Gone are the days when a parent had to give their kids some paper dollars for their allowances – and that's a good thing. Today's technology pretty much ensures that parents can keep track of exactly where that allowance money is going. Debit cards can be a teaching tool for your kids. You just need to know what's out there and the options that are available to you.
Debit Card Options
You can go with a prepaid credit card or a debit card that's linked to a bank account. Minors generally can't hold their own checking accounts, at least if they haven't yet reached their teen years. And even those for teenagers might place limits on monthly transactions. But you can open a joint account with your child or give them a debit card associated with an account you've opened in your name, which is dedicated to your kids' spending.
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As for those prepaid cards, you'll probably be hit with higher fees if you go this route.
Consider also: Banks That Open Checking Accounts for Kids
Advantages of Debit Cards
A debit card can be a great tool for teaching your child about personal finance and managing money. They'll get a handle on the concept of budgeting pretty quickly when their card is declined for insufficient funds because they've already spent all the money deposited there. You can teach them to think twice before they swipe.
Be sure to show them how to check and keep track of their balances online, including keeping an eye out for any associated debit charges such as ATM fees. Emphasize that this is their money and they're responsible for it. Also let them know that it's not a credit card – no one is loaning them these funds. You might even link the account to a savings account so you can teach them the art and importance of a rainy-day fund.
And assuming your child doesn't share their PIN number, that money is safe from anyone else reaching it. The playground bully can't lift a kid's card – or at least, they can't use it without the PIN. You can take the extra safeguard of freezing and blocking the card if it's lost or stolen.
Perhaps the greatest advantage of giving debit cards to your kids is the ability they give you to keep track of your young ones' purchases.
Disadvantages of Debit Cards
Of course, you'll want to emphasize – numerous times, if necessary – that their PIN should never be shared, not even with their best friend. This is particularly the case with younger children.
You might want to avoid overdraft protection, which means that a purchase will be approved even if there's not enough money in the account to cover it. First, your child probably isn't learning a lot about managing their money if they can keep charging after the money is gone. And second, there's almost always an additional fee for a you're-technically-out-of-money swipe.
Consider also: Where Can I Avoid Overdraft Fees?
Parental Controls and Precautions
Perhaps the greatest advantage of giving debit cards to your kids is the ability they give you to keep track of your young ones' purchases. Be sure that the account you dedicate to your child's spending is a joint account. This can allow you to set spending limits on the card to ensure that your child doesn't run through their money before their next "pay day."
Let them manage their own account and money for the teaching moments, but make sure you can keep an eye on what's going on, including what type of merchandise they're commonly purchasing.
How Old Is Old Enough?
Your child's age is the most pivotal factor as to whether giving them a debit card can be a good idea or a disaster waiting to happen. They're almost certainly old enough to grasp the concept of managing money by the time they're teenagers, but some kids might be ready for the responsibility by middle school, or even as young as 8 or 9 years old. It's a judgment call, and you know your child – and their strengths and weaknesses – best.
Consider also: Prepaid Card vs. Debit Card