How to teach your kids about money in a cashless societySep 01, 2016
It used to be that teaching kids about financial literacy was a matter of dollars and cents. Children could learn to count coins, add up nickels and dimes to make a dollar, and learn the value of each different bill. But today, 65 per cent of Canadians say they rarely buy anything with cash. How do you teach kids about money with a debit card?
It starts with setting limits, and explaining them. In order to make a purchase with debit, there has to be enough money in the account. And that money is not unlimited; when you make a debit-card transaction, your balance goes down. Some Canadian parents say giving kids their own debit cards has helped teach them the value of money, and setting up online banking allows children to watch their money grow. As one parent told Maclean’s, “they feel embarrassed when their accounts are low.”
The evolution of allowance
With debit cards, parents can transfer money to their kids’ accounts, instead of giving them bills or coins that can be lost or stolen. However, this shouldn’t be seen by your kids as an unlimited line of credit. Rather than transferring funds every time your child wants to buy something, you can deposit their regular (weekly or monthly) allowance into their bank account, so they receive the same amount of money each time, as if they were getting a paycheque. This will also teach children the value of savings, that if they don’t have enough money in their account to buy something, they will need to wait until they have saved enough to pay for it.
Set a good example with your spending habits
Younger children likely won’t recognize the difference between debit and credit—debit cards and credit cards often look alike. And explaining the interest rates on a credit card is something that can probably wait until they’re teenagers, as they won’t be able to apply for one until they have a job. But when they see you reaching for your card, it’s important to convey that you aren’t spending money you don’t have (credit), but rather, are paying with money that you have earned and saved in your account.
Does cash still have value?
Some financial experts still believe that cash is the best way to teach your kids about money and develop financial literacy skills. Holding a debit card or seeing a balance in a bank account does not provide the same tangible, emotional connection as actually being able to count your money. And when it comes to keeping track of spending, cash has a clear advantage. While it’s a good idea to check your bank balance daily, you could still end up spending too much with a debit card without exceeding your account limit.
If you’re teaching your kids about budgeting, a key financial literacy topic to learn before they head off to university, cash can make things easier than using debit. Again, it comes down to the physical, tangible aspect: when you see no more money in your wallet, you’ll know you’ve hit your weekly spending limit.
Do your kids have their own debit card? Join the conversation on Twitter using the hashtags #BDOdebtrelief #CountMeInCA