When it comes to helping kids take their first step towards money management, parents have the option of using cash or debit cards. What about credit cards? Although kids aren’t able to get a credit card until the age of 18, it’s still worth explaining what credit cards are and how to use them wisely. In this article we cover the differences between credit cards and debit cards for kids, as well as the best ways to teach the difference between the two.
The difference between credit and debit cards for kids
The main difference between a debit card and credit card is that a debit card is more like a digital wallet. When using a debit card, the money is deducted from your account and sent to the recipient’s account. If there are no funds in your account, then the payment bounces and no payment is made. So you can’t spend more than you have.
With credit cards however, the recipient gets the money at the moment of the purchase, but you actually pay for it later. Every payment is essentially borrowed from the bank until a certain limit is reached, and you are then expected to pay it all back, usually within 30 days. So technically you can buy something before you have the money for it. Depending on the bank, company and card, you’ll have to pay a fee for borrowing that money (interest) and you may have to pay extra if your payment is late.
At what age can you get a debit card? Specialist apps like RoosterMoney can offer a debit card for kids from the age of 6, or you can open an account with a high street bank from the age of 11. With credit cards, your child won’t be able to have their own one until they’re 18, but it can still be valuable to explain what they are before they become an adult.
Kids and debit cards: the card kids can use
Debit cards offer parents an opportunity to teach kids about the basics of money management with real-life practice in a safe and supervised environment. When it comes to children’s debit cards, parents have the option to open a bank account in their child’s name, or get set up with a specialist provider like RoosterMoney who offer debit cards for kids.
One of the benefits of prepaid debit cards for kids is that your child can get one from the age of 6, which therefore encourages positive money discussions at an early age. Using a debit card that is linked to an app like RoosterMoney means you get to use features such as automatic allowances, chore management, budgeting and savings pots. The parental controls also mean you can easily keep track of how your child is using the card and set spending limits.
Getting a debit card for your kid makes it easier for them to learn the difference between debit and credit cards, as they’ll be gaining firsthand experience on how to keep their spending under control, how to tap or swipe a debit card and how to make purchases online.
Kids and credit cards: worth having the chat
Although children under 18 can’t actually get a credit card, they’ll likely end up having one in later life, so it’s worth kickstarting discussions about what they are and how they work.
You can start the discussion by explaining the difference between a debit and a credit card. Explain that credit cards can come with greater risks, as you’ll be charged fees if you don’t pay the money back, but on the other hand they can offer better protection than debit cards. With debit cards, it’s your own money at stake. With credit cards, it’s the card issuers and merchants that are at risk.
You can also talk them through the benefits of building credit early on with a credit card, what a credit score is and how it affects your financial future. This might be a conversation for when they’re older though.
Tips on how to explain the difference to your kids
Most adults own both credit and debit cards, so it’s likely your kid will end up owning both once they’re an adult too.
What are some good strategies to teach your kids about the difference between the two? Start with a debit card and explain to them that once their account reaches 0, there isn’t any more money to spend. You could show them your account to start the conversation.
With credit cards, explain that this money comes from a bank, and isn’t their own money. So sometimes you can spend money even if your account reaches 0, but it can be risky. Then, show them a credit card bank statement, and how a direct debit that comes out of your main account pays for the total on that statement at the end of the month. Explain that if your payment is late, or if your main account doesn’t have enough to cover the statement, you could be charged extra fees, and that this could affect your credit score and therefore your chances of buying things in the future.
Once you feel your child understands the difference between a debit and credit card, consider starting with a debit card so they can learn how to manage their own money. Once they have the hang of debit cards, having more discussions about credit cards will give them the confidence to use one wisely when they’re 18.
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