Generation Alpha is expected to number over two billion people, making those born between 2010 and 2025 the largest generation ever. They are also expected to have considerable purchasing power: Generation Alpha already earns $5,200 a year and has $45 a week in disposable income. Their earning potential will continue to increase as they get older. This money will enable Generation Alpha to purchase card products.
Although debit products for kids might make some parents uncomfortable, they can be an effective way to develop healthy spending habits from a young age. As Sophia Gonzalez, debit payments analyst at Javelin Strategy & Research, found in her new report, “Cultivating Financial Savvy and Customer Loyalty: Debit Products for Kids and Teens,” debit cards can also be a way for banks to build lifelong bonds with young customers.
Learn spending habits
Generation Alpha will be the most tech-savvy generation with more resources at their disposal than ever before, but children of all ages still prefer to learn about finances one-on-one with their parents.
“Many parents may want to delay these discussions, but it makes sense to have them early,” Gonzalez said. “As children become teenagers, they are more influenced by social media platforms like TikTok and Instagram. While there may be good financial advice on these platforms, many parents may prefer to teach their children life lessons themselves.”
This means the most successful debit products create an interactive experience that involves parents. Because every family is different, debit accounts should also allow parents varying levels of involvement in their children’s finances.
Some apps simply notify parents when their child makes a purchase, while others go a step further and launch interactive family lessons after a child makes a purchase, giving parents the opportunity to talk to their children about best spending etiquette.
Depending on the account, various parental controls are available, such as spending limits and real-time notifications. In some cases, parents can restrict a child’s purchases to certain stores or online retailers, or even limit spending to certain days of the week.
Many of these products have parental controls that are relaxed at age 13 to give the child more independence and privacy. However, even with high school checking accounts, parents will still receive purchase notifications and a monthly statement detailing their child’s transactions.
There are three main types of organizations that offer debit cards for kids. The first are traditional banks like Bank of America, Wells Fargo, and Chase. Next, there are fintech companies like GoHenry, Greenlight, and Jassby that offer kid-specific options. Finally, peer-to-peer platforms like Venmo, CashApp, and Apple Pay also have debit accounts for kids.
Traditional strategies
Traditional banks each have their own strategy when it comes to youth debit accounts, which are typically designed for children under 18 and are typically divided into two age groups. Some accounts are tailored to tweens and teens ages 12-13 and older, while others offer debit products for children ages six and up.
“While most traditional banks don’t charge for teen debit accounts, parents should be aware of any minimum balances, fees or other restrictions,” Gonzalez said. “Some banks require parents to have their own account, while others, like Capital One, don’t. This type of account could be an attractive option for parents who bank at a small bank or credit union that doesn’t offer a product for kids.”
Fintech features
Fintechs are not traditional banks, but most of the major apps are FDIC insured and their debit cards are issued by financial institutions. Unlike traditional banks that offer a regular checking account to children when they turn 18, fintechs like Greenlight and GoHenry are exclusively for children. Once the debit card expires, the account is canceled.
Because these apps are designed specifically for children, their debit products offer many more features than traditional banks. For example, children can customize their debit card, a feature that is very popular with children.
Parents can also enable an investing platform on apps like Greenlight, which gives kids the opportunity to learn about stocks and ETFs. Kids can also donate to charity directly from the apps.
“The biggest difference with fintechs is that they offer financial education tools like short videos or in-app lessons that kids can complete on their own or with their parents,” Gonzalez said. “However, these features come with a fee. Each of the fintechs requires a monthly subscription, so parents have to decide for themselves if the features are worth it.”
Navigating digital payments
Unlike fintechs, the major P2P apps don’t charge fees for their debit products for teens. The downside is that apps like Venmo and PayPal don’t have the financial education tools that some fintech platforms offer.
However, these apps provide investment platforms. Children receive a physical, customizable debit card and all P2P debit cards are compatible with mobile wallets.
“One of the most compelling reasons to choose P2P platforms is that kids learn how to navigate the digital payments world,” Gonzalez said. “When a parent pays a child their allowance via Venmos, the child learns how to send money to their peers and feels comfortable on the platform. When they turn 18, they probably won’t use PayPal or Apple Pay as their primary bank account, but they’ll still use it like adults.”
Deepen relationships
Youth debit accounts are an attractive way for financial institutions to expand their customer base to the next generation. They can also strengthen the relationship between a bank and the entire family – parents are less likely to switch banks if their child also has an account there.
“This allows institutions to fully partner with families and offer a product that contributes to the development of a generation of better-informed consumers,” Gonzalez said. “If a bank delivers a successful debit product early on, there is no reason for the young customer to switch to another bank in the future.”
