Helping your children ages 9-14 understand real money and how to be a financial steward

February 28, 2024

Imagine opening your most recent bank statement to find $500 of charges from a video game company. Not only do you have zero memory of spending $500, but you also rarely play video games, and you certainly would not spend an exorbitant amount on skins for your Fortnite avatar. Just before you call your credit card company to report a fraudulent charge, it dawns on you. What if it was your 10-year-old child? Surely, (s)he would know this is real money (s)he’s spending, and not an insignificant sum, right?

I remember having this conversation with a client about 2 years ago, and while he laughs at it now, it certainly wasn’t funny at the time. That moment created some urgency for the family. They needed to be taking financial literacy and education more seriously. They had discussed concepts with their child, but they had never moved it from teaching to doing. They wanted to make sure he understood the value of a dollar and what it meant to spend $500. So, we started creating a game plan for how to begin transferring responsibility in an age-appropriate format. Step one was removing the ability to spend on Fortnite without consent. We also discussed four additional recommendations that we think will be relevant for everyone.

1. Open a bank account for your child and make it a significant event
   The first step in building responsibility is giving children ownership. Having an account in their name changes their relationship with money and impacts the decisions they make because, simply put, it’s their money. This is a big moment for them. We’d recommend doing this together, discussing how their account is to be used, and making their first deposit. Show them how to deposit (probably a trip to the ATM if it’s their money), and that the amount that is deposited is the same amount that shows up as their account balance.
   
   While you can do this with any local bank, if you also have the goal of financial education, it might be worth exploring opening an account through platforms like Greenlight, Step Mobile, GoHenry, and Capital One MONEY, which often prioritize equipping kids with money skills in addition to simply being an account. The main point is finding a platform that offers the right solution for you and your kids. These accounts typically come with an app, which could be installed on their phone, iPad, or just the parents’ phone if your child has none at the time of opening. If they’re going to have access to the app, which is ideal for teaching moments, make sure they’re familiar with the interface.
   
   
2. Set up a checking account and a savings account
   These two accounts will replace your kids’ “spend” and “save” jars if you were following the tips from our financial planning for kids ages 5-8 article. The rules that governed those jars should now be applied to these accounts. If this is the first time you’re setting up the spend and save concept, you’ll want to discuss what percentage of their deposit should go into savings, what their savings account is for, how to set goals, and what spends they’re responsible for out of their checking account.
   
   If your child receives a debit card with their accounts, don’t take for granted that they understand how a debit card works. Take some time to show them after a purchase that their account balance was reduced by the same amount as the cost of the item or experience. You may also consider discussing the remaining balance and what that will afford them. How may similar purchases until they run out? Will money be coming in to replenish the account, and what’s the plan to make that happen? We’ve found that most kids get excited to begin using their card. It makes them feel grown up, but remember they’ll need guidance along the way.
   
   One very helpful feature with some of the platform options is that parents can set guardrails on their end, including spending limits and where money can be spent. You’re also notified of purchases in real time. Recently, one of our advisors’ daughters had her card get declined due to insufficient funds. Dad was notified in real time which prompted a good conversation around budgeting and better planning for the things she wanted.
   
   
3. Begin teaching the concept of simple interest
   Not every child has the intrinsic desire to be a good saver. Some kids just like spending their money as soon as it comes in. But what if you could show them that saving money would make them more money?
   
   With Greenlight for example, depending on the subscription you select, your child’s savings account will earn 1%, 2% or 5%. Teach them that by holding $100 in savings they’ll earn an additional $5 without doing any work. The following year, they’ll earn 5% on their $105, and so on.
   
   Get them excited that with interest compounding, they can achieve their savings goals quicker than if they just kept it in their savings jar. Eventually this will lead to a conversation about investing in non-cash securities. Some kids in this age range may be ready or interested in learning about investing. We’d recommend assessing on a kid-by-kid basis when to start down that path. If you feel your child is ready, connect with your Voyage advisor, as we have some great Financial Planning 101 and Investments 101 materials.
   
   
4. Continue building on conversations around the value of a dollar as your kids interact with their own money more often
   To help kids understand the value of a dollar, put it in terms they can understand and are mature enough to handle. For example, one approach would be to put the $500 from the Fortnite example in terms of chores. How long would it take your child to earn that same amount? You can also share that it takes mom and dad X amount of hours to earn that amount and that spending those dollars on video game skins takes away from something else. Like many other areas of life, there are consequences for the decisions that are made. It will be beneficial down the road if your kids start drawing the connection between work required to earn a specific amount of money. Frequent conversations around these topics, especially early on, are very important.
   
   Another teachable moment opportunity at this age would be to get your kids get involved in family grocery shopping. Fill them in on your budget for the trip and create your list together while staying below that number. Explain why this is the amount you’ve chosen. For instance, you may share all the other types of bills and expenses, saving goals, and giving goals and that this is what you can afford without giving up something else.
   
   Then, while shopping, you may have to make decisions between a certain brand and decide if paying more is worth it based on certain criteria. You may also face tradeoffs in making a purchase where buying an item means you can’t buy another. These kinds of experiences will lend valuable insight without giving your children the whole financial picture and hold you accountable to making sound decisions as a role model for your kids. They’ll certainly be watching as you start imparting wisdom!

Remember that there are many ways to raise young financial stewards. The transfer of financial responsibility will probably happen at different paces for different children, and that’s okay. Like many other things in the world of finance, it’s more about consistent progress than quick progress. The one approach we don’t recommend is trying to transfer all responsibility abruptly at age 18. Our hope is that you found something actionable today, and as always, if you’d like to craft a plan unique to your kids, schedule time with an advisor today.

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