Trade in old-school money lessons for a crash course in credit and debit

Many older millennials may have learnt to manage money much in the same way as our parents did: waiting for statements to arrive in the mail, balancing chequebooks and paying in cash. But if you are planning to impart the same lessons to your children, ask yourself a few questions first.

Is this still how you deal with your finances? How often do you carry cash any more? Do you even know where your chequebook is? If the respective answers are “no”, “rarely” and “maybe in that box I never unpacked since moving six months ago”, then the money lessons of the 1990s are not going to cut it for the next generation.

The way we handle money had already been changing dramatically, but the pandemic hastened those changes. One example: a September 2020 American Express study found that since the Covid-19 outbreak began, 70 per cent of merchants had customers request contactless payment options, and 73 per cent of merchants prefer customers to pay with a card or app instead of cash.

So, trade in those old-school money lectures for a primer on plastic and digital payments. By the time your children become financially independent, they may thank you for it.

Because cash is tactile, it provides a natural way to introduce younger children to money.

But according to Gregg Murset, founder and chief executive of the BusyKid app, which teaches children about money management, you do not need to stick to coin counting for long.

“I think kids are very smart these days, and they can learn that a quarter equals 0.25 in like five minutes,” he says.

Since cash is out and cards are in, there is little reason to avoid introducing credit and debit lessons as soon as possible. Swap chequebook lessons for monitoring bank and credit accounts online. Show your children what a credit card statement looks like. Talk about building credit history by showing them your credit report.

Rosanna Agado, who recently moved from the Seattle area to Glasgow, Scotland, maintains a spreadsheet for her three children. Rather than give them their weekly allowance in the form of cash, Ms Agado and her husband act as a bank account and lender combined.

When one of their children decides to buy something, the parents pay and deduct the total from that child’s savings. The children are allowed to go into debt and are not charged interest, but they must skip the requisite number of weeks of allowance that are needed for the debt to be repaid.

Their eldest son, who is 14, now has a bank account with a debit card, and while Ms Agado does not monitor his purchases, she does check the balance daily.

“Having that freedom of having the card to spend on his own, it is like credit card light,” she says. “He knows there is a limit on what he can spend.”

If something seems unusual, Ms Agado discusses the purchase with her son to teach him the importance of monitoring his account for suspicious activity.

Credit cards can be a muchfeared financial product because of the risk of falling into high-interest debt, but they can be a useful tool, too. Sharing your credit triumphs and errors with your children can help them make confident decisions as adults.

Ms Agado and her husband discuss topics such as credit card rewards, which card to use for which purchase and what happens if you take on debt or miss a credit card payment.

Money talks are important, but children learn even more when they apply those lessons to real-life purchasing decisions.

Let your children choose what to buy, within reason, even if you think they are making a frivolous choice that will blow through a month’s worth of their allowance. Much as you learnt from your own regrettable decisions, your children can do the same. Better a $10 mistake at 13 than a $10,000 mistake at 33, after all.

“I think it is a big mistake for parents to helicopter their kids too much when it comes to money,” Mr Murset says. “I would much rather kids buy something with their money and have the heartburn that comes with remorse.”