A complete guide on debit vs. credit cards for teens

For many people, credit cards are part of their everyday financial life. They use them to pay for daily expenses and pay off the full balance by the due date when they use them responsibly. This way, they reap cash-back benefits without incurring interest charges. But how about credit cards for teens?

Do credit cards for young people have the same benefits as those for adults with established credit histories? Below we explore the best credit card for teens and offer an alternative to help them learn to manage their money before taking on the responsibility of a credit card.

What is the best credit card for teens?

Thanks to the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, teens, for the most part, get protection from incurring tons of credit card debt. Many states have age of majority requirements and minors are not responsible for purchases unless they are necessities.

Additionally, according to the CARD Act, people under 21 cannot obtain a credit card unless they prove they can independently repay their debt. This means they must be gainfully employed and earn enough to cover expenses and minimum payments every month or have an over-21 cosigner. However, this doesn’t prevent all teens from getting their own credit cards.

Student credit cards

Student credit cards are designed specifically for college students who are at least 18 years old. While this falls into the restricted under-21 space, it’s still possible if the student has a part-time job and income or has a parent or guardian to cosign for them.

These student cards can help you build credit and give you access to a small credit line, but they generally offer little to no additional benefit. Plus, as a student with little to no credit history, you’ll likely struggle to get approved for a student credit card without a cosigner, even with an independent income.

Secured credit cards

Secured credit cards are for folks with poor credit or no credit score. These cards are generally open to just about anyone, but they fall under the same CARD act age restrictions. Again, someone 18 or older can get one if they have sufficient income, even with limited credit history.

What makes a secured card different from an unsecured card is it requires a security deposit in the amount of the credit limit. So, if you get a $300 credit limit, you must send the credit card issuer a $300 security deposit to cover the debt if you don’t repay it.

Other than that, they operate like any other credit card and report your on-time payments to at least one of the major credit bureaus: TransUnion, Experian, or Equifax.

However, secured credit cards generally have no additional perks beyond building credit and still charge you high interest rates despite your security deposit. So, unless you can reliably pay off your entire credit card bill by the due date monthly, you will pay interest just for using the card.

Plus, some may even have annual fees that can eat up a large proportion of your credit limit. Teens can also start racking up late fees if they lose track of their payment due date.

Authorized user on an existing credit card

A final option when seeking a credit card for teens is to make them an authorized user on your existing credit card. Some credit cards will let you add minors as authorized users without a credit check.

An authorized user can use your credit card account and may receive a credit card with their own name on it. They can charge to the account, but they won't have access to the main account to make changes to the credit limit or any other sensitive details.

Some credit card issuers will also allow you to restrict an authorized user’s monthly spending limit to rein in their spending. Plus, once they turn 18, the credit card issuer may place the account details on their credit report, which can help them quickly build a good credit score. On top of that, the primary cardholder can earn perks, like cash back, when the authorized user uses the card.

However, there’s still the risk of an authorized user overspending and running up credit card debt.

Plus, if the main cardholder gets in a financial bind and has late payments or runs up their credit utilization ratio — the amount of debt relative to the credit limit — it could negatively impact the authorized user’s FICO credit score once they turn 18.

What is a good alternative to a credit card for teens?

When you fill out credit card applications for a teen, you should first consider their financial literacy and determine if they’re ready for the responsibility of a credit card. The teen should learn to budget and not spend as if the line of credit is free money. They must also understand how to avoid costly interest charges by paying the statement balance in full by the due date.

They can become responsible card users by first learning how to manage their finances with a debit card. Like a credit card, the teen accesses cash with a simple swipe of the card at the store. However, the only repercussion for overspending is running out of money — and waiting until their next payday to use the card again. They avoid a credit card’s minimum monthly payment, penalties, and high interest rates.

With a debit card, a teen can safely attain the basic principles of sound personal finance. Here are some valuable financial concepts they can learn with a debit card.

Budgeting

Learning how to budget your cash is a must, and if done at a young age, will set the wheels in motion for ongoing sound financial management. Your teen can use many budgeting philosophies, such as zero-based budgeting or a budgeting app, to set monthly budgets for each category. They can even set up a saving budget for college, their first car, or another higher-priced item.

When teens learn the art of budgeting, they can track their own monthly spending. They know that when they review their debit card usage and see where they overspend, they can adjust to meet their savings goals.

Saving

A teen can also learn the value of saving from a debit card. Whether saving for their first car, a new video game console, or their future — a debit card empowers them to plan for these purchases instead of indebting them to credit card companies.

They can use the 50/30/20 budgeting plan to set aside 20% of their income for saving toward these purchases while earmarking 50% for needs and 30% for wants. Greenlight offers the ability to divvy up earnings, so kids can automatically set aside that 20% of their income for savings, making it easier for them to remain on the right path.

And with many institutions offering interest rates or rewards on savings, teens can also learn the power of compound interest.

Greenlight tip: With Greenlight Infinity, kids and teens can see compound interest in action by earning 5% on Savings.¹ 

Limiting impulses

Another part of financial literacy is avoiding the urge to spend impulsively. Impulse spending can lead to large credit card debt just to satisfy the urge to spend on something you don’t need. The actual goal is to have teens recognize that smaller impacts now could lead to habits with larger impacts down the road.

With a debit card account, a teen will learn to curb the impulse to buy that item now and save to buy it with cash instead. Over the time it takes to save for that item, the teen may forget about it or realize they didn’t want it that badly. 

The exercise of saving for the item — and perhaps realizing they no longer want it — teaches teens a valuable lesson in delaying gratification that can lead to a more secure financial future. However, if they still want the item at the end of their savings, they can purchase it with cash instead of a credit card and enjoy it even more.

Choose a debit card for teens instead.

While a credit card for teens may help the teen’s credit score once they turn 18, credit cards have many drawbacks. These can include high interest rates, annual fees, difficult approval requirements, and federal laws limiting their availability. Plus, many of these cards lack the perks of rewards credit cards for those with established credit cards.

Want to skip the credit card for teens? It may be best to first teach them financial responsibility with a debit card. A debit card can teach teens proper money management without the potential for incurring high-interest debt because they can only spend the cash available in their money account. Once that cash is gone, the spending stops until their next payday. This allows parents to teach their teens and young adults about budgeting, saving, and managing their finances.

Ready to start on a solid financial path as a teen? Why not give Greenlight and its debit card and mobile app a whirl? You’ll not only get a debit card of your own, but you can also set savings goals, earn up to a 5% Savings Reward, enroll in 1% Cash Back to Savings*, and more.

¹Greenlight Core and Greenlight + Invest families can earn monthly rewards of 1% per annum, Greenlight Max families can earn 2% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family.

*Only Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.