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Dear Credit.com,

My child has recently expressed an interest in getting a debit card. I think he’s too young, but he insists all his friends have their own debit cards and bank accounts. What’s your opinion? How young is too young to teach my kid smart money habits?

Thanks for your help!
Debit Downer

Hey there, DD!

In my opinion, it’s never too soon to start teaching your child about spending and saving money and showing them good money management habits. Okay that’s a lie—if your kiddo can’t walk or talk that’s too young. And I wouldn’t recommend giving an elementary schooler a debit card. But once they are able to comprehend the basic idea of money and start receiving money from doing chores or as a birthday gift, there are some simple things you can start doing to help teach your children smart money habits.

Here are a few tips broken down by different age groups. Just keep in mind that you know your child best—what works for some won’t work for others. Don’t feel pressured to get your child a debit card just because apparently some of their friends have one! The important thing is to keep an open dialogue with your child that is appropriate for their maturity and skill levels.

Pre-Schoolers / Elementary Age Children

  1. Once you feel your child is ready, give them a small allowance for simple chores to teach them how money is earned.
  2. Get your child a piggy bank. Each time your child receives money, make a deposit into the piggy bank together. Even at this age you could have two piggy banks: one for saving and one for spending. If it’s important to your family, you could have a third piggy bank for tithes or donations as well. Set expectations around how much of their money should go into each piggy bank and what sorts of things their savings should be used for.
  3. Let your child use their own money when they want something. I’m not saying make them spend all of their savings on a new toy, of course, but next time you are at the grocery store checking out and they are begging you to buy them some candy, this might be a good opportunity to bring up the idea of them using their own money.

Tweens / Middle School Age Children

  1. Take the money from the savings piggy bank and use it to open a real savings account together at a bank. Each time a statement arrives, review it together. Teach them that saving money in a bank account earns interest, which means they can earn money by not spending their money! Rates are typically pretty low for a savings account—at least right now since the Prime Rate is so low—but it’s still a good opportunity to discuss this topic.
  2. Teach them the value of hard work. Give an allowance for chores, if you are in a position to do that. Have them do small odd jobs like mowing lawns, pulling weeds, and babysitting, as appropriate.
  3. Continue teaching them how to budget. Discuss how much of their allowance should go into their savings account and how much can be designated as spending money. Discuss when it is appropriate to use their savings account.
  4. Have them use their own money to buy the things they want. It will likely make them think more critically about whether they really need this item. Is it worth the balance in their savings account going down to have it? Is having this item worth all the hard work and time they put into earning their money?
  5. A prepaid debit card could be a good option here, depending on your child. As cash transactions continue to decline—especially as situations like COVID-19 have made us more wary of handling cash—it may be helpful to teach your children how to use a card for their transactions. Put a portion of their allowance on a prepaid card for them to use for certain approved purchases. You could also opt for a managed debit card like Greenlight. For a small monthly fee, they allow parents to control where their kids can spend money, set limits, etc. Keep in mind that it can be easier to reach your limit or overspend when you don’t have physical cash in hand to review, so reviewing statements together and discussing how to use the card responsibly is also important here.

Teenagers

  1. Now is the time to really prepare your child to manage their own finances. They will be out of the house one day and will need to know how to manage their income and expenses. Teach them how a budget works. Start talking to them about the various expenses of running a household. Consider having them pay for things they need in addition to things they want, like clothes or school supplies.
  2. Set goals together. If your kid wants a car when they turn 16, you could help them come up with a plan on how to start saving money now so that they can buy one. If they are planning to get a car, this is a good time to bring up insurance. How are they going to pay for it?
  3. This might be a good age to get your kid their own debit card and open up a checking account for them. This is a personal choice you will need to make as a parent. You know your child best and if they are impulsive or very responsible with money. If this is something you think your child is ready for, then it’s time for you to do your research. If they are under 18, you will need to be a joint accountholder. This means that if they overdraw the account, you will be legally responsible to repay the money. It might be a good idea to check with your local credit union or bank to see what options they have. Maybe they offer a debit card with no overdraft protection, meaning they shouldn’t be able to take the account negative. Continue to talk to your child about responsible spending and savings habits, and review the statements for each account together.
  4. In general, teens can open their own credit cards once they turn 18. Even at this point, they may need a co-signer. Consider making them an authorized user on your credit card first to help them establish credit earlier. Make sure your child understands interest rates and why it is important to pay back credit cards on time and in full. According to a survey from CollegeFinance.com, only 34% of parents discuss interest rates with their children before they leave for college. If you add them as an authorized user or help them open their own credit card, make sure they understand the risks and penalties associated with credit use. Teach them how to review their statement and pay their bills.

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  5. If your child gets a job as a teenager, talk to them about taxes and the importance of saving for retirement. Their part-time after-school job probably isn’t offering them 401(k) matching, but they may eventually have this option.
  6. Teach them about what a credit score is. The difference of having what is considered a good or bad credit score can add up to thousands of dollars in interest over a lifetime. If you’ve added them as an authorized user or helped them open their own credit card account, they’ve started building credit. Consider signing them up for a service like our Credit Report Card to get them in the habit of reviewing their credit regularly.

Good Money Habits Start with You

There’s a lot to cover here, and it can feel overwhelming. Don’t stress! You’re setting your child up for a healthy relationship with money. One of the best ways to teach your kids good money habits is by practicing them yourself and being a good example. My dad had me helping write checks for bills when I was around 11 years old. No one really writes checks anymore, but this did teach me a lot at a young age and it also made me feel important that he trusted me (even though he was watching me and helping me fill out the check every step of the way!).

Let your child watch you pay your bills online, show them your credit score, go over your grocery budget together. You don’t need to have perfect finances to do this. If you are trying to get out of credit card debt it’s a great opportunity to be honest about your mistakes—and an even better opportunity to teach them how important it is to have good financial habits.

If you kid makes a mistake, it’s not the end of the world! It’s better to make these mistakes young rather than getting into massive credit card debt in their early 20s—or at any age for that matter. Mistakes can be fixed. They are also a great opportunity to have a candid conversation and to learn from the mistake.

Best of luck!

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