Why Credit Cards Are Superior to Debit Cards
What would you say if your adolescent child asked for a debit card? “No way!” or “We will think about it.” is a likely response most parents would first have. Teaching your child about money is a very important lesson that not everybody receives.
However, once the parent decides to take on this lesson with their trustworthy child, there comes a choice – should you use a credit card or a debit card to teach them this wonderful lesson? Both credit and debit cards have their advantages, as well as their potential drawbacks. Debit cards withdraw money directly from a bank account and require a similar responsibility-level as allowing your child a checking account (“Frequently Asked Questions”). Your adolescent child must understand that their debit card is withdrawing money directly from a real bank account and that they must balance their checking account booklet often. I know that many say debit cards are better because the owner cannot spend more money than he/she has, but credit cards offer many more benefits as my discussion will go on to mention. Credit cards take out a temporary loan which has to be paid off by the end of the month and contrary to this advocating for irresponsible spending by your child, it can lead to higher responsibility and greater financial know-how in an apt pupil.
Even though credit cards can give the owner a false sense of wealth, credit cards are superior to debit cards because they are safer, you can build a credit history, they allow bigger purchases, and also because the credit card holder gets reward benefits. The first reason why credit cards are superior to choose for your trusted adolescent over debit cards is because credit cards are safer. For example, if your child’s credit card gets lost or stolen, then he/she has about 60 days to report the card to the credit card company used. If someone stole his/her card and attempted to make a purchase with it, the purchase would show up on the owner’s monthly bill and could be removed by the owner with a call to the credit card company (“Advantages and Disadvantages of Credit Cards”). The owner would go further to tell the company to cancel the card and then ask for a new one since the one in action was stolen. The credit card holder is then only liable for $50 of what the thief spent (“Pirg Consumer Fact Sheet”).
Next, I will compare the theft policy for debit cards. If your child owned a debit card, they would only have three days to report it if it was lost or stolen. If the card is reported in three days, then the owner is liable for up to $500 of the money the thief spent depending on the company the owner used (“Pirg Consumer Fact Sheet”). If the stolen card is not reported in three days, then the thief owns all the money in which ever bank account the card is linked to and the owner is liable for any purchases made by the thief. As this discussion continues, I want to point out a few other reasons for why credit cards are superior to debit cards for your child.
Next, it is good to have a longer grace period for your credit card. A grace period gives the owner more time to report a lost or stolen card as already mentioned. The grace period for a credit card is 60 days compared to a debit card which is only three days. Some say, “But wouldn’t I know if my debit card was stolen within a three day time-frame?” If your card is stolen, it is most likely pick-pocketed and the owner does not know that their debit card is missing. If you still are not convinced that credit cards are safer than debit cards, I would like to bring up another point. Some may say, “But my debit card requires a pin number when I purchase something, so aren’t debit cards safer then?” While the pin number does prevent some transactions from getting through, the thief can actually get away with some off-line purchases because cashiers do not always ask for a pin number (“Debit Card vs Credit Card: Which is better?”).
If they do ask, the thief can decline entering a number and complete the purchase with no problems. However, if someone stole your adolescent child’s credit card, the thief could easily get away with many purchases. But, all the purchases made by the thief would show up on you child’s monthly bill and would have 60 days to be removed from the bill. Both credit and debit cards require a lot responsibility for adults and youth, but credit cards have many more benefits such as the elongated grace period as already mentioned. In continuation, high debt can follow if credit card bills are not paid correctly which is why your child must be 100% responsible with their credit card (“Debit Card vs Credit Card”).
If the owner of a credit card pays the minimum amount, the end result is paying more than the item actually costs. This is one reason why your adolescent child must be very responsible and smart. A credit card should not be given to an adolescent child unless he/she has proven to be responsible with everything that was put in his/her power. If a credit card is given to an irresponsible person, the credit card would allow the owner to buy as much as the owner wants that is below the credit limit (leads to high debt). If a debit card is given to someone irresponsible, then they are prone to someone steeling the card or to spending all of their savings.
As presented, credit cards are better than debit cards because they are safer and for other reasons too. Next, let’s look at different purchases available with your son’s/daughter’s credit card and the lessons associated with it about money and responsible spending. Credit cards allow the owner to make purchases for things like vacations and airline tickets that debit cards would typically not allow you to buy (“4 Reasons to use Credit Cards Versus Debit Cards”). Credit cards allow the owner to buy things like airline tickets and vacations because most people do not have enough in their bank accounts to pay for something like this. Debit cards withdraw money directly from your bank account. When your bank account does not have enough money to pay for a vacation or whatever they are paying for, you must use a credit card or cash.
This is one reason why credit cards are better than debit cards. Credit cards allow you to make purchases that most likely cannot be made with a debit card. This again is something that needs to be understood by anyone that plans on getting a credit card. Credit cards can be used to buy many things, some of which can lead to debt (“Debit Card vs Credit Card”). Adults use credit cards to purchase things such as airline tickets and vacations.
Hopefully your child with not be purchasing airline tickets, but this aspect will serve as a valuable lesson to them. For example, if your adolescent child wanted to buy a new bike, then he/she would first save up enough money to buy the bike and then deposit it into their bank account. They would then go to the store and buy the bike with their credit card. At the end of the month, a bill would come and have both the minimum amount payment and the full payment listed. This is the part where your adolescent child needs to know which way to go.
Minimum amount payments have high interest rates that will cause you to pay more than the bike actually cost in the end. That is why it is best to pay the full amount up front. Credit cards are superior to debit cards because they allow you to make more varied purchases and for additional reasons too. Our next aspect of this debate is about credit history. Someone who is a reliable credit card holder, has no late payments, and does not have to remove transactions from their bill frequently for a long period of time. If you are a reliable credit card holder, then the credit cards companies will reward you by giving you a high reputation level whenever you apply for another credit card.
A high reputation insures a high credit limit allowing you to purchase more with your card. If you have a low reputation level, they may not let you have another credit card or if they do let you have one, it would have a low credit limit (“Using Your Credit Cards as a Financial Tool”). This reputation system or so called credit history, sorts out the responsible for the irresponsible. Also, if you have become a reliable credit card holder, then late bills can sometimes even be excused. Debit cards do not offer this kind of advanced system (“4 Reasons to use Credit Cards Versus Debit Cards”).
A good credit history can also allow the owner to take out car and home loans in which a credit card holder with a poor history could not do. Building your adolescent child’s credit history at an early age is beneficial because later on in life, the credit card company will give your child certain rewards for having a good credit history which will be helpful later on when they try to take out a car or house loan. Some things that improve your credit history, are paying your bills on time, being responsible with your credit card, and finally having the ability to control their own spending (“Pay with Cash, Debit, or Credit?”). Credit cards have shown to be better than debit cards through credit history and also for other aspects. Finally, credit cards have proven to be better than debit cards because credit cards offer rewards that can be beneficial to your adolescent child (“Debit Card vs Credit Card”).
With a good credit history, credit card owners can get up to 5% cash back on items like grocery’s and gasoline. Also, credit card companies will award points. Whenever the owner gets a certain number of points, he/she will be rewarded with a plane ticket or possibly even a short vacation. Imagine how much the owner would benefit from these rewards. For example, if the owner spends $50 on gasoline every week for 10 years at 5% cash back, the owners total saving would be $1,300 after those 10 years.
That’s a lot of money! This beneficial aspect to credit cards should be used as a motive to a child planning to get a credit card because it will make them want to be more responsible with their spending. After all, with responsible spending comes a good credit history, and with a good credit history comes rewards. Credit cards are a financial tool that offers rewards in methods of cash back and points. In conclusion, I believe credit cards are superior to debit cards for an adolescent child because credit cards offer security, longer grace periods, more varied purchases, credit history, and rewards. When it comes time to teach your adolescent child about money by giving them a credit or debit card consider the points laid out in my discussion. Next time you consider giving a debit card to your child and linking it to their bank account think again.
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