Debit Cards for Kids

Several banks and credit card companies have caught on to the trend of offering debit cards for kids, and for good reason: Many parents have been looking for a way to begin to introduce their children to the world of financial responsibility, and the “allowance” concept for many parents doesn’t seem to cover the extent of what needs to be learned about dealing in the “real world” of personal finance. It’s a significant and very interesting thing that in today’s society, more people pay with plastic than with cash for their everyday purchases, when it was the total reverse only 50 years ago. Many parents who grew up paying only cash for their goods and services are now beginning to use credit and debit cards for their purchases, and have had to undergo a “mental overhaul” to begin training their children in the realm of modern finance, which is primarily plastic-based.

Many parents have started to give their children (mainly teenagers and/or college-age kids) debit cards that are prepaid and reloadable, so that they can give their children a form of “purchasing power” without the inconvenience and possible safety issues of carrying around cash. The main objective that most parents hope to achieve in offering debit cards for their kids is to teach them about financial responsibility. Many times kids can have a tendency to be very “abstract” about financial concepts, because they have been used to their parents basically footing the bill for practically all of their needs. With the opportunity of having a debit card, kids and young adults can get an introduction into the reality of financial responsibility, with a couple of built-in safeguards to hopefully make the transition into adult life and adult responsibilities a little more feasible.

One of the biggest safeguards offered with debit cards for kids is the common feature of most debit cards, and that is the limited balance that you can use. A debit card is not like a credit card, where you can (for lack of a better term) spend more money than you actually have. With a debit card, you can only spend whatever has actually been deposited in the bank or the account that backs the card, so that you are essentially operating on a cash basis. The main advantage over cash, however, is the fact that safety concerns are greatly reduced, and you can have more of a “paper trail” for purchases, especially for the parents that may have concerns about the types of items their child is buying. They can receive an itemized statement of purchases from the card issuer, and can teach their child how to reconcile those statements and understand the impact that each purchase makes on their balance and available cash.

One of the most important things that having a debit card can teach a teenager or young adult is how to avoid overdrafts, and how to exercise self-discipline with purchases. Again, the fact that using a debit card limits the child’s ability to access cash beyond the initial amount deposited is a major plus, because it teaches the child how to deal in “financial reality”, and emphasizes the importance of not over-extending your purchasing ability beyond what you can reasonably pay back, which is one of the cornerstones of building good overall credit. Cards like the PAYJr Visa Buxx Card or the Prepaid Visa Rushcard are good examples of debit cards for kids. As a general rule of thumb, it is always advisable for parents to really read the “fine print” and make sure that the fees, terms and conditions are reasonable, so that they can have more confidence that they’re giving their child a tool that can be helpful in shaping good financial habits.