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As society transitions increasingly to cashless transactions, using smartphones and online channels to pay for goods and services, parents have a bigger challenge than ever in teaching children the basics of financial literacy. How do you impress upon younger children the principle of “value” – the idea that the things you buy don’t just magically appear because you can tap, click, or swipe a device. It may sound daunting, but there are some basic principles that never change. And the sooner you start teaching these to your kids, the sooner they’ll become financially literate.
School-age kids – introducing basic concepts
Whether there’s cash or not, kids still have to understand that the things you buy cost something, that you use “money” to buy them, and that there is only a limited amount of money to spend. It’s the essential concept of “value” that counts here. You simply can’t have everything. So that means children have to learn to make choices and set priorities, and that goes directly to differentiating between something you need and something you simply want.
It used to be that parents would help kids understand the concept of saving for a goal with the use of a couple of money jars or piggybanks – one marked “saving” and one marked “spending.” Cash that kids got from allowances and gifts would be divided into those jars, and kids could simply watch them grow.
In a cashless world, parents can use the same method for younger kids, except replace the cash with tokens that represent deposits to their bank accounts. (Of course, you have to introduce the whole concept of “accounts” as well, but for younger kids, the piggybanks will do.) Older kids who have been introduced to the concept of banking can simply look at their bank statements and see deposits and withdrawals and balances. At first, it makes sense to look at the statement every week if there have been transactions, to see the results of those withdrawals on the account balance.
Pre-teens and teens – teaching money management
At this age, most kids have smartphones and many may have access to various types of accounts, including debit and possibly even credit card accounts (which I do not recommend, except under very tightly controlled conditions, and then only for late teens). Teaching the concepts of good money management still hold whether kids ever see another 10- or 20-dollar bill.
Even at this age, which can be trying for parents, keep reinforcing the difference between “needs” and “wants.” Look at the account statements regularly with your child. Ask if they really want to decrease that balance by buying pizza slices for all their friends at lunch every day, or would it be better to cut back on those impulse “wants” and save up for that pair of new sneakers at the end of the month, which for teens is a definite need. Impress upon teens the importance of setting goals saving to achieve those goals.
Teach them to make a simple budget. For example, parents generally give their kids a pretty good monthly clothing allowance. But be up-front about it. Show them how much it is, and how much the family can really afford. If they really, really want that hundred-and-fifty-buck pair of ripped designer jeans, which is over and above their monthly clothing budget, they’ll have to save up for it. But it’s important to make these goals achievable in a realistic timeframe.
Communicate with your kids about the real cost of things they want, including taxes. Ask them to find ways to reduce costs or choose alternatives. Don’t be a nag, though, which of course is a total turnoff for teens.
Teach kids the importance of keeping track of their accounts and monitoring their balances. Most people, even adults, reject or discard receipts for electronic transactions at a point of sale. But this is a mistake, especially in this day and age when personal information is easily compromised. With so many transactions made every month, you’ll never remember each and every one. Teach kids to keep save their receipts and match them up with their monthly statement. This not only tells them how much they’re spending, and on what (budgeting), but also flags any attempts at fraud.
At some point, your teens will become old enough to realize that they’re going to need a job to obtain things that cost more than allowed by the bank of Mom and Dad. This, of course, is a good and natural progression. Once you start earning your own money, the lessons you’ve learned from Mom and Dad about spending, saving, budgeting, and setting goals are magically crystallized. Perspective changes when it’s your own money at stake.
Even though we may be moving to an all-digital “cashless” society, it’s ultimately not too important how you keep score – cash, coin, or electronic entries. What’s hugely important, though, are the principles and concepts of financial literacy that you teach your kids to make sure they do keep score.
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.
Notes and Disclaimer
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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.
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