Debit or credit cards for kids: A guide for parents

It’s smart for parents to teach their children – even at younger ages – about financial responsibilities, the importance of saving money and how to spend cash carefully. When you feel the time is right, allowing your child to use a credit card or debit card can be a good way to build proper spending and credit habits.

To help initiate these conversations, we’ve put together the following guide exploring how a kids credit card works, different debit cards for kids to check out, card for kids rules to follow, the pros and cons of a credit or debit card for children, the best kids debit cards and credit cards and the benefits of teaching financial responsibility to children.

Credit  and debt statistics

Curious how many children are using credit or debit cards? Here’s what we know, based on the latest data available:

How to know if your child is ready for a debit or credit card

There is no specific age or indication that can tell you your child is ready to begin using a credit or debit card. But experts agree that parents should evaluate different criteria to determine when the time is right.

“Parents should consider their child’s ability to handle financial responsibilities, understanding of money management and the overall need for a card. If a child can budget their allowance and has consistent needs to make purchases independently, they may be ready for a card,” explains Andrew Latham, a certified financial planner with SuperMoney.com.

Think carefully about your child’s habits, tendencies and responsibility levels, agrees Laura Sterling, vice president of marketing for Georgia’s Own Credit Union.

“Ask yourself: Do they follow through with chore lists? Are they conscientious with their resources? Have they begun to correlate current actions to future outcomes? These are all items to evaluate,” Sterling says.

Credit and debit cards obviously require more financial maturity and accountability than cash because of the potential for fraud and scams and the risk that your son or daughter could spend more money than actually have, according to Ann Martin, director of operations for CreditDonkey.

“Responsibility counts for a lot here. But it’s also essential to consider your child’s financial needs,” she points out. “Cash is becoming increasingly outdated these days. And a credit or debit card can help your child spend money in the places and ways that are relevant to them.”

Credit cards for kids

Plastic can be fantastic. But are your children ready for a credit card, which will allow them to purchase goods or services online or in person – the bill for which won’t come due until later? The answer depends.

First, there are age limit rules. Per the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, you must often be at least 21 years old to open a credit card alone and in your own name. If you are younger than 21, you may need to add an adult cosigner to your credit card application. A cosigner is a person who guarantees the debt of another individual and who is responsible for the debt if the borrower does not make payments or defaults on the loan.

If your child is underage, you may also be able to add them as an authorized user on your own credit card account. An authorized user is someone who has permission to use another person’s credit account. As an authorized user, your child will receive their own credit card that is connected to your line of credit. Any purchases made on the authorized user card will be added to the credit card balance of the primary cardholder (you), who will be responsible for making on-time payments against that balance.

“Many financial institutions will allow children of a certain age – some as young as 13 – to become authorized users on their parents’ accounts,” notes Sterling.

Pros of credit cards for kids

The benefits of your child having a credit card at an appropriate age include:

• The ability to create responsible spending and financial habits, assuming parents monitor the card carefully.
• Less risk than using cash, which can be lost or stolen.
• Many purchases made via credit card are protected by the credit card company, which can provide a safety net when making large purchases.
• Some credit cards reward points or cash back for making charges.

“Getting your child access to a credit card in order to learn how to use these essential financial tools is a good idea if you can do it in a controlled way. The same is true of getting their name on your credit accounts,” Martin adds.

Cons of credit cards for kids

On the other hand, there are downsides and risks to putting plastic in your kids’ hands, such as:

• They could run up a larger balance and overspend more than you can afford to pay off.
• Failure to make on-time payments, and carrying unpaid balances, can damage your credit score as a co-signer or authorized user.
• Some credit cards charge costly annual fees, increasing your expenses.
• You could be assessed late fees and extra charges if you and your child are not careful.
• They could lose the card or become a victim of fraud, which could lead to unauthorized charges on the account.

“Also, be aware that a person does not have a credit score until they reach the age of 18. A child can build a credit history before then. However, when you add your child as an authorized user to your credit card, the child is simply piggybacking on your credit history and not building their own credit profile,” says Erik Beguin, founder and CEO of Austin Capital Bank. “When your child is removed as an authorized user, all of your credit history as the parent and its impact on your child’s credit profile is eliminated. I know someone who lost 40 points off their credit score overnight when their dad removed them as an authorized user.”

Further, if the primary account holder pays late or misses a credit card payment, it has the potential to negatively impact their child’s credit profile and score.

Credit card options for kids

Becoming an authorized user on your account or getting you to cosign their credit card application aren’t the only ways for kids to obtain a card. Several types of credit cards are geared more toward children and easier for them to acquire, including:

1. Secured credit cards. Secured cards are secured by collateral, usually a cash deposit. “Since credit limits are low, secured credit cards are good for small expenses in building credit. Once the cardholder has a credit history, he or she may be eligible for an unsecured credit card,” says Sterling.
2. Student credit cards. Student cards are designed particularly for students and are targeted toward those with very little to no credit history. “Student credit cards can teach teens about credit and help them establish a credit history,” Sterling continues. “But students may have to prove steady income to qualify, and cardholders will likely have a lower credit limit and higher interest rate.”
3. Starter credit cards. Starter cards are intended to help those with little or poor credit to establish good credit history. “While interest rates are often high and credit limits low for starter cards, many allow you to upgrade if you manage your credit card responsibly,” adds Sterling.

Debit cards for kids

Also known as a bank card or check card, a debit card uses funds linked to a checking or savings account to instantly pay for charged transactions. A credit card, by contrast, works as a line of credit that allows you to pay a bill at a later date. The pros say debit cards can be a smarter and safer way to put plastic in your child’s hand and help them build good spending habits.

Keep in mind: The rules for getting a debit card for a child vary by financial institution. But typically, most banks require a child to be at least 13 to 16 years old to have a personal debit card. Some banks, like Chase, offer starter debit cards to kids as young as six.

Depending on the rules of the bank or financial institution, “parents or guardians may need to be joint account holders, rather than cosigners, for their child to get a debit card,” Latham says. “This allows them to oversee the account activity and ensures they are legally responsible for the joint account.”

Pros of debit cards for kids

The plusses of permitting kids to have debit cards include the following:

• They are limited to the amount of money available in the account, so your child cannot overspend beyond what is in the account.
• Usually, there are no annual fees with a debit card.
• Using a debit card responsibly can teach positive budgeting and money management skills.

“Having a debit card opens the door for important conversations and real-world scenarios about the basics of finance — from spending and saving to explaining interest and how it accrues. It also gives your child a sense of pride, independence and freedom, providing an opportunity for real-life experiences and learning,” says Matt Gromada, head of youth, family and starter banking for JPMorgan Chase & Co.

Cons of debit cards for kids

Then again, giving your child a card linked to a checking or savings account could lead to parental regret. Among the downsides?

• The convenience and wide vendor acceptance of debit cards can result in your child overdrawing their account or spending all their money quickly.
• Using a debit card or checking account won’t improve your child’s credit score.
• Your child could lose the card or have it stolen, leading to unauthorized transactions that the linked bank likely will not protect against.
• You will have to carefully monitor your child’s spending to ensure their bank account isn’t drained and that charges are being made responsibly.

Benefits of financial responsibility for kids

Do the pros of giving kids credit or debit cards outweigh the cons? That’s up to you and your family to decide. But provided you plan to monitor money matters carefully and have regular discussions with your child about using a debit or credit card, that plastic rectangle can become a valuable resource and learning tool.

“Early financial education can foster lifelong good money habits,” Latham suggests. “Learning about budgeting can help kids understand the importance of living within their means, and understanding how credit works can prevent poor financial decisions that affect credit scores. It’s never too early to start a conversation about money. Make financial literacy a part of regular conversation, explaining decisions to your kids about spending, saving and investing.”

Sterling seconds those sentiments.

“Being financially responsible can help a child establish credit, enabling them to later obtain a loan or credit card when they need it, which can be necessary for employment,” she says. “Remember that, even if your child makes mistakes now, it’s typically not something that would damage their credit, and you can supervise this closely as the parent.”

The bottom line

Credit and debit cards are not toys to be trifled with or put into immature hands. Still, they can be useful tools that help your child establish preferred financial behaviors, make more responsible money choices and carry fewer risks than cash in pocket.

If you aren’t sure whether or not the time is right to grant credit or debit card privileges to your offspring, consult with a trusted banking professional or financial planner. Talking to other parents about their experiences giving a debit or credit card to their kids can also help provide the clarity needed to make a decision.