In personal finance, there is no deader symbol than the piggy bank.
Nothing is conceptually wrong with giving children a receptacle for holding money, other than the fact that coins and bills are artifacts of 20th-century commerce. We still have them around, but fewer people use them every year.
In the 2020s, people rely on debit cards, credit cards and banking apps. How are parents teaching their kids to navigate this world? We found answers in the results of a survey of 727 parents of teens who read the Carrick on Money e-mail newsletter. The results offer helpful parent intel as kids start racking up expenses in the back-to-school phase of the year.
Allowances are foundational to teaching kids about money, but three in 10 survey participants said their children don’t get one.
“That’s a missed opportunity,” said Robin Taub, a chartered professional accountant (CPA) and author of The Wisest Investment: Teaching Your Kids to Be Responsible, Independent and Money-Smart for Life.
Ms. Taub said allowances are an opportunity to give kids the experience of managing money and making choices about saving, spending, donating, investing and sharing.
One-third of parents who give their kids an allowance use cash, another third transfer money into the child’s savings account and the rest use a mix of ways to hand over money. Ms. Taub said cash (and piggy banks) can make sense for young children. But for teens, electronically transferring money to their accounts is a way of demonstrating modern money management.
“Also, because kids are digital natives, it’s going to be intuitive for them,” she said.
Eight in 10 survey participants said their kids have a debit card linked to their savings account, and almost two-thirds of respondents said their kids have a banking app on their phone.
Credit cards are another important part of financial family life. Four in 10 surveyed parents said they have given their children a supplementary credit card linked to their parent’s account.
Among parents who have given a credit card to a child, almost 30 per cent said permission must be requested before using the card and 26 per cent said the card is only for emergencies. Another 26 per cent said they trust their kids and have placed no limits on the card.
Asked what they do if their child overspends on a credit card, just 32 per cent said they are strict about asking for repayment. Another 24 per cent said they use this situation as a teaching moment and sometimes don’t ask for the money. Others said they usually let the extra spending go because it was a small amount, or that overspending rarely or never happens.
Ms. Taub said giving kids a credit card can be helpful in case of emergencies, and she noted that teens may be using parental credit cards to buy things for the family such as groceries. But she said parents are missing a teachable moment if they do not explain how credit cards work.
She urged parents to discuss how credit cards work differently from debit cards, notably that monthly credit-card spending adds up and must be paid promptly to avoid interest rates of around 20 per cent. “When your kids are old enough to get their own card, you want them to use it responsibly,” she said. (Note: The minimum age to get a credit card is 18 or 19, depending on the province.)
Just about three-quarters of parents in the survey said they had access to their child’s bank account. How often do they take a peek? One-quarter of those who had access said they checked once a week, another 20 per cent said once a month and 40 per cent said once in a while. Fifteen per cent said they never checked.
Ms. Taub believes supervision can be helpful, but she urged parents to avoid micromanaging their teens’ finances. “If they run out of money at the end of the month, that’s a lesson for them to learn,” she said.
The final survey question asked parents if their child was a saver, a spender or a bit of both. Here, we find parents seeing the best in their kids.
Six in 10 survey participants said their kids were a bit of both, and 29 per cent went with saver. Just 11 per cent said their kids were spenders, which seems low in today’s free-spending, FOMO world. If you don’t know what FOMO is, ask your kids.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
