Everything You Need To Know About Debit Cards For Children

Everything you need to know about children's debit cards

Our culture has fostered an environment that encourages children to spend increasing amounts of time online – especially in the aftermath of the COVID-19 pandemic. Yes, for entertainment purposes such as video games and streaming. However, it is also applicable to other aspects of life, such as allowances, saving, and spending money. As a result, children are angling for virtual access to their money at a younger age than ever recorded previously. And the $535 million fintech-for-kids industry is content to provide youth-oriented bank accounts, investment accounts, and prepaid debit cards.

As many parents will attest, enrolling your child in anything online can be a difficult proposition. While technology opens up new worlds of ideas and educational opportunities, it also has drawbacks. Furthermore, sharing your child's personal information online exposes them to identity theft and a variety of other dangers. With banking apps for children, it is not just the app or company that receives your child's personal information; it is also the companies to which they sell data – a common (and legal) industry practice.

When selecting a financial responsibility app for your children, it is critical to safeguard your family's personal and financial information. Continue reading to learn how to choose the best debit card for everyone's safety.

Children's debit cards: A growth opportunity

Financial literacy begins at an unusually young age. According to a University of Cambridge study, most children understand the value of money by the age of seven, including how it is earned and exchanged for goods. Likewise, the study discovered that, while children grasp basic money concepts at an early age, they are still processing the distinction between luxuries and necessities.

Opening a prepaid debit card in your child's name allows them to gain practical experience under your supervision. Prepaid debit cards are ideal for younger children; older children may be ready for an entry-level checking account with debit capabilities. In either case, you will need to open an account on their behalf and link it to your bank account as the custodian. Following that, you can transfer funds to their card. The majority of cards and accounts include modern tools to assist you in developing sound money habits, including the following:

• Keeping track of how and when your child spends his or her money
• Assigning chores and rewarding successful completion with a debited allowance
• Savings and investment tools that suggest ways for individuals to increase their earnings

The dangers: Are children's debit cards secure?

Risks associated with new technology are always present — even more so when children are involved. According to a Pew Research survey, two-thirds of parents believe that raising children today is more difficult than it was 20 years ago, owing to technological advancements.

Furthermore, it is not just screen time that causes concern. According to a 2018 study conducted by Javelin Strategy & Research, over one million children were victims of identity theft in 2017, at a cost of an estimated $2.67 billion. Over 80% of them were 12 years old or younger. More recently, the Identity Theft Resource Center has received numerous reports of personal information breaches as a result of stimulus claims related to COVID-19. In one instance, the identity of a two-year-old child was stolen and used to claim benefits.

While this was not the financial industry's fault, banks do contribute to the problem. Data mining has developed into a valuable resource for businesses, and financial institutions have demonstrated a willingness to sell customer information. As such, the ultimate responsibility for monitoring and protecting their own – and their children's – data falls to those very customers.

Weighing the advantages and disadvantages of a debit card for your child requires a delicate balancing act. The most important factor to consider is how much information you feel comfortable sharing online. While each issuer is different, you will be required to provide identifying information about yourself and your child during the enrollment process, including birthdates, Social Security numbers, mailing address, and phone number. Additionally, the company may request that you share your GPS location history, purchase history, and behavioral profile – information that may be used to serve you with targeted advertisements for products and services. Having said that, debit cards for children are no riskier than those for adults for the following reasons:

• Child-specific laws: The Children's Online Privacy Protection Act strengthens privacy protections for children under the age of 13 who use banking products by requiring issuers to disclose the information they are collecting and obtain parental consent prior to collecting it. Keep an eye out for the issuer's intention to sell your child's data to third parties.
• Purchase protection: If your child's card is lost or stolen, some issuers offer a fee-based refund for fraudulent purchases. For an additional $5 per month, Greenlight's Max plan includes purchase protection.
• Card security: Prepaid cards feature EMV chip technology and password-protected accounts that can be accessed via PIN or facial recognition.
• Parental locking feature: The majority of debit cards for children include a parental locking feature that enables you to protect the money in the account via your app if the card is lost.
• Consumer protection: Unlike cash, which can easily fall out of your child's pocket, prepaid debit cards issued by FDIC-insured banks are FDIC-insured up to $250,000. This means that if the bank fails, you will not lose the money in your account.

While the same security measures protect children's and adult debit cards, it's worth noting that any information you share about your child online increases their risk profile. Massive data breaches exposed tens of thousands of accounts, many of which contained sensitive information such as social security numbers, addresses, phone numbers, and credit card numbers.

After you enroll your child in a debit card program, keep an eye out for bills or credit card applications addressed to them and be prepared to answer questions if a debt collector calls using their name on file. The Federal Trade Commission provides guidance on how to proceed if you suspect identity theft, and Experian offers a free ID Scan to determine whether your child's Social Security number is active on any credit accounts.