Prepaid cards or debit cards: Which is best for kids?

Both prepaid cards and debit cards have their own benefits, but there are a few key differences to consider when choosing the best option for your child. Let's take a closer look at each type of card:

What is a prepaid card? 

Prepaid cards work like gift cards and act like debit cards — you can use them at stores, restaurants, and ATMs. Once funds run out on the card, purchases will get declined until more money is loaded onto the card. Prepaid cards are also reloadable — parents can add money as needed.

How is a debit card different?  

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Debit cards are attached to a bank account. Typically, when you purchase with a debit card, the funds are immediately withdrawn from your account. This means that there is no need for reloading or adding more money to the card. The amount of money available on a debit card depends on how much is in the linked bank account.

Are prepaid cards the best choice for kids?

Prepaid cards may be appropriate for younger kids, but they’re not ideal for older children or teens. Why? 

• Prepaid cards don’t teach kids how to manage a checking account, set budgets, and make spending decisions based on their current finances. 

• There is no option for saving or earning interest on prepaid cards.

• Most prepaid cards charge fees that can add up quickly. Some have monthly fees, activation fees, inactivity fees, ATM withdrawal fees, and more.

• Most cards don’t offer parental controls or other safety features, which can be a major drawback for parents. 

• Prepaid cards don’t teach kids to use a debit card responsibly and avoid overspending because there is no risk of overdrafts.

• Prepaid cards can’t provide the same level of financial literacy education that a checking account with parental oversight can. Because of these drawbacks, most financial experts recommend checking accounts for kids over prepaid cards. 

Other cons of using prepaid cards

Limited protection: Unlike credit cards that offer fraud protection and dispute resolutions, prepaid cards typically have limited or no liability protection. If you experience fraudulent transactions, your ability to recover lost funds may be limited.

Inability to build credit: Prepaid cards don't have a direct impact on your credit score since they're not linked to a line of credit. If you're looking to build or improve your credit, consider other options — such as a secured credit card instead.

Loss of card: If you lose a prepaid card, there's no guarantee that your funds will be returned. Unlike with credit or debit cards, preloaded funds are not FDIC-insured.

Tips for using prepaid cards safely and effectively

1. Compare fees. Before choosing a prepaid card, compare the fees charged by different providers to ensure you get the best deal.

2. Read reviews. Do your research and read reviews from other parents to learn about their experiences with different prepaid cards.

3. Set limits. Spending limits can help your child learn budgeting skills and avoid overspending.

4. Monitor activity. Keep track of your child's spending by regularly checking the card's transaction history and balance.

5. Have a backup. In case the card is lost or stolen, have a backup plan to access money in an emergency.

The Greenlight debit card: An all-in-one solution

Greenlight offers a debit card and app designed specifically for kids, with parental controls and financial education built-in. With Greenlight, parents can teach their kids financial responsibility by setting spending limits, assigning chores for allowance, and monitoring all spending activities.

Other advantages of the Greenlight debit card include:

• No hidden fees. Choose your plan and expect the same fee every month – up to 5 kids per plan. No ATM fees. No overdraft fees. And you can cancel any time.

• Parental controls. Parents can set spending limits, block certain categories of purchases, and get real-time notifications of spending activity.

• Educational features. Greenlight offers financial education tools like saving goals, investing options, and an interactive financial literacy game called Greenlight Level Up within the app.

• FDIC-insured. Greenlight is a financial technology company partnered with Community Federal Savings Bank (CFSB), which means deposits are FDIC-insured up to $250,000.

With Greenlight, parents can give their kids the freedom to learn responsible spending habits while still maintaining control and providing educational tools. To learn more about how Greenlight can help your family learn and thrive, get started here. 

Wrapping up: Prepaid and debit cards for kids

Prepaid cards and debit cards both offer flexible payment options that can help manage finances, control spending, and provide more secure transactions. However, each comes with its own set of benefits and parameters. By understanding how to use them effectively and choosing the right card for your needs, you can enjoy the benefits they offer while being mindful of any limitations.

Visit the Greenlight Learning Center for helpful resources on all things family, finance, and fun.

This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.