5 Financial Tasks for Fall and Kid Debit Cards
Dive into an informative session with NerdWallet's Smart Money Podcast, where hosts Sean Pyles, Liz Weston, and guests Sarah Rathner and Margaret Burnett delve into the intersection of technology and financial literacy for the younger generation. The discussion focuses on how banking apps tailored for children can be powerful tools in teaching them valuable money management skills. These digital platforms allow kids to safely handle real or virtual money, providing a hands-on approach to learning about savings, budgeting, and spending.
However, not all apps are created equal, as Burnett cautions about hidden fees and the necessity of being selective. The podcast explores important considerations such as avoiding monthly fees, ensuring FDIC insurance, and utilizing parental controls that make these apps both safe and educational. In parallel, the speakers advocate for other resources and methods parents can employ beyond digital means, highlighting the significance of leading by example and having open discussions about financial responsibility. As children grow and become more financially aware, these strategies collectively form a blueprint for nurturing financially savvy individuals.
This is a preview of the Shortform summary of the Sep 27, 2021 episode of the NerdWallet's Smart Money Podcast
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1-Page Summary
Managing children's money with banking apps
Margaret Burnett, Sarah Rathner, and Sean Pyles discuss the growing trend of parents using banking apps designed for children to teach financial skills. These apps offer a multitude of features such as allowing kids to receive money from gifts or allowances, and make decisions on saving or spending. They also include budgeting capabilities with tracking for savings goals and providing insights on money usage. With these apps, kids can also use debit cards to spend real or virtual funds.
Despite the advantages, Burnett warns of potential fees associated with these apps that could include monthly charges and overdraft fees, especially if linked to a joint account held with a parent. It's crucial, therefore, to choose the right app, which involves looking for ones without monthly fees, ensuring FDIC insurance, and having robust parent controls. Highly visual tools and educational features are also recommended to help kids see where their money goes. Burnett even suggests using joint accounts at a parent's bank as a good option if the bank offers fee waivers and other advantages.
Other ways for parents to teach financial skills
In addition to banking apps, there are other methods parents can use to teach their kids about finances, as discussed by Burnett, Pyles, and Rathner. Engaging in conversations about savings goals and illustrating compound interest through practical applications using banking apps can provide a solid foundation. Regular allowance transfers through these apps simulate a steady stream of income, reinforcing the concept of regular savings and income management.
Parental behavior serves as an implicit template for financial habits, and Burnett emphasizes the importance of parents modeling good financial behaviors. Sharing experiences and regrets about their own financial education, Pyles and Rathner stress the value in utilizing modern educational tools and the parents' example to instill sound money management practices in children.
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Clarifications
- FDIC insurance stands for Federal Deposit Insurance Corporation insurance. It protects depositors in case a bank fails, ensuring that their funds are safe up to a certain limit per depositor, per bank. This insurance provides confidence to depositors and helps maintain stability in the banking system. FDIC insurance typically covers checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts.
- Compound interest is the interest calculated on the initial principal, which also includes all the accumulated interest from previous periods. It is different from simple interest, where interest is only calculated on the principal amount. The frequency of compounding and the interest rate determine how quickly the money grows over time. Compound interest allows for exponential growth of savings or debt due to the compounding effect over time.
- Joint accounts with fee waivers typically refer to bank accounts that are shared between two or more individuals, often a parent and a child in this context. Fee waivers mean that certain charges associated with the account, like monthly maintenance fees, are waived or not applicable under specific conditions, such as maintaining a minimum balance or meeting other requirements set by the bank. This arrangement can be beneficial for families as it allows for shared financial management while potentially avoiding extra costs that could arise from using individual accounts. By utilizing joint accounts with fee waivers, parents can provide a practical and cost-effective way to introduce children to banking and financial responsibility.
Counterarguments
- While banking apps can be useful, they may not fully replicate the complexities of real-world financial management, potentially leaving gaps in a child's financial education.
- The use of digital platforms for financial education might inadvertently encourage increased screen time, which some parents may want to limit.
- Relying on apps to teach financial skills could reduce face-to-face discussions about money, which are also important for a child's understanding of financial concepts.
- The effectiveness of these apps in teaching financial responsibility may vary depending on the child's age, maturity, and individual learning style.
- Some parents may prefer traditional methods of teaching financial skills, such as using cash and physical banks, to provide a more tangible understanding of money.
- There is a risk that children might not take virtual balances as seriously as real cash, potentially affecting their perception of the value of money.
- The security and privacy of children's financial information is a concern, and parents must ensure that the apps they choose have strong security measures in place.
- Not all families have equal access to technology, and reliance on banking apps could exacerbate financial literacy disparities among different socioeconomic groups.
- There may be a lack of comprehensive educational content within these apps, which could limit their ability to teach children about more advanced financial topics.
- Some parents may not feel comfortable or equipped to choose the right app or to use it effectively as a teaching tool, which could undermine the potential benefits.
- The use of debit cards by children, even with parental controls, could lead to impulsive spending habits if not carefully monitored and guided by parents.
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Managing children's money with banking apps
Parents are increasingly turning to banking apps designed for children to help them learn important financial skills. Margaret Burnett, Sarah Rathner, and Sean Pyles weigh the benefits and potential drawbacks of these technological tools.
Features and advantages of children's banking apps
Children's banking apps offer a gamut of features that aim to instill good money management habits from a young age.
Allows children to learn money management skills
Margaret Burnett discusses how children's banking apps can be a simple and effective way for kids to learn how to manage money. These apps allow kids to receive money, for example from gifts or allowances, and to make decisions on spending.
Budgeting features to track spending and savings goals
The apps typically include features such as the ability to track savings goals, visualize where their money is going, and make informed decisions on whether to spend or save. Some apps additionally allow parents to pay interest on their kids' accounts, which teaches them about compound interest and encourages saving.
Provides debit cards and ability to spend real or virtual money
The apps provide children with debit cards, which can be either tied to joint accounts with their parents or have a separate account in the parent's name. These cards allow them to spend real money, although some apps use virtual funds to simulate money management without the risks of real money loss.
Risks of using children's banking apps
However, there are potential pitfalls parents need to watch out for when their children use banking apps.
Potential for fees, including overdraft fees
Burnett states some banking apps might come with monthly fees and charge for keeping a debit or prepaid card active. She notes that within joint accounts, both the parent and the child might share the liability for fees, like overdraft charges.
Choosing the right banking app for your child
Parents should consider several factors when choosing the most appropriate banking app for their child.
Consider no fees, FDIC insurance, parent controls
It's important to look for ...
Here’s what you’ll find in our full summary
Managing children's money with banking apps
Additional Materials
Clarifications
- FDIC insurance stands for Federal Deposit Insurance Corporation insurance. It is a protection provided by the U.S. government that guarantees the safety of deposits in participating banks up to a certain limit in case the bank fails. This insurance helps reassure depositors that their money is safe and secure in the bank. FDIC insurance coverage typically includes checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts up to a certain amount per depositor, per bank.
- In joint accounts, both the parent and the child have ownership and access to the account. This means that both parties can deposit and withdraw funds. Regarding liability for fees, in joint accounts, both the parent and the child may be responsible for any fees incurred, such as overdraft charges. This shared liability ensures that both parties are accountable for any financial obligations associated with the account.
- Compound interest is the interest calculated on the initial principal, which also includes all the accumulated interest from previous periods. It allows for exponential growth of an investment or debt over time, as the interest earned or charged is added to the principal amount. The frequency of compounding, along with the interest rate, determines how quickly the amount grows. Compound interest is a powerful concept in finance that can significantly impact savings, investments, and loans over the long term.
- An overdraft fee is a charge imposed by a bank when an account holder spends more money than is available in their account. This fee is typically applied when the account balance goes below zero, allow ...
Counterarguments
- While children's banking apps can teach money management, they may not fully replicate the complexities of real-world financial situations, potentially leaving gaps in a child's financial education.
- Budgeting features in apps may oversimplify financial concepts, which could lead to misunderstandings when children face more complex financial decisions later in life.
- Providing debit cards to children might encourage consumerism from a young age and may not teach the value of money as effectively as handling physical cash.
- The use of virtual money in apps could detach children from the real value of money, making it harder for them to grasp the consequences of financial loss.
- Parents should be cautious of the potential for children to become overly reliant on technology for financial management, which could impede the development of manual budgeting skills.
- Some banking apps may not offer a comprehensive educational curriculum, focusing more on the mechanics of transactions r ...
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Other ways for parents to teach financial skills
Burnett, Pyles, and Rathner discuss methods parents can use to impart financial wisdom to children, underscoring the importance of early education in money management and the benefits of leveraging modern tools.
Discuss saving goals and compound interest
Burnett encourages parents to have conversations about savings goals with their children, exploring what they might want to save for and how long it would take to reach those goals if they set aside money regularly. Furthermore, Burnett suggests using children's banking apps to teach about compound interest, providing a practical, real-world application to help kids grasp the concept and understand the importance of saving.
Give regular allowance to show steady income
Sean Pyles and Margaret Burnett talk about the consistency and realism of using apps to transfer allowance, which helps kids learn to manage a steady income flow. While regular cash allowances aren't mentioned in the provided transcript chunk, the discussion points to the educational value of regular transactions in teaching children money management.
Role model good money habits
Burnett hints at the importance of parents modeling good f ...
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Other ways for parents to teach financial skills
Additional Materials
Clarifications
- Children's banking apps are digital platforms designed to help kids learn about money management, savings, and budgeting in a fun and interactive way. These apps often simulate real banking experiences, allowing children to set savings goals, track their spending, and understand concepts like compound interest. By using children's banking apps, parents can provide practical, hands-on financial education to their kids from an early age, helping them develop crucial money management skills for the future.
- Compound interest is when interest is calculated on the initial principal and also on the accumulated interest from previous periods. For children, understanding compound interest can be challenging, but using practical examples like a savings account can help illustrate how money grows over time. By showing how regular savings can lead to increased earnings through compound interest, children can grasp the concept of making money work for them. This hands-on experience can instill the importance of saving and investing early on.
- Regular allowance plays a crucial role in teaching children about managing income by providing a consistent flow of money for them to budget and allocate. This steady income stream allows children to practice saving, spending, and making choices with their money on a regular basis. Through receiving a regular allowance, children can learn financial responsibility, understand the value of money, and develop essential money management skills early on. The routine nature of receiving an allowance mimics real-world scenarios, helping children grasp the concept of earning, budgeting, and planning for future financial needs.
- Role modeling good money habits for children involves demonstrating positive financial behaviors and decision-making to serve as a practical example for children to learn from. Parents who exhibit responsible money management practices can influence their children's attitudes and behaviors towards money in a positive way. By observing how adults handle finances, children can internalize these behaviors and develop their own financial literacy skills. This direct exposure to real-life financial scenarios can help children understand the importance of saving, budgeting, and making informed financial choices.
- The authors in the text mention personal anecdotes and experiences to highlight the impact of early financi ...
Counterarguments
- Discussing saving goals with children may not always be effective if the goals are too abstract or distant in the future for the child to relate to.
- Children's banking apps, while useful, may not fully replicate the experience of handling physical money, which can be an important aspect of learning about financial transactions.
- Regular allowance might inadvertently teach children to expect money without understanding the work that goes into earning it, unless it is tied to chores or responsibilities.
- Modeling good financial habits is important, but parents may not always exhibit perfect financial behavior, and children may pick up on and imitate their mistakes.
- Early education in financial responsibility is beneficial, but it should be age-appropriate and not overwhelm children with concepts they are not developmentally rea ...
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