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Every Monday at about 7:20 a.m., my household goes through a mad scramble to find $10 in cash. My 13-year-old son needs exactly $9.90 to buy his weekly train pass on the way to school. Sometimes, we all forget until he has left the house, and one of his parents has to chase him down the street in pajamas to give him money. He loves that.
Considering that I write about credit cards for a living, it took way too long to realize that there's a simple solution to our problem: Get this kid some plastic.
But is a credit card or a debit card a better choice for a teen this young?
It's not difficult to add kids as an authorized user on a parent's credit card, but some families prefer to open a bank account with a debit card attached so the children are not walking around with a high credit limit in their pockets.
When cash is no longer the best solution for young teenagers' regular expenses, the decision on whether to go with credit or debit will involve several factors: making things convenient, teaching them about financial tools, protecting financial information and building credit.
Convenience for parents and kids
There's no universal age when it suddenly becomes appropriate to get your children a credit or debit card. It depends on the kids — how responsible they are and how often they need to buy things when a parent isn't around. The decision is often forced upon families when it becomes inconvenient for the children not to have a card.
As kids get more independent, they more often need to pay for:
Clothing, sports equipment or school supplies
Meals at school, or on outings with friends
Transportation to school or to after-school activities
Emergency expenses when traveling without parents
All of these expenses can mean substantial amounts of cash are in play, whether the money comes from an allowance or a part-time job. It can become inconvenient or even unsafe for kids to deal only in cash.
Credit or debit? For the sake of convenience, either one is a viable replacement for cash.
Learning to use financial tools
Most financially literate adults use both credit cards and debit cards regularly. Somewhere along the way, we learn the difference: Debit cards spend money we already have, while credit cards borrow money that we'll need to pay back later.
Kids will need to learn that distinction, too. But paying with a card can make money seem very abstract: You don't see your supply of money shrinking the way you do when you're using up the cash in your wallet. Starting with a debit card, and showing kids how to keep track of how much is in the account, may be a better way to teach them how to manage money.
Credit or debit? A debit card can prepare a young person to use credit responsibly in the future.
Keeping financial information safe
Whether it's a credit card or a debit card, kids need to learn how to safeguard their new card information. That means not leaving the card out where someone could steal it or copy the numbers. It also means being cautious when making online purchases and avoiding sites that haven't taken proper security precautions.
But fraud can happen even when you take every precaution. And when it does, the consumer protections in place for credit cards are slightly better than those in place for debit cards. You have more time to report fraud on a credit card than a debit card, and your liability for fraudulent charges is more limited. Also important: With debit card fraud, it's your money that disappears, at least until matters get straightened out. With credit card fraud, the money at stake belongs to card issuers and merchants.
If you do get your child a debit card, you might want to consider a reloadable prepaid card, and keep the balance relatively low. A traditional debit card linked to a bank account puts more money at risk. But fees tend to be higher with prepaid debit cards, and they're not as versatile as debit cards linked to bank accounts.
Credit or debit? Credit cards are better when it comes to security.
Helping young people build a credit history
Building credit is difficult, but it's a whole lot easier for young people who have been added to a parent's credit card account as an authorized user. However, a 13-year-old doesn't need a credit history just yet; there's no real advantage to adding such a young teen to a parent's credit card account. You'll have plenty of time to do that later on.
For older teenagers, though, this is a solid reason to choose a credit card instead of debit. With authorized user status, the primary account holder (usually a parent) will still be responsible for paying the credit card bill. The teens will receive their own card, linked to the parent's account. This will help them begin to establish a positive credit history, and make it easier for them to get their own credit card later. But it will also give the parent a chance to watch the children's spending and help them learn budgeting and restraint.
Credit or debit? Debit cards don't report account activity to the credit bureaus, so they won't help build credit. Only a credit card that reports to the bureaus will build credit history.
What's the verdict?
I have two objectives when it comes to getting a credit or debit card for my middle schooler. First, I want to make our lives easier, so we don't have to remember that $10 in cash every Monday. Either credit or debit would serve the purpose here.
Second, I want to teach him to use financial tools wisely. For this, I prefer to start him with a debit card. Once he learns how to responsibly handle money he can't see or touch, then we can move on to a credit card.
But what's the best option for your child? That depends on your reasons for getting a card for your kid. If, like me, you're looking for convenience, either credit or debit works well. If your goals are more complicated, you'll need to make a choice — until the day when your child is ready to handle both.