Understand Your Finances
How to teach your kids about money without cash
This article is part of a new Chase series, "The Future of Money."
Like many parents, Courtney Barbee pays her young sons money for chores they've completed around the house.
Instead of giving them cash for their piggy banks, however, the North Carolina resident keeps a running spread sheet of how much her sons—they're four and eight-years-old—have earned. Once a month, Barbee transfers money from her checking account into her sons' savings accounts.
"They never see the physical cash, but they see the increase on their next bank statement," she says. "Society is becoming, in essence, cashless, and I think it's important for my children to understand that, just because they don't see money going away or coming in, it's still being transferred."
While virtual currency is arguably becoming more convenient (and secure) than paper, it does make it harder to teach young children about the value of money and how it works, since they often never see cash exchanging hands. As mobile payments become more common, today's young people may never see their parents do anything but tap their phone or smart watch a few times to make a purchase.
"Today's children are probably better equipped than anyone else to manage their money online. You just have to give them the guardrails in the beginning," says David Almonte, a member of the American Institute of Certified Public Accountants' National CPA Financial Literacy Commission.
Here are some suggestions to begin the process:
Start your child off with cash
For very young children, the ability to see and feel money—and watch a jar full of it accumulate (or diminish) is still a good starting place for understanding how money works. Make a point of bringing your child with you to the ATM, explain that you're withdrawing money, and then spend it in front of them.
Open a joint account for them
Once your child's piggy bank or allowance jar fills up (and they have a basic understanding of math), it's time to open a joint savings account. This is part of understanding that they can possess a specific amount of money without physically having it.
Once the account is set up, show your child how to go online to check the balance at any time. After setting up her three children's bank accounts, Karen Embry, of Kansas, set up automatic transfers to deposit their allowance directly into those accounts. She says the practice helped her oldest daughter, now 23, once she started working.
"It just made sense to her that she'd sign up for direct deposit of her check and for automatic saving to her 401(k)," Embry says.
Teach them about your spending
If your child never sees you using cash to pay for things, they may not realize how often such transactions are taking place or how much you're spending. "People like to use a credit card because it's fast—you just swipe and you're out the door," says Jennifer Myers, a certified financial planner. "But part of being a parent is pausing and adding some education."
When you use a credit card (or your phone) to pay for dinner, or to buy their soccer gear for the season, let your child help add up the bill. If you're a big online shopper, show your child how you use the internet to compare prices while shopping, and to find coupons. Invite them to join you when you're paying household bills, so that they learn how much it costs for the things they take for granted, like electricity or phone service.
Give them a debit card
When your child is ready to start carrying around spending money, start with a debit card. Load it with a specific amount (correlated to their allowance or gifts), and let them use that to make purchases.
Register the card online so that you and your child can log on to keep track of how the balance changes based on their spending habits. "Kids really benefit from seeing the numbers and what happens to the balance every time they make a decision about whether to spend or not," says Lynne Finch, author of "The No-Cash Allowance."
Emphasize the benefits of security
The old rules of money security for children involved always keeping your wallet in sight and never displaying large amounts of cash in public. In a world of virtual money, the focus needs to shift to best practices around cyber security.
"In our household, we teach our children, especially our teenager, that whenever she is paying a bill or dealing with finances to revert to using her phone data so she is on a secure network," says Michigan mother Gina McKague. "We teach her to always use a secure password, even when they aren't required."
Beth Braverman is a Chase News contributor. Her work has appeared in Forbes and CNNMoney, among other media outlets.