Any parent will tell you that setting up allowance and teaching kids about money is a chore (pun intended) in the best of situations, but now add two households and the negotiation goes up to another level with kids. We can all agree that teaching kids about money is an important life skill, but the “how-to” is the real trick.
People have different opinions on many aspects around money and children:
- Allowance: Should this be earned or just given on a regular basis?
- Chores: What kind, how frequent, how many? If they don’t perform a chore what are the consequences?
- Savings Requirements: Should a specific percentage of a child’s allowance be put into a savings account? What are the rules around what this can be spent on?
- General spending: Is the money only meant to be spent during the parent’s time that the money was given or earned? Or does the child have full control of the money?
- Cash, debit, or credit: What form of currency does the child have? Cash only? Digital only? A combination?
- Consistency: Should all the above be consistent across households?
Every household is unique when it comes to the first four items listed above. Teaching kids how to use cash, debit and/or credit is where there can be some powerful teaching tools. We are in an era now where most transactions are done digitally, which has opened some great ways to allow your kids to track spending, spending habits, savings, and more. This also allows parents to monitor how much, on what, and where their kids are spending their money.
Benefits and pitfalls of cash only for kids:
Benefits:
- Counting out cash as it is spent can be very powerful for the kinesthetic learner.
- Cash can provide a limit. Having your child take with them all they can spend that day stops them in their tracks when the money is gone it is gone.
Pitfalls:
- Difficult to track what they spent and where they spent it.
- Easily lost.
- Challenging for kids to keep cash organized and in one place.
- If your child is not with you, it is difficult or impossible to give them funds, which can be a natural consequence if they were on a budget for a particular day but challenging in case of emergency or when giving them a little extra for something makes sense.
Debit cards for children
Eligibility for a debit card:
- Children can typically only have savings accounts until the age of 13 at major financial institutions. At 13 they are eligible for a debit card with an account tied to the parent’s account.
- For children under 13, there is a debit card called Greenlight, which bridges the age gap. This has a great app that can notify you of every purchase your child makes, easily allows for money to be added to it, tracks chores and money earned from chores, and allows for savings goals. Parents can set spending limits by category or even by location. This app provides money tips to your child, tracks spending by category, teaches kids about investing and allows them to set up an investment account if you and your child so desire…and more. This is a great option for children of any age.
Pros of a debit card:
- Using a debit card at an early age teaches kids how to monitor their bank balance virtually, which is a life-long skill.
- Having a debit card allows the use of great budget, saving and spending tracking tools provided by the bank or outside apps like Mint.
- If your child needs actual cash, they can get it from an ATM with their debit card, although watch these kinds of withdrawals as a way for teenagers to not be monitored what they are spending their money on.
- If the child loses the debit card it can be put on hold or immediately canceled which minimizes the risk of loss of funds.
- Parents can immediately transfer money if needed.
Just like adults, children have a money personality: Shoppers, Savers, Money Makers, Saver/Spenders, or Gamblers (easy come/easy go). Teaching children about the pros and cons of their individual money management tendency can go a long way in helping to balance quality of life over the long haul. This can reduce stress from not knowing how to balance saving and spending, particularly if they have a personality that tends towards any of the extremes. No matter what, talking to kids about money management, both success stories and challenges, as they grow and take on more and more of the expense of supporting themselves is a great gift to give towards becoming independent citizens of the world.
