These days we can’t live without our smart phones. There’s an app for everything. The latest is the digital wallet. While it may be convenient for adults, it’s not the best way to teach your children about money and financial responsibility.
Think about when you buy something with your credit card versus handing over the cold hard cash. If you are like me, it hurts a little more to count out the money. Swiping the plastic card or waving your phone over the electronic pad doesn’t have the same impact.
If you want to teach your kids and teens about money, start with the green stuff. That’s right, pay allowance in cash. Let your kids learn to count the currency and verify they were paid the correct amount. They can’t do that on a phone app.
Next, they should split their cash allowance into the three categories that imitates an adult financial plan:
1. Spending: This should be about 70% of their allowance for immediate needs or wants. They can keep their cash safe in a wallet or other container. For teens, you can consider a high school checking account. Take your teen to the bank and have them ask the bank questions about the account such as, balance minimums, check fees, monthly fees, ATM fees, Debit card fees, and any other hidden fees.
2. Savings: This should be about 20% of their allowance for big-ticket items or longer-term goals. They can start a piggy bank or other container. When the cash starts to pile up, take your child or teen to the bank to open a savings account. Have them ask the bank questions about the account such as, balance requirements, number of free deposits and withdrawals allowed, interest rate earned, and any other bank fees.
3. Sharing: This should be about 10% of their allowance. They can start a ‘sharing container.’ With your help, have them set a goal amount that they want to give to a charity of their choice. Research the charity with them to see how they spend their donations. Not all charities are created equal. Charity Navigator is a good place to start your research. http://www.charitynavigator.org
Our kids and teens don’t see enough cash. So, show them the money…the real currency not the digital numbers on the phone app.
By following this plan, you are building a foundation of knowledge about money matters that will help your children manage their finances more effectively for the rest of their lives.
Gigi’s background is investments and financial planning but currently she is living her dream working in her local independent bookshop and writing a YA novel. She has a son in high school and a daughter in college—both have received allowance since they were five!)