How did you learn about money when you were a kid? Maybe your parents handed you a few dollars to swing by the grocery store for milk. After getting through the checkout line and carefully counting out the change, perhaps you stuffed the rest back into your pocket and headed back home.

Today, teaching kids how to manage money is different. As technology around payments and money management has evolved, transactions are often no longer tangible. Cash is becoming less common and learning to become financially savvy is beginning to take a much different shape than in the past.

From cash to V-bucks and in-app purchases

This emergence of financial technology has increased convenience, but for families, it sometimes comes at a great cost.

Fortnite, Angry Birds, Candy Crush, My Little Pony — these popular games are all geared toward kids. Each offers in-app purchases that brings financial transactions straight into the hands of children.

Kids using smartphones or playing video games for entertainment have in certain instances been able to rack up thousands of dollars worth of in-app purchases without being fully aware of their actions. A simple Google search of “games for kids with in-app purchases” doesn’t bring up a list of games; it brings up how-to guides for parents to learn how to control or turn off the in-app purchasing capabilities, warning parents of how easy it can be for their child to accrue some serious debt on the platforms.

The issue has gotten so out of control that law enforcement officials have conducted investigations into major app servicers like Apple and Google. In 2017, Amazon was ordered to refund $70 million worth of app purchases made by kids, as reported by The Atlantic. A federal judge ruled Amazon guilty of not warning customers of in-app charges after the initial download, and failing to provide adequate controls in games for kids to prevent the purchases.

Now that money is literally falling into the hands of children, determining who, how or when they should start learning how to manage it brings about a vague and indefinite debate.

Teaching the basics of money

Research by the University of Cambridge reveals children as young as seven years old have an understanding of basic concepts related to finance.

Talking about money isn’t always easy, though. The concept of sharing financial information has long been regarded as “taboo” in the U.S. For families struggling, money management can often be a stressful topic, making parents want to protect their children from the realities of financial distress.

Recently, though, there has been an upswing in financial conversations. Salary transparency is becoming more common in the workforce. Personal finance publishers are continuously popping up to educate and empower consumers. Apps geared toward kids are being developed to teach them money basics through simple tasks or games.

Improving financial literacy in schools

The teaching of money basics in schools isn’t currently a nationwide effort, something a growing number of recent graduates wishes would have been the case.

Only 16.4 percent of U.S. high school students are required to take a personal finance course, according to Next Gen Personal Finance, a free high-school personal finance curriculum company.

A January 2019 survey by Nitro, a student loan educational website, finds that 75.7 percent of the 1,000 millennials surveyed think personal finance courses should be mandatory in high school. Additionally, 84 percent of respondents agreed that high school didn’t prepare them to handle their money.

Some states have been considering whether to implement required personal finance curriculum in schools. A bill in Maine backed by State Senator Matthew Pouliot would have the curriculum developed by the Department of Education, and be taught as early as kindergarten and through high school.

“They have to make loan payments on a car,” Sen. Matthew Pouliot said, as reported by ABC 13 News. “They have to get student loans. They have to pay their grocery bill. There are a lot of things that we need to know about money for, and frankly, it’s not being taught in all schools equally.”

Matt Matheson, an assistant principal and personal finance blogger in Alberta, Canada, says teaching kids the basics of money in school is a great idea. However, teaching money basics in school comes with limitations.

Matheson says kids learn best by experience. You can teach a child the difference between a need and a want, but they won’t be able to correctly discern between the two without practice in the real world, like at the grocery store.

Teaching financial literacy in school can only go so far — what can’t be taught in a classroom should be supplemented at home by parents.

“It’s like we’re kind of missing the forest for the trees,” Matheson says. “Which is why boiling it down to the concept-based ideas is important, but ultimately the responsibility lies with parents 100 percent.”

The role of technology in ‘gamifying’ financial concepts

Technology is also making it easier to introduce financial concepts to children at young ages.

Kiddie Kredit, an app targeting kids who complete chores, teaches the basics of credit. Successfully completed chores, approved by a parent, count toward a specific “kredit score.” Kids can also redeem their “kredit” for non-monetary rewards, like watching TV; if they use too many points, their score will be damaged, similar to how credit utilization affects a regular credit score.

Other apps have transformed more simple financial topics for children, like allowance. RoosterMoney is one of them; the app, targeted to children as young as four years old, helps kids keep track of their allowance. Not only does RoosterMoney connect to a parent’s account for easy transactions, but it also allows kids to split their total sums into different categories, like “give,” “save,” “goals” and “spend.”

While apps can be a useful way to introduce some of the concepts related to managing money, advocates say the apps shouldn’t solely be responsible for educating children on financial concepts.

Chantel Bonneau, CFP, wealth manager with Northwestern Mutual, says financial literacy apps shouldn’t been seen as a one-stop shop to teach kids about money. Just like personal finance curriculum in school, these tools should only be used as supplements to lessons taught at home.

“The parents should do the exercise first and then do it with their kids, and talk about it as opposed to just having their kid look at it,” Bonneau says. “They might not connect the dots fully on where that’s going to be applied.”

Creating healthy relationships between kids and money

Matheson and Bonneau agree: it’s up to parents to take accountability for teaching money concepts to their children.

Bonneau shares three helpful tips for creating healthy relationships between kids and money:

Develop great financial habits

Establishing a positive relationship with money won’t happen overnight. Instead, consumers should take small steps to build a healthy understanding of what responsible money management is — even kids.

“Most people who are financially successful or do a great job of saving or are prepared for retirement — usually the one thing in common is they have great financial habits,” Bonneau says. “So how can you do that with kids?”

Bonneau says children who get allowances should get into the habit of setting part of it aside as savings. In tandem, they’ll be able to create goals, like saving enough money to purchase something from the store. Setting up a reward system will help develop their good financial habits and set them up for success in the long run.

Establish financial awareness

Yes, technology has turned trips to the bank into an almost unnecessary errand, but Bonneau says in-person financial interactions are vital in creating a healthy awareness for children about money.

“Go to the bank and open a bank account with them,” Bonneau says. “Show them that there are places you go and relationships you have when it comes to money — financial decisions aren’t just made through an app. Show them it’s a much more conscious decision.”

Help them set and achieve goals

As kids get older, parents can help them set goals — but another factor that can be beneficial is helping them achieve those goals. Bonneau gives the example of a kid saving up for a winter ski trip: the parents can match their savings by the dollar to help them make it happen.

“By helping them, kids understand to pay close attention to opportunities,” Bonneau says. “And number two, it also helps them have some skin in the game and understand how much time goes into saving all that money.”

Explaining the financial literacy crisis in America

Financial literacy is defined by the Financial Industry Regulatory Authority (FINRA), as having the knowledge and skills necessary to make sound financial decisions.

FINRA’s 2015 Financial Capability survey reveals the United States has a 57 percent financial literacy score, ranking the country 14th globally. That score is lower than that of other economic powerhouses, like Canada and Germany, and continues to be a long-standing area of concern in the U.S.

Teaching financial literacy has experienced public support since as early as the 1930’s. When you take a look at the numbers behind why, it makes sense.

Americans are struggling to meet basic financial security indexes, like building savings or being able to afford an unexpected emergency. A recent Bankrate survey finds 60 percent of Americans can’t afford a $400 emergency with money from their savings. Another recent survey finds most Americans have no idea how much they need to retire.

In a related paper, the Brookings Institute, a nonprofit public policy organization in Washington, illustrates how a lack of financial knowledge can hurt consumers.

“Low financial literacy is correlated with a host of negative credit behaviors, including higher borrowing rates, mortgage delinquency, and home foreclosure,” the paper reads. “Yet many — if not most — financial education efforts focus on college students and adults. Such efforts are often reactive rather than proactive, and may be too little, too late.”

Remember what the personal means in personal finance

Some research argues that financial literacy has little to no effect in preparing consumers to make smart financial decisions. A 2008 paper released by Professor Lauren E. Willis of Loyola Marymount University claims teaching financial literacy can create a false sense of confidence in consumers “without improving ability, leading to worse decisions.”

Bonneau says the argument against financial literacy highlights what most people don’t understand: financial advice has to be tailored to each individual in order to be successful.

“In a vacuum, financial knowledge doesn’t really sink in,” Bonneau says. “There’s a fine line. Basic financial literacy is fundamental — it’s all factual information, not opinion. Where it gets tricky, though, people might start making decisions and not be quite educated enough or have tailored advice to help them be successful.”

Overall, personal finance isn’t one-size fits all. Teaching children basic financial knowledge will benefit them in the long run, but when it comes to making life’s big financial decisions, an expert perspective can be highly beneficial.

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