Debit card vs. credit card for kids and teens

As parents, we often lose count of how many questions our kids ask us over the years. Many of them start with a simple word: “when.” When can my bedtime be later? When can I have candy? When are we going to be there?

But as parents, we also ask ourselves “when.” When will they learn to pick up their toys?  When will they eat their vegetables?  And one of the most important: When is the best time for my child to have a credit or debit card? I can't help you with the first two, but I can help with the last one. Let's discuss when to consider a credit or debit card for your child.

Understanding debit cards

Have your children begun to make their own purchases?  Maybe they've started hitting the store to buy candy or that must-have shade of nail polish. Or maybe that's just what my children spend their money on. In these situations, it could be handy for your child to have a debit card, instead of asking you to pay for everything and then paying you back.

Benefits of debit cards for teens

There are some positives when your child gets a debit card. For starters, it helps teach them that the money spent with the swipe of a card has to come from somewhere. Learning this lesson early can help them avoid credit card debt later in life because teaches them the importance of only spending the money they have.

A debit card also gives you the opportunity to teach your kids budgeting and other money management skills. As parents, we are always looking for opportunity to teach our children valuable life lessons, and this is a perfect opportunity. For example, help them create a budget.

It's important to note that some banks now offer both debit and ATM cards linked to a savings account. Plus, there are benefits to placing funds into separate savings and checking accounts to help maintain your intended purpose for the money. There are many reasons for you and your kids to consider youth banking accounts.

Understanding credit cards

As you consider the debit vs. credit debate, it's very important to teach your kids the difference between swiping a debit card and a credit card. The actions are very similar, but what is happening in the background is very different. It's important for your child to understand the best times to use one over the other.

The first decision in the question of “when” a child should get a credit card can be an easy one — it comes down to their age and the law. Usually, teens must be at least 18 to be able to have their own credit card. If your child is younger than 18, having their own credit card is probably out of the question.

How credit cards work

Begin your child's credit card financial education by explaining how credit works. Explain the concept of borrowing money with a spending limit and how money spent using a credit card must be repaid. To help your child use it correctly, it's important to teach your kids the basics about credit.

Drawbacks of credit cards for teens

There can be some drawbacks when you combine teens and credit cards. One common danger seen in early adulthood is the misuse of credit cards, leading to debt that can't be repaid. Even if your child does pay back that debt over time, it puts them behind on their road to financial security.

In fact, a recent study by College Finance shows that almost 65% of college students have credit card debt, and 57% report that credit cards are their preferred payment method. But I find another statistic more concerning: The average college student is using 92% of their available credit. That's a fairly high credit utilization. In contrast, in 2023, the average credit utilization rate in the U.S. was 29%. See the difference? Using so much of your available credit could hurt you when you consider that credit utilization makes up around 30% of your credit score.

Now, one reason for this difference in credit utilization rates could be that the average credit limit per person increases as you get older, so college students have a lower amount of available credit than older Americans. But I think most of us don't have to think hard to come up with an example of someone we know who misused credit at an early age.

So, what is a parent to do?  Decide on the right option and the right time for your child to get a credit card and help them see the consequences of their decisions.

Keep in mind that even if your child might not be able to have their own credit card yet, building credit history with credit cards is still important. One option is to add your child as an authorized user on your credit card. That way, if the credit bureaus report authorized users, your children start to build up their credit file —they're basically piggybacking on your credit behaviors, both good and bad.

Of course, just because you add them as an authorized user doesn't mean you have to give them access to the credit card, or even let them know they're an authorized user. The gift of credit history is just one more way you can prepare them for adulthood.

Choosing the right option for your teen

So, what option is best for your teen? While each family will come to their own conclusion, here are a few things to consider while you are making this decision.

Consider your teen's maturity level

Age is not the only limitation on when a child should get a credit card. Maturity and financial responsibility are big factors as well. Children who are immature might make poor credit decisions that could potentially take years to recover from. That's why a debit card is usually the first step before a credit card.

Discuss financial responsibility

Teach them the wise use of credit cards, explaining both the benefits and the dangers. This might help your child avoid the lure of, say, a free T-shirt if they sign up for a new credit card while they're away at college. I remember one time I was asked by a grocery store to sign up for their store credit card for the “valuable” incentive of a $0.99 bottle of soda. You can guess what my answer was.

It's also helpful to model good credit behaviors yourself. It's been my experience that children learn by watching their parents, and they often imitate both their good and bad habits. Explain to them how you decide to use a debit card vs. a credit card when making your own financial decisions.

Also, help your child understand the present and future impacts of bad credit actions such as borrowing more than you can afford to pay back. If you've made poor credit decisions in the past, consider sharing the lessons you learned and how it impacted or is still impacting your finances.

Many of these lessons can be taught with the relative safety of a debit card to help kids prepare for access to credit at a later date, when they are older and hopefully more mature.

Additional tips for parents

Setting smart credit limits for your children helps limit how much trouble they can get into — financially, that is. If your child makes poor decisions and racks up credit card debt, being $3,000 in debt is much better than being in $15,000 debt.

The good news is that those younger than 21 must either get a co-signer or prove sufficient income to get a credit card. But as a parent, be careful if you cosign. You'll become responsible for their poor actions. Do you want to be paying for their last-minute spring break trip that you didn't approve?

A great starter credit card could be a secured credit card. Then, when your child has shown responsible use of their money and is paying their bills monthly, they can transition to an unsecured card and continue their credit journey.

Being a parent is all about preparing your children to leave the nest. Preparing them to take positive financial actions is an important part of that as well. Part of this preparation is making a good decision when it comes to when your children get a debt card vs. credit card. Just add this to the long list of decisions we make as we raise our children. I hope I've made at least one of those decisions a little easier for you.