Banking on apps to teach kids about money management

Jonathan and Erin Kraftchick started out by giving their two children's allowance the old-fashioned way, using paper money.

"I tried the cash thing," said Mr Kraftchick, an accountant and financial-literacy advocate in Raleigh, North Carolina.

First, they used glass jars, then they switched to a system that involved slipping money for various purposes into separate paper envelopes, for each child.

But keeping up with multiple envelopes became unwieldy.

"It's a lot of hassle," Mrs Kraftchick, an artist, said with a laugh.

So, when Mr Kraftchick read about a "smart" debit card called goHenry last year, he quickly signed the family up for an account.

Now, the children - Reece, eight, and Caris, seven - each has a card, which their parents manage using an app on their phones.

They have US$1 (S$1.35) for each year of age, a week, automatically transferred each week to the cards, which the children can use to buy items such as snacks at their neighbourhood swimming pool.

They can also get more money transferred by going above and beyond - like extra time spent practising the piano.

They can check their balances on an iPad. Mrs Kraftchick said they were even learning to round up prices to include tax.

"It takes the pressure off me," said Mrs Kraftchick, who typically keeps the cards in her wallet and hands them out when it is time to make a purchase.

The Kraftchicks are part of a growing group of busy parents who are trying out app-controlled debit cards to give their offspring allowance, manage chores and teach them about money.

Despite talk of a cashless society, physical cash is still widely preferred for small purchases, according to the United States Federal Reserve. But children may lose cash or parents may not have it on hand when it is time to pay.

"We got tired of having a drawer full of dollars," said Ms Brandi Tzonev, a sales manager and personal trainer in Lawrenceville, Georgia, who uses goHenry with her 15-year-old son, Alex, and 10-year-old daughter, Gabriella.

Some banks have long had accounts aimed at children and teenagers, and many families use prepaid debit cards - rather than traditional debit cards, linked to a checking account - as a way to help children manage money.

But the newest generation of "smart" debit cards are managed by advanced mobile apps that give parents detailed control over how much the young people spend - and even where they spend - with a few taps on a phone.

In addition to goHenry, which has been available in Britain for five years and moved into the US last spring, the cards include financial technology start-ups such as Greenlight, backed by Amazon and others, and Current, financed in part by an arm of Fifth Third Bank.

Details vary slightly by card, but in general, a parent establishes an account or "wallet" linked to their traditional checking account.

The app draws money from the bank account and the parent transfers funds electronically to the child's card.

The child can spend only what is available on the card. Parents can set spending limits and restrict where cards can be used.

Parents can set up regular transfers of cash as a weekly allowance or respond to requests for one-time cash approvals on short notice - if, say, a child is out with friends and needs more money.

Children can also save money in Federal Deposit Insurance Corporation-insured accounts, held at the traditional banks that issue the debit cards on behalf of the start-ups.

The cards charge monthly or annual fees. But they generally do not charge extra fees for loading the card with cash, as some other prepaid debit cards do.

The cards are reviving debates about whether it is best to teach children about money using actual cash and coins and whether children's allowances should be tied to completion of household chores.

The cards also raise concerns about the potential of plastic to encourage overspending.

"Parting with physical cash is harder," said Dr Philip Fernbach, assistant professor of marketing at the Centre for Research on Consumer Financial Decision Making at the Leeds School of Business at the University of Colorado in Boulder.

Still, he said, the new digital tools offer ways to help children learn important financial concepts, such as compound interest.

Greenlight, for instance, allows parents to pay children a custom "parent" rate - say, matching each dollar saved with another dollar or two - to encourage saving, at a time when rates on traditional savings accounts are low.

Some say as the use of cash is waning, at least for larger purchases, children need to learn about money in that context.

"That's the world they're in," said Dr J. Michael Collins, faculty director of the Centre for Financial Security at the University of Wisconsin-Madison.

If parents find that the apps work well for them, then they should use them, rather than stress that they are "doing it wrong" when teaching their children about money, said Beth Kobliner, author of Make Your Kid A Money Genius (Even If You're Not).

However, she worries that automating so much about finances means sacrificing the chance to have important conversations about spending and saving.

"I'm a real believer in cash," she said.


• The writer is a personal finance columnist at The New York Times.

A version of this article appeared in the print edition of The Sunday Times on January 27, 2019, with the headline 'Banking on apps to teach kids about money management'. Subscribe