So it’s time to introduce financial responsibility to your child and you’re considering a debit card for your teen. Every child will not possess the same maturity level with their finances, but with guidance from their parents and careful consideration of their spending habits, you could have a potential investor on your hands. Okay maybe that’s a huge leap, but financial literacy is important to the success of your teen making great financial decisions in the future. Let’s take a look at the pros and cons of a debit card for teens and let’s compare it to a credit card, just to have a full perspective on what financial route to choose for your teen.
Benefits of a Debit Card for Teens
1. Parental Control without any Fees. Debit cards are connected to a standard checking account. Most financial institutions offer teen checking or youth checking accounts, which gives them the benefit of establishing a relationship with a banking institution and take advantage of some of the perks offered. Some teen checking accounts, or youth checking accounts, as so fondly coined by most some credit unions, offers financial literacy tools and provides parents with statements and access to their child’s account as well. So you don’t have to take the financial training wheels off until you’ve recognized sensible spending habits and excellent money management skills in your teen.
2. Online Access. Online access is important because it allows you to set alerts on your account that can be connected to your email account or mobile device. This leads to the next benefit.
3. Mobile Banking. Mobile Banking is very beneficial because in this digital world, most users access websites, including their bank accounts, via mobile apps. It’s important to look into which debit card will offer mobile access that’s convenient, has very little down time, and the ability to make instant transactions, such as transferring money.
4. Withdrawal Limits. Teach your teen how to budget It’s key to successful financial decisions. Discuss with your teen a budget for monthly spending. You can set that withdrawal limit on the debit card to control overspending or assessing overdraft fees.
5. Overdraft Protection. This is very important. Overdraft protection is an opt-in benefit. Your teen will only be able to spend money that is present in their account, unless they opt-in for overdraft protection. If you choose overdraft protection, ensure that you aware of overdraft fees and have an open dialogue about overdraft protection.
6. Doesn’t affect your credit score. Having a debit card does not affect your credit score, unlike credit cards for teens. You can safely prepare your teenager for a bright financial future by allowing them to make financial decisions with their debit cards, without penalties, which they are sure to face with a credit card.
7. Choosing a Prepaid Debit Card for Teens. Prepaid debit cards are marketed toward providing a sense of security, ease of use, protection and peace of mind. This is a way to control your teen’s spending. They can only spend what they upload on their prepaid debit cards. Sure, this is a way to ensure that they don’t encounter the disheartening feeling of overdraft charges and negative balances in their account, however, are you truly teaching your teen financial responsibility? Are they really learning how to manage their money and be disciplined about their spending habits? These are questions, you as a parent will need to ask yourself with making this choice to use a prepaid debit card for your teen. You should also consider the reloading fees and read the disclosure in its entirety so that you completely understand the ins and outs of a prepaid debit card.
Potential Cons of a Debit Card
1. Overdraft protection. If you decide to allow your teen to opt-in for overdraft protection, they could potentially be on a downward spiral if this privilege is abused. Just because your banking institution will cover your transactions for a $35 fee, doesn’t make it okay to abuse this privilege and constantly have a negative balance. This is financial irresponsibility.
2. Limited ATM Withdrawals. Some teen debit cards that are linked to checking accounts can have a limit on the number of withdrawals that can be made within a quarter. Ideally, this is a way to teach budgeting, but should an emergency arise, this could be an inconvenience. You can still withdraw from your account, but a small fee comes with this choice.
3. Checking Account Fees. Some debit cards have fees if a certain amount of money is not consistently present in the checking account. This can be a bit of an inconvenience. Be sure to do your research and choose debit cards that do now require a monthly limit for checking accounts.
Now that you have a full perspective of debit cards pros and cons, you may think, “Why not just start my child with a credit card for teens and establish their credit early?” This could be pretty detrimental to their financial development. What’s the rush? Lay a great financial foundation and teach them how to manage physical money that they deposit into their accounts before you go to the next step of managing credit card use with a line of credit that essentially they will have to pay back monthly. Once they master the art of budgeting, money management, and healthy spending habits, then consider introducing them to credit cards.
When choosing a debit card for teens, be sure to look at several different types. Don’t just choose the first one you come across. Research the benefits and make sure it provides everything that you need and require to start your teen’s financial literacy. Allow your teen to do the research and come back to you with the results of their findings. Then you can discuss together to pros and cons of each. Determine if the pros outweigh the cons, then make your decision. Don’t be afraid to make mistakes, it’s only going to make you better and provide a financial soundness and confidence that is needed for long term financial decisions.