Debit Versus Credit Cards for Kids

Here at Kiplinger a heated debate has been raging on our Web site between committed users of credit cards and diehard devotees of debit cards. Now I’ve been challenged to weigh in on which type of card is preferable for teens and college students.

I’ve never been shy about recommending debit cards as the better option. And, if anything, I think that recommendation is more timely than ever. Under the new credit-card law, people under the age of 21 will have to provide proof of income to get a card or have a parent or other adult cosign the application. The law’s intent is to protect young people from getting into debt and to encourage parents to teach their kids about credit -- or even train them to use a card while they’re still at home.

The trouble is, laws are written by adults, and when it comes to teaching young people about credit (or anything else financial) you have to think like a kid.

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For example, adults who swear by their credit cards tend to pay their bills in full and on time, and they use their cards for all their spending to rack up rewards points. They also like the protection that credit cards offer if you make a big purchase or have a dispute with a merchant.

In my experience, teens don’t usually have the maturity (or the interest) to make those kinds of choices. It’s a big accomplishment just to get kids to understand that credit isn’t cash. Even for teens and college students, you have to make money lessons as concrete as possible-- and that starts with teaching them how to use cold, hard cash or its plastic equivalent, the debit card.

Yes, I know that debit cards aren’t perfect. Overdraw your account, for instance, and you can incur a punitive fee of $30 or more. But you can minimize that disadvantage by signing up for overdraft protection (see Overcoming Overdrafts).

And, yes, I know that credit cards can sometimes be a convenience. One of my colleagues is considering getting a card for his college-age son to use while he’s studying abroad. Just remember that cosigning for a card -- or making your child an authorized user on one of yours -- may be convenient, but as long as you’re paying the bill it won’t do much to teach your children how to manage credit wisely. Money -- and credit -- aren’t real to kids until they have to come up with the scratch themselves.

That’s why I’m still convinced that it’s better for children to learn to use a debit card and balance a checking account first (Is Your Child Ready for a Credit Card?). Once you’re confident that they won’t overdraw their account, they can move on to a credit card—preferably on their own.