In days of yore, people paid cash for items and didn’t like the idea of getting into debt via credit. Enter modern America. These days, if someone pulls out cash, it’s almost against the cultural norm. Paying with plastic is the way it’s done now, but throwing a credit card at a kid can be a big financial risk. Debit cards are a good alternative you can give yourchild as a stepping stone to other financial cards.
Debit cards for kids come in two flavors: prepaid and joint bank account. Prepaid cards don’t require a bank account, although you and your child still need to apply to the issuing company. Joint account cards are good options because they usually have fewer fees and give you a clear legal authority to see what is happening with the funds.
One reason credit cards and kids don’t always mix well is that swiping a card all the time makes payment more abstract. Your child is paying with money, yet they aren’t. Kids have to understand that the card is a representation of money, and money itself is a representation of value set by members of society. It’s easy for a child who doesn’t grasp these abstract concepts to struggle with spending limits. With a debit card, your child’s spending is always limited to the amount of money on the card or in the associated account. What’s more, whether you give your child a prepaid or joint account debit card, you have control over what your child is doing to a large extent, because you can determine how much money goes on the card or in the account and see the statements. From this standpoint, it’s a safer introduction to purchase-by-plastic.
As simple as it might be for your child to use cash for his payments, in the real world, most retailers now prefer card/electronic payments. Giving your child a debit card prepares him for how real businesses are operating.
Another plus for debit cards for kids is that they are a tool for tracking spending. Your child can look at his account transactions and see how much he has left—most new phones can handle Web applications that make this a snap. Your child also could do this with the receipts from cash payments, but the statements for debit cards put all the transactions in one place and can be stored electronically.
Lastly, as risky as credit cards can be, your child always has a risk of losing cash you give him, too. Banks and prepaid card companies usually have fraud policies associated with their cards. If your child loses the card (come on, some days you’re happy he can find both shoes), you might be able to cancel it, stopping unauthorized spending in a way you couldn’t had cash been lost.
Credit cards are associated with a risk for the issuer—they trust that borrowers will pay funds borrowed against the credit line back, but not everyone does. Your child gets the opportunity to show he is not a risk by paying on time and not exceeding his credit limit. If he has a debit card instead of a credit card, it doesn’t hurt his credit, but it doesn’t do anything to build it, either.
In addition to not helping with credit scores, debit cards sometimes have associated fees. This is more common with prepaid cards, but fees also can hide in the cost of having the associated bank account. Your child needs to be able to understand how these fees add up. He also has to have a way of covering them if you are not willing to foot the bill.
Even though kids need experience in how businesses are functioning, debit cards still make it very easy for a child to spend. When kids don’t have any more cash in their wallets, the only option is to leave the mall. A debit card, however, doesn’t disappear like cash. Even responsible kids can run into trouble if they don’t keep track of their expenditures, because the card is so easy to swipe one more time.