towards financial independence. A good credit build during these years can help them get better rates, car loans, educational loans and mortgages later on. Building strong credit and achieving a good credit score can help them setup for success.

Drawbacks of Getting Your Children a Debit or Credit Card

• Risk of overspending: As with adults, children are also at risk of overspending their budget. Without proper guidance, children may overspend with a debit or credit card, potentially leading to financial problems.
• Security concerns: Unless educated and guided, children at this age may not fully understand the importance of protecting their card, pin and identity information. This makes them vulnerable to fraud or theft.
• Interest and fees: Credit cards, if not used wisely, can lead to high-interest payments and fees. It’s crucial to educate children about these potential costs.
• Difficult to stick to budget: Adhering to a budget is easy when children handle physical cash since it provides a tangible representation of the finite nature of their budget and allowance. However, when equipped with a debit or credit card, this concept of limited resources can become less apparent. Therefore, it becomes absolutely vital for us as parents to maintain an active role in guiding them through the usage of their cards. This entails closely monitoring their transactions and actively participating in discussions aimed at helping them comprehend and establish clear guidelines for responsible spending.

Debit or Credit Card for Children – What to get?

For children, a debit card and a credit card might seem indistinguishable because they share a similar physical appearance. However, it’s essential to recognize that they differ significantly in terms of their funding source, fees structure, transaction limits and security features. Therefore, it becomes exceedingly crucial that we engage in thorough discussions and provide explanations about the fundamental distinctions between these two modes of payment.

Each child is different and every child’s financial education journey is unique. Whether to get a debit or credit card for your child depends on a lot of factors including their understanding of financial concepts, debt and their maturity and decision making skills. While looking at the two categories, you may also need to look at some of the other types of cards such as a secured credit card or a prepaid debit card while making decision. Each category has their own advantages and limitations in terms of their functionality.

Expert Recommendation:

Experts suggest that a prepaid debit card can be a great way to introduce money management to kids. Graduating them to a debit card can help them own finances and manage their budget and expenses. A secured credit card is a great way to introduce them to the world of debt. Only have a credit card when your child is fairly independent and can make prudent decisions.

Getting a Debit Card for Children

Put simply, a debit card is a payment tool tied to a bank account, typically a checking account. It’s worth noting that a prepaid debit card closely resembles a regular debit card in most aspects, with the key difference being that it’s not linked to a checking account. Introducing a debit card to young children can be an educational step towards understanding basic banking products and practicing financial concepts like budgeting for needs and wants. Irrespective of the type of debit card, children gain the ability to conduct transactions using available funds.

Before deciding whether a debit card is suitable for your child, it’s essential to assess its advantages and disadvantages. Equally important is having an open conversation with your child about the associated risks and limitations. They should fully comprehend the responsibilities that come with owning and using a debit card.It is also important to analyze the features and capabilities that are available for you as a parent for the respective card. Does the card have a mobile app where you can monitor transactions? Can you lock the card on app if its stolen? As always with any financial product, it is very critical to go through the fine-print and understand and discuss same with your child.

Getting a Credit Card for Children

In simple terms, a credit card leverages borrowed funds to performance transactions and make purchases. It grants them greater autonomy in their financial journey, making it crucial for them to have a clear grasp of this concept. It’s important that they recognize the significance of responsible decision-making when using credit cards, as indiscriminate swiping can result in the accumulation of debt.

When utilized wisely, introducing credit cards to children can serve as an effective method for familiarizing them with the concepts of debt, credit history, and interest rates. A solid understanding of credit is crucial for children as they work toward establishing their individual credit score, a foundational block of their future financial well-being. It’s important to note that, in many jurisdictions, regulations typically prohibit issuing credit cards to individuals below the legal age of maturity. Moreover, as a result of their limited credit history and unavailability of an income source, financial institutions may not issue a credit card to children. Nevertheless, this restriction doesn’t necessarily preclude younger individuals from obtaining a credit card.

Supplementary card user or co-sign a credit card

As a parent, co-sign your child’s credit card account taking over the responsibility of paying their credit card bills in case they do not. Many credit cards also offer the flexibility to add supplementary users. Adding your children as supplementary user can kick-start their credit card journey. It’s worth noting that this approach may influence your child’s credit history depending on the policies of the financial institution. The outcome may be favorable or unfavorable, contingent on your own personal credit history and score. Also, this approach will involve you going through credit card statements regularly with them to track and monitor transactions.

Secured Credit Cards

These provides an excellent opportunity to acquaint children with the realm of credit cards while imposing a cap on their spending. To obtain these cards, individuals are required to make deposits equivalent to the assigned credit card limit. These cards are readily attainable, even for those with minimal or no credit history. Additionally, they serve the dual purpose of establishing a credit score and fostering responsible spending habits, laying the groundwork for responsible credit card usage as they mature.

At What age Should Your Kid get a Card

Short Answer – It Depends ! Determining the right age for your child to get a credit or debit card is not a one-size-fits-all decision. It’s a choice that should be based on a variety of factors and a clear understanding of your child’s financial readiness.

Research has shown that basic concepts related to money and finance will have typically developed by the age of seven years. This means that any age between 7 and 12 is a great start to build on preliminary habits and build a solid foundation for financial success.

However, it’s crucial to have an open and honest conversation with your child about the responsibilities that come with card ownership. They should also be comfortable with money and financial matters. If they’ve been handling cash independently for a year or two and can manage their expenses and budget effectively, it might be a good indication that they are ready for a card.

Assessing your child’s readiness for a payment card

While the correct age for getting a payment card may be different, there are some basic underlying principles that can be applied to assess your child’s readiness for a payment card. Your child should be comfortable with money and finance. Often, if they are able to carry out transactions with small amount of cash independently for a couple of years, they should be able to get and manage a card. You can use the following checklist to determine if your child is ready for a card:

While these checklist items are crucial for your child’s readiness, let’s not forget the other critical piece of the puzzle – YOU! it’s equally important to assess your readiness as a parent. Simply handing your child a credit or debit card won’t suffice. Taking a hands-on approach, guiding them, and allowing them to learn from small mistakes are essential. This requires effort and time spent monitoring their expenses and having frequent conversations about money.

Is your Kid Ready for a Debit Card

To assess if your child is ready for a debit card, consider their ability to:

Is Your Kid Ready for a Credit Card?

Inherently, credit cards come with high risk and responsibility. Your child is ready for a credit card if they:

Expert Advise to Choose the Correct Card for Children

You have determined that your child is capable of getting a debit or credit card. What next? How to pick the correct debit or credit card for your child? Here is a 3-step guide to choosing the correct card for children:

How to Pick a Debit Card for Your Kid

While all the above three steps hold equal prominence, Step 1 lays the foundation. Let us look at some of the aspects while researching and picking the best debit card for your child:

• Fees: While debit cards may not have a fee, the associate checking account may have a monthly fee. In addition, a prepaid debit card can have hidden fees as well. Look for debit cards with minimal to no monthly fees.
• Parental controls: Choose cards that offer parental controls for tracking transactions, managing spending limits. These are also useful in case a card needs to be locked in case of getting lost or stolen.
• Mobile app and education tools: Some financial institutions provide educational tools and mobile applications. These are valuable resources for children to learn about money management. These also facilitate parental controls that we discussed earlier and make it easier to manage and track expense.
• ATM access: Many banks allow easy access to ATMs of other banks with minimal to no fees (upto certain transactions every month). Research these options as your child may need to withdraw cash at some point of time.
• Privacy and Security: ssess the card’s physical security measures, including the presence of a chip. Examine the issuer’s data collection practices and its policies regarding sharing information with third parties.
• Insurance: Additionally, take into account the financial institution’s insurance coverage and whether the card offers protection against theft and fraudulent transactions.

How to Pick a Credit Card for Your Kid

When choosing a credit card for you child, consider the following aspects:

• Fees: Credit cards often come with various fees that can significantly impact your child’s financial experience. These fees may include an annual fee, late payment fees, balance transfer fees, and more. It’s crucial to closely examine the fee structure associated with different credit cards to make informed comparisons.
• Low Annual Percentage Rates (APR): The Annual Percentage Rate (APR) on a credit card plays a pivotal role in determining the interest charges incurred, especially in cases of missed payments or carrying a balance. Opting for a credit card with a low APR can be advantageous, as it reduces the financial burden on your child and promotes responsible credit card usage
• Rewards Program: Many credit cards come with rewards or cash-back programs designed to incentivize spending. It’s essential to evaluate these programs in the context of your child’s unique circumstances. For example, if your child is driving and incurs gas expenses, consider credit cards offered in partnership with gas stations. These cards often provide rewards or discounts on fuel purchases, which can translate into substantial savings over time. Tailoring the choice of credit card to match your child’s spending habits and needs can result in significant benefits.
• Insurance, Privacy and Security:Just like when evaluating a debit card, it’s crucial to assess the insurance coverage, privacy policies, and security features associated with a credit card. Comprehensive insurance coverage can provide peace of mind in case of unexpected events, such as theft or fraudulent transactions. Privacy policies should align with your comfort level regarding data sharing, and robust security features are essential to safeguard your child’s financial information.

Conclusion

In conclusion, introducing your child to the world of payment cards can be a transformative step in their financial education journey. Whether it’s a debit card or a credit card, these tools provide valuable opportunities for learning about financial responsibility, budgeting, and decision-making. However, it’s essential to consider your child’s individual readiness and circumstances before taking this step.

Teaching your child about money isn’t just about numbers; it’s about instilling lifelong financial values. When used wisely, payment cards can be powerful tools to empower your child’s financial independence and prepare them for the complexities of adulthood. By understanding the benefits and drawbacks, selecting the right card, and actively participating in their financial education, you can set your child on the path to financial success.

Remember, every child is unique, and their financial education journey will be too. Take the time to assess their readiness, educate them about financial concepts, and choose a payment card that aligns with their needs and goals. With the right guidance and support, you can help your child build a strong financial foundation that will serve them well throughout their lives.