Every Monday at about7:20 a.m., my household goes through a mad scramble to find $10 in cash. My 13-year-old son needs exactly $9.90 tobuyhis weekly train pass on the way to school. Sometimes,we all forget until he has left the house, andone of his parentshas to chasehimdown the street in pajamas to give him money. He loves that.
Considering that I write about credit cards for a living, it took way toolong to realize that there’s a simple solution to our problem: Get this kid some plastic.
But is a credit card or a debit card a better choice for a teen this young?
It’s not difficult to add kids as an authorized user on a parent’s credit card, but some families prefer to open a bank account with a debit card attachedso the children are not walking around with a high credit limit in theirpockets.
When cash is no longer the best solution for young teenagers’ regular expenses, thedecision on whether to go with credit or debit will involveseveral factors: making things convenient, teaching themabout financial tools, protecting financial informationand building credit.Convenience for parents and kids
There’s no universalage when it suddenly becomes appropriate to get your children a credit or debit card. It depends on the kids — how responsible they are and how often they need to buy things when a parent isn’t around. The decision is often forced upon families when it becomesinconvenient for the children not to have a card.
As kids get more independent, they more often need to pay for:
- Clothing, sports equipment or school supplies
- Meals at school, or on outings with friends
- Transportation to school or to after-school activities
- Emergency expenses when traveling without parents
All of these expenses can mean substantial amounts of cash are in play,whether the money comes froman allowance or a part-time job. It can becomeinconvenient or even unsafe for kids to deal only in cash.
Credit or debit? For the sake of convenience, either one is a viable replacement for cash.
Most financially literate adults use both credit cards and debit cards regularly. Somewhere along the way, we learn the difference: Debit cards spend money we already have, while credit cards borrow money that we’ll need to pay back later.
Kids will need to learn that distinction, too. But paying with a card can make money seem very abstract: Youdon’t see yoursupply of money shrinkingthe way you dowhen you’reusing up thecash in your wallet. Starting with a debit card, and showingkidshow to keep track of how much is in the account, may be a better way to teach themhow to manage money.
Credit or debit? A debit card can prepare a young person to use credit responsibly in the future.
Whether it’s a credit card or a debit card, kids need to learnhow to safeguard their new card information. That means not leaving the card out where someone could steal it or copy the numbers. It also means being cautious when making online purchasesand avoiding sites that haven’t taken proper security precautions.
But fraud can happeneven when you take every precaution. And when it does, theconsumer protections in place for credit cards are slightly better than those in place for debit cards. You havemore time to report fraud on a credit card than a debit card, and your liability for fraudulent charges is more limited. Also important: With debit card fraud, it’s your moneythat disappears, at leastuntil matters get straightened out. With credit card fraud, the money at stake belongs to card issuers and merchants.
Ifyou do get your child a debit card, you might want to considera reloadable prepaid card, and keep the balance relatively low. Atraditional debit card linked to a bank account puts more money at risk. But fees tend to be higher with prepaid debit cards, and they’re not as versatile as debit cards linked to bank accounts.
Credit or debit? Credit cards are better when it comes to security.Helping young people build a credit history
Building credit is difficult, but it’s a whole lot easier for young people who have been added to a parent’s credit card account as an authorized user. However, a 13-year-old doesn’t need a credit history just yet; there’s no real advantagetoadding such a young teento a parent’s credit card account. You’ll haveplenty of time to do that later on.
For older teenagers, though, this isa solidreasonto choose a credit card instead of debit.With authorized user status, the primary account holder (usually a parent) will still be responsible for paying the credit card bill. The teens will receive their own card, linked to the parent’s account. This will help them begin to establish a positive credit history, and make it easier for them to get their own credit card later. But it will also give the parent a chance to watch the children’s spending and help them learn budgeting and restraint.
Credit or debit?Debit cards don’t report account activity to the credit bureaus, so they won’t help build credit. Only a credit card that reports to the bureaus will build credit history.
I have two objectives when it comes to getting a credit or debit card for my middle schooler. First, I want to make our lives easier, so we don’t have to remember that$10 in cash every Monday. Either credit or debit would serve the purpose here.
Second, I want to teach him to usefinancial tools wisely. For this, I prefer to start himwith adebit card. Once he learns how toresponsibly handle money he can’t see or touch, then we can move on to a credit card.
But what’s the best option foryour child? That depends on your reasons for getting a card for your kid. If, like me, you’re looking for convenience, either credit or debit works well. If your goals are more complicated, you’ll need tomake a choice — until the day when your child is ready to handle both.