How to teach kids about money with debit and credit cards

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It’s important to begin teaching your kids about money at a young age. I like kid-focused debit cards such as Greenlight and gohenry. These charge a few dollars per month for debit cards with spending controls, allowance management, instant transfers and more. Chase now has its own version that incorporates many of the same helpful features for free.

Chase First Banking is a combination checking account and debit card for children between the ages of six and 17. It’s free, but it’s worth noting that the adult sponsoring the account must have their own Chase checking account (which could be free if they meet certain requirements).

This is probably the biggest obstacle, although it’s pretty easy to overcome since Chase has such a large nationwide banking presence. I just know that checking accounts can be very sticky (the average account holder has had theirs for 14 years). If you don’t currently bank with Chase and you don’t want to switch (or open a second checking account), then you’re a better candidate to pay Greenlight or gohenry a few bucks a month for a child-centered bank account and debit card.

Key features

Spending controls are one of the most useful aspects of Chase First Banking. Parents can set limits on how much their child can spend. If they wish, they can even be more specific regarding the exact types of stores that are allowed.

The Chase mobile app serves as the hub for this activity. Parents can receive real-time spending alerts and instantly transfer funds.

I also really like the allowance and chore management features. You can set up recurring allowance payments and assign one-time chores. Equating money with work – and showing your kids that it doesn’t grow on trees – is an invaluable lesson. Parents approve payments in the app to ensure that the dishes were clean, the dog was walked or the trash was taken out before the money moves from their account to their child’s.

As kids accumulate money, they can track their savings goals in the app. I suggest kicking in parent-paid interest to reinforce the benefits of saving money. If your elementary schooler socks away $20, maybe you can throw in $5 or $10 more to reward their progress and illustrate how money can generate more money.

My take

My wife and I just decided to begin giving our six-year-old an allowance. According to CreditCards.com (which, like Bankrate, is owned by Red Ventures), just 40 percent of children received allowances in 2019. Eight was the median age at which these allowances began, and $4 was the median weekly payout.

I didn’t get an allowance growing up. I remember my parents saying that I should be expected to do chores simply as a member of the household. I feel similarly, but I can also see the benefits of linking money, work and accountability.

Whether or not you pay an allowance, I definitely think it’s important to involve your kids in certain financial decisions. For instance, share your back-to-school shopping budget with your child and help her sort through the tradeoffs. If she splurges on one thing, there’s going to be less money available for everything else.

This approach could also limit the potential arguments because the child has more freedom to make choices within the predetermined framework. The concept could be extended to discretionary spending, especially for older kids. Maybe you give your teenage son $50 in monthly entertainment money and let him figure out how to spend it. If he spends it all the first weekend of the month, that’s a teachable moment. And it’s a lot better for kids to make mistakes – and learn from them – while they’re still living at home. The stakes get higher when they’re out on their own.

What about credit?

It’s important to note that Chase First Banking, Greenlight and gohenry are all debit products. You can’t rack up debt (as you could with a credit card), but you don’t build a credit history, either. I often suggest that parents add their kids as authorized users on at least one of their credit card accounts around age 16 or 17 (assuming you manage the account responsibly, of course).

You don’t need to give them access to the card in order for it to appear on their credit reports. But it’s beneficial to teach kids how to transact with cards and apps rather than bills and coins. By the time your child goes off to college, he or she needs to fully understand that a credit card (or a debit card, for that matter) isn’t magic money. Spending with a dip, a tap or a swipe feels different – less painful, in fact – than digging into your pocket for bills and coins.

American Express lets cardmembers set spending limits for their authorized users. Handing a credit card to a teenager isn’t always a good idea, but by the time your kid is 16 or 17, I’d consider granting access to help create these teachable moments and jump-start their credit history.

The bottom line

Like most things, the best approach is probably somewhere in the middle. You don’t have to go all-in on credit or debit. For older kids, there could be benefits to a debit product alongside a credit card account. For younger kids, I think debit is the way to go, and Chase First Banking is an excellent option.

Regardless of the option that you choose, make sure to involve yourself in your child’s money journey. Even if you don’t consider yourself to be a great money manager, you have valuable lessons to share, and you can lean on external resources such as Chase, Greenlight, gohenry and Bankrate for help along your child’s financial journey.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.