Financial literacy is among the most valuable gifts parents can give their children. Most schools do not teach personal finance, but with a touch of parental intervention, kids can learn to save and manage money through real-world experience. Kids who learn the importance of smart money management early on will be better equipped to make smart financial decisions in the future. Tim Sheehan, CEO + Co-Founder of Greenlight, a debit card and app that helps parents easily give kids spending money and allowance, gave us some tips on how to prepare your kids finances for the future.
Provide Hands-On Experience Managing Money
As soon as your child is old enough, start giving them real-world experience with managing money and making financial decisions. Kids learn a lot from managing their own money. When kids decide to spend or save their own money, they feel the consequences: a night out at the movies might delay the purchase of a game for which they are saving. Kids may decide to eat at home instead of going to a restaurant if they are saving for a school trip. The sooner kids realize the value of dollars spent, the quicker they’ll catch on to the importance of saving.
Greenlight offers a debit card for kids that parents manage through their app. Parents have the flexibility to choose controls that are right for each child and get real-time notifications of each transaction. This gives kids the freedom to spend safely while learning to make financially-smart decisions. The mobile app experience that comes with the card provides a simple and safe way for kids to manage a budget and naturally communicate with parents about money.
Teach Kids about Savings Accounts and Smart Saving Habits
As soon as your kids are old enough to spend money, you can start talking to them about saving it. Open your kids a savings account and talk to your kids about how much to deposit, when, how, and why they should do it. When they start earning some money of their own – whether from gifts, allowance, or chores – encourage them to save some of it, even if it’s just for a big purchase down the road.
Greenlight provides a suite of tools that create these teachable moments for families. Kids can learn foundational lessons for a financially-smart future with Greenlight Savings and can set and track Savings Goals when saving for a specific item. Greenlight offers Automated Allowances so Parents can instantly transfer payments to their kids. Parents can allocate portions of these payments to Giving or Savings, to instill smart money management.
Explain the Importance of Earning Interest
Interest and compound interest are incredibly important for building wealth over time, yet can be hard to grasp conceptually. Explain these concepts to your kids and help them understand the exponential growth that will result from saving while earning interest.
With Greenlight’s “Parent-Paid Interest,” Parents can choose their own interest rate on savings – paid by the parents – to exaggerate the point of interest on savings. The money grows more quickly so kids learn about compound interest and the value of saving versus spending. Kids learn about compound interest from seeing their own savings grow meaningfully. With Greenlight’s Parent-Paid Interest kids learn by doing with just a touch of parental intervention to emphasize the point.