Kids & Money: Making It Real in a Digital World

As kids are bombarded with ads and offers online, it's more important than ever to teach them good money skills early. At the same time, it's getting harder. How do you convey the value of a dollar when we hardly use cash? When an in-app purchase is made with a click, how do you help kids understand they're spending real money?

Since kids are so tuned into the digital world, I think it's important that parents use that world to teach our kids traditional money skills. That's what I'm doing with my 10-year-old daughter and 8-year-old son, and it's working. Here's an example.

Recently my daughter went to Target to buy something. She has an app-based debit card designed especially for kids. When she went to pay, her card was declined because she didn't have enough money to cover the sales tax in the checking side of her account. She was mortified and called me crying. I easily went into the app and moved money from her savings to her checking account to cover the full cost.

Two lessons came out of that experience:

1. Know how much is in your account.
2. Don't forget about sales tax.

Of course, money lessons must be age appropriate. Younger kids need to learn about coins and counting, and my 8-year-old still loves to receive cash in his birthday cards. But as kids get older, and most purchases are made online with debit or gift cards, it's more of a challenge to make money seem real. Here are five ideas on how to do it.

Online money management apps can provide a hands-on way to focus on important money concepts in a way kids can relate to. There are several financial apps/accounts designed for kids ranging in age from under 10 to tweens and teens. Here's how it could work:

• Spending/budgeting: For kids to learn how to make good money decisions, it helps when they have some money to spend. We use an app-based, kid-specific debit card account for each of our kids. We deposit their allowance as well as monetary gifts they receive into their online accounts, and the kids have a debit card complete with a PIN to make purchases. There's an app for the kids so they can stay on top of their accounts (and a separate app for parents to manage it all). It's up to the kids to make sure they have enough in their account for what they want to buy—a budgeting lesson my daughter learned the hard way!
• Saving: To me, this is one of the most important concepts. We encourage our kids to save half of every dollar they get. Of course, the first question is, "why?" To make savings tangible, we had them create savings goals. The app helps here too because it lets them create separate savings buckets for specific goals. For example, my son is saving for baseball equipment, and my daughter set up a savings goal for a laptop. They can direct their money into the buckets and watch their savings grow. It's fun and exciting, and it makes saving real.
• Compound interest: This is a tough one, but here too the digital world can help. Some apps offer interest on savings, so kids can see for themselves how their money grows over time. It's a real enticement to keep saving.  

The key is that kids are used to doing things online, so managing money this way comes naturally to them. Some apps are free and some charge a small monthly fee. I think it's worth exploring because whatever app you choose, these programs give kids real experience in managing money at an early age. As you follow along, you can share your own experiences with them and guide them as they go. When it's time to transition to their own independent checking and savings accounts, they'll be more prepared to handle them responsibly.

Are your kids playing video games online? Then chances are they've made an impulse buy, billed to the credit card attached to the parent's phone account. Many parents I know have gotten an unwelcome surprise when they received a bill for several hundred dollars of their kid's in-app purchases! The first thing you could do is set up parental controls so your kids have to get your permission to buy something. Then, take it a step further by relating whatever they want to buy online to something tangible.

For example, my son really wanted a virtual motorcycle for a video game character. "And mom, it's only $10!" To help him understand what $10 represented, I had him compare it to something he wanted at Target. Was the virtual motorcycle worth that much to him? For kids to understand the value of money, it's important to compare it to something material they value.

Here's a positive example of digital influence. Five years ago, my then 13-year-old nephew told me he'd saved $200 and wanted to invest it. He'd seen something on TikTok about stock investing and was interested. What an opportunity!

We opened a custodial account for him and had him research companies he was interested in. Thanks to fractional shares, he could actually invest in several different companies. As time went on, we talked about diversification, risk, unrealized gains and losses, and so much more. Fast forward—he just turned 18, his account has grown, and he's ready to manage it himself.

I've been hearing similar stories from others with teen children who are interested in investing thanks to the digital age. Consider how you might introduce your own teen to investing. Opening a custodial account and gifting stock is a great way to get started.

The digital world makes it far too easy to get into debt, so the credit card conversation is incredibly important. As your kids get old enough to have their own credit card, be sure to talk seriously about the importance of not charging more than you can pay off and paying bills on time.

Of course, one of the scariest digital downsides is identity theft. I recently talked to my 21-year-old stepson about the idea of freezing his credit if he wasn't planning to open new accounts or take out any loans soon. (A credit freeze can help you prevent identity theft and fraud by limiting access to your credit file without your permission. It's free to request a credit freeze with the three credit bureaus and can be lifted anytime.) That led to a discussion of credit scores and why they're important as you look to buy a car or a house, or even get a job in the future.

As you can see, one topic leads to another, and it's important to keep the conversation going. Actually, it's helpful to have several conversations: 

• With your partner: To make sure you're on the same page on how to talk to your kids about money.
• With other parents: To get a feel for the money ideas your kids are getting from their friends at school (for instance, what's the going rate for allowance, the Tooth Fairy, etc.).
• And most importantly, with your kids themselves: Start with simple questions about what they know or are learning at school about money. Find out what questions they have for you, and be ready to give them honest answers.

It's not always easy to talk about money. But today, with tools and resources just a click away, we really can't afford not to.