Updated Oct. 12, 2020: Kids these days, right? OK, I’m going to try to not go into old man mode here, but when you start talking about 12-year-olds getting debit cards like Greenlight, which parents can manage remotely via app, it’s easy to do.
At first glance smart debit cards may sound like an unnecessarily complicated approach to giving kids money, but there are advantages in embracing this kind of financial tech. For kids, it means financial freedom, the opportunity to handle money like an adult and being able to learn the lessons that come with spending digital currency. For parents, it means teaching financial lessons early on while keeping some level of control over how and where that money is being spent. Plus, putting tooth fairy money on a card is easier than trying to sneak a dollar bill under a pillow.
Let’s take a look at Greenlight, and what alternatives are still out there for parents.
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Do kids need credit cards or debit cards?
Whether credit or debit, giving children a card is all the rage these days. Eighteen percent of kids age 8 to 14 have credit cards, including 11% of 8- and 9-year-olds. You might think that’s silly and that you’re perfectly happy continuing to hand them a few bills for lunch or to go to the movies. That’s valid; there’s nothing wrong with good old-fashioned cash. But there are a few advantages to giving kids a card.
Giving your kid a card to manage can teach them early on how money actually functions in the real world. Yes, physical money can help children understand how transactions work, but let’s face it—we rarely use cash these days. Heck, we even use cards less often as more transactions move to digital-only. It makes more sense that, once kids learn the basics of money, they can apply it in the real world.
Using a card can require a little more financial discipline than cash, as it’s easy to overspend. You have to be a lot more aware of where you’re money is going since you don’t actually see money leaving your wallet. Letting your child use a credit or debit card is the perfect opportunity to teach them about budgeting, which lays the groundwork for saving, investing, and more abstract skills in the future.
In the case of credit cards, you can also help build your child’s credit. Obviously you only need to worry about this to a certain extent (a nine-year-old doesn’t need a perfect credit score) but if you have a teen who is about to strike out on his or her own – or at least go off to college – you can help set them up for success by building their credit long before they find themselves with a bad credit score to go along with a needed student loan.
Of course, an expert in the CreditCards.com report claims one reason kids have credit cards is the bandwagon effect: "The kids have the cellphone and now they have the credit card, which makes the kids cool." Please note that your 12-year-old wanting to be cool is not a valid reason to give them a credit card. It just...isn’t. That’s what Snapchat is for.
What is the Greenlight debit card?
OK, so let’s say you’ve decided to get your child a card – or you’re at least open to the idea. Greenlight wants you to control it the same way you do a lot of other banking these days: on your phone. (Here are our reviews of other online banks.)
Unlike a credit card, at its core Greenlight is a prepaid debit card like any other. You have money in your account, you use the debit card, it takes money from the account (debits the account, if you will), and you go on your way. Many people like debit cards because they work like cash, except you don’t need to fumble will all of those dollar bills. And while you could give a kid a credit card with a low credit limit, it sets a better precedent to get them in the habit of thinking in terms of declining balance and the cost of a purchase rather than getting in the habit of maxing out credit limits – and then having their parents magically erase that debt.
Where it excels is that by including a companion app with the card, Greenlight gives you a lot more control of how your money is spent.
Greenlight’s calling card (pun intended) is allowing store-level control of where the card can be used. That means you can approve, say, the movie theater, a few select stores, and a couple of restaurants for when they grab lunch with their friends, but the card will be declined if it’s used anywhere else.
You can also control the card from your phone. This includes:
Approving transactions beforehand. Maybe you don’t want to limit where your daughter can use their Greenlight card, but you also don’t want her dropping $300 on a dress (as in the helpful Greenlight promotional video). She can ask for approval first, and you can decline it until she finds one that’s appropriately-priced (and of appropriate length).
Adding allowances. After Timmy is finished with his chores, you can have his allowance added to his Greenlight card on a weekly or monthly basis. That means no more having to make sure you have cash to give to him, and hoping he doesn’t immediately lose it.
Disabling (and enabling) the card. That’s right, you can go all nuclear option and completely disable the Greenlight when your kid is grounded, or if they lose it.
Greenlight costs $4.99 per family and provides cards for up to five kids, but there aren’t any additional usage or transfer fees. That makes it a pretty affordable way to to give your child(ren) a debit card if you want to go that route.
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Alternatives for parents
Greenlight is one of the newer weapons in a parent’s financial arsenal, but it’s not the only one out there. For parents wanting to teach their kids about money (and that should be all of you!), here are a few other paths you can take.
Give them a secured credit card
Secured credit cards work just like any other credit card, with the main difference being that you control the credit limit.
Rather than have the credit card company set your credit limit, you deposit a sum of money, and that’s your credit limit. It also acts as collateral; the bank knows you can at least pay back, say, the $2,500 deposit, rather than bumping up against an arbitrarily-set credit limit that you have no hope of paying back. This makes it similar to a prepaid debit card; in both cases, your spending limit is determined by the amount you preload into your account.
A secured credit card is a great way to build your own credit (since it allows you to get a credit card when you may not qualify otherwise), but because you can set relatively low credit limits they can be good for kids, too. This can teach them real-world financial responsibility – learning about charging things and having to pay for them later on – without too much risk.
Get a different prepaid debit card
Greenlight comes with some handy features, but the card itself is nothing new. It’s a prepaid debit card, and you can get one from basically any bank or credit card carrier (Greenlight itself is a Mastercard). You load the card up and as long as there’s money in the account it can be used to make purchases.
Greenlight is obviously offering an extra level of control as its selling point, but whether you’re going with a Greenlight debit card or a traditional prepaid credit card there is one glaring risk: debit cards don’t offer the same consumer protections as credit cards.
If you find fraudulent charges on your debit card and fail to notify your bank within a "reasonable" period of time, you may be on the hook for those charges. Compare this to credit card protections, where companies are much more willing to work with you to reduce your liability.
Greenlight naturally helps in this regard with features like charge notifications, but if you choose to go with a standard prepaid debit card be vigilant with charges so you don’t find yourself responsible for purchases you (or your kid) didn’t make.
Add them as an authorized user to your own card
Finally, you can add your child as an authorized user on your own credit card.
There are some pros to this, mainly being that it’s less of a hassle than other alternatives. You don’t have to open and monitor additional accounts. You just add your kid to your card, the bank sends out a new card with his or her name on it, and you’re basically done. When you check your own credit card statement you’ll see the charges that your child made, so you don’t have to go hunting for them elsewhere.
You can also help boost your child’s credit score using this method. They can "piggyback" off of your credit score which can provide them a solid credit foundation for when they get their own card in the future. (Here's why you need to pay attention to your credit score.)
But there are a few drawbacks, too. Designating your child as an authorized user means they have full access to your credit card. It’s likely that you have a pretty high credit limit, and it’s also likely that you don’t want your kid to have unfettered access to all of that credit. That means keeping a close eye on how they’re using your credit card, even if you’ve already instilled strong financial values in them.
However you choose to teach your children financial responsibility and freedom, talk to them beforehand and put rules in place for what they can purchase, where, and how much money they can spend. And don’t forget to practice good money habits yourself. Children learn a lot by watching their parents. The last thing you want to do is set a bad example for them. You may have picked up some of these bad money habits from your parents yourself.
Looking for more ways to teach your kid about money? We've got a list of 50 for you.