Gen Alpha is expected to top two billion people, making the children born between 2010 and 2025 the largest generation ever. They are also projected to have significant spending power, with Gen Alpha already earning $5,200 annually and having $45 per week in disposable income. Their earning potential will continue to grow as they mature. With this money in hand, Gen Alpha has a use for card products.
While debit products designed for children might make some parents uncomfortable, they can be an effective tool for instilling healthy spending habits at 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 forge lifetime ties with young customers.
Learning Spending Habits
Gen Alpha will be the most tech-savvy generation, with more resources at their disposal than ever. However, children of all ages still strongly prefer to learn about financial topics through one-on-one sessions with their parents.
“While many parents might want to delay those discussions, there is value in having those conversations early,” Gonzalez said. “As children reach their teenage years, they are more influenced by social media platforms like TikTok and Instagram. While there may be good financial advice on those platforms, many parents would likely prefer to teach life lessons to their children themselves.”
This means the most successful debit products will create an interactive experience that includes parents. Since every family is different, debit accounts should also offer varying degrees of parental involvement in their children’s finances.
Some apps simply notify parents when their child makes a purchase, while others go further by launching interactive lessons for families after a child makes a purchase. This creates opportunities for parents to discuss best spending practices with their children.
Depending on the account, a variety of parental controls are available, like spending limits and real-time notifications. In some instances, parents can restrict a child’s purchases to certain stores or online retailers, or even limit spending to certain days of the week.
In many of these products, parental controls loosen at age 13 to the give the child more independence and privacy. However, even with high school checking accounts, parents will still receive purchase notifications and a monthly bank statement detailing their child’s transactions.
There are three main types of organizations who 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 children.
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 generally split into two age groups. Some accounts are tailored for tweens and teens ages 12 to 13 and up, while others offer debit products to children as young as six years old.
“While most traditional banks don’t charge fees for youth debit accounts, parents should be aware of any minimum balances, fees, or other restrictions,” Gonzalez said. “Some banks require the parent to have their own account, while others don’t, like Capital One. That type of account could be a compelling option for a parent who banks at a small bank or credit union that doesn’t offer a product for children.”
Fintech Features
Fintechs aren’t traditional banks, but most of the major apps are FDIC-insured and their debit cards are issued by financial institutions. Unlike traditional banks, which transition kids to a standard checking account once they turn 18, fintechs like Greenlight and GoHenry are solely intended for children. Once the debit card expires, the account is terminated.
Since these apps are designed with kids in mind, their debit products offer substantially more features than traditional banks. For example, they allow kids to customize their debit card, a feature that is highly favored by children.
Parents can also enable an investment platform on apps like Greenlight, which creates an opportunity to teach children about stocks and ETFs. Kids can also donate to charity directly from the apps.
“The biggest differentiator for fintechs is they include financial education tools like quick videos or in-app lessons, which children can complete independently or with their parents,” Gonzalez said. “However, with those features comes fees. Each of the fintechs charge a monthly subscription, so it’s up to parents to decide if the features are worth it.”
Navigating Digital Payments
Unlike fintechs, major P2P apps don’t charge fees for their youth debit products. The trade-off is that apps like Venmo and PayPal lack the financial education tools provided by some fintech platforms.
However, these apps do offer investment platforms. Kids receive a physical, customizable debit card, and all P2P debit cards are compatible with mobile wallets.
“One of the compelling reasons to choose P2P platforms is that children learn how to navigate the digital payments world,” Gonzalez said. “If a parent Venmos a child their allowance, the kid learns how to send money to their peers and becomes comfortable on the platform. When they turn 18, they aren’t likely to use PayPal or Apple Pay as their primary bank account, but they will still use it like adults do.”
Deepening Relationships
Youth debit accounts present a compelling opportunity for financial institutions to expand their customer base to the next generation. Additionally, they can strengthen the relationship between a bank and the entire family—as parents are less likely to switch banks if their child also has an account there.
“It’s a way for institutions to become fully enmeshed with families and provide a product that helps to develop a generation of more informed consumers,” Gonzalez said. “If a bank delivers a successful debit product early on, there would be no reason for the young customer to switch to another bank in the future.”
