I know there are a lot of theories for teaching kids to manage money. And I don’t pretend to be an expert on it. But since I first wrote about this topic in my print column back in late 2010, I have managed to shift what was once a source of conflict between my kids and I -- where I felt like I was being robbed and my kids felt angry and powerless -- into a thriving barter economy where my teens are learning money-management skills I didn't learn until I was well into my twenties. And I am learning that they might be pretty smart when it comes to money.
Here is our story. Do with it what you will.
Once upon a time, shopping with my kids was like going into the marketplace shadowed by the gang of pickpockets that corrupted Oliver Twist. Every contact with my two cunning con artists left my wallet lighter and my defenses sharper. Then I discovered the cure: An allowance. And I don’t mean the pittance I got when I was a kid. I gave each kid a hefty allotment. But with it, they had to buy their own clothes, games, books, music, movies, and haircuts.
Spend it Wisely
The goal was to help them understand the value of a dollar. But setting a fixed amount and letting them manage it, also saved me money and made it possible for me to get control of my budget. But the best part was that we no longer had arguments over money. When they asked if they could buy something, I simply said, “It’s your money. Spend it wisely.” And they did. Each in their own way.
I started this system a couple of years ago. And it has been fascinating to watch two financial personalities emerge. At first, Ava (then 11) blew every cent the minute she got it. Then she would regret it. Over time she learned to weigh impulses against needs and learn from her mistakes. “Wow!” She told me, adorned with cute jewelry and chomping candy. “I really went on a shopping spree!” She was completely broke and could not afford to go to the movies with a friend but she knew better than to ask me to kick in. “It was fun,” she said. “But I’ll slow down next month.”
Her brother Cole was not such a quick study. He hoarded his money, refusing to spend a dime. He stopped cutting his hair. His clothes got shabby. And the only time he got candy was when Ava took pity on him. Who knew Ebeneezer Scrooge was living inside my teen?
Once they could handle cash (in their own ways), I moved to digital allowances. I got them both PayPal student accounts. (There are other options, though. See below.) Instead of handing out cash, I loaded their allowance directly from my bank account to the prepaid MasterCards issued by PayPal. If they lose those cards, they haven’t lost any cash. No one can rob them unless they give out their PIN. They can log on or use an app on their phone to see exactly where their money went. And they can have current balances and recent transactions texted to their phones.
Also, they can shop online this way. And, it turns out, online is where they both like to shop. My daughter is a bargain shopper (like mother, like daughter) and buys the designer clothes she craves at a huge discount at 6pm.com. My son, who still hates to pay for a haircut or new clothes (though he does it now that he’s in high school) has no such hesitation when it comes to buying online games, movies, and music.
The digital way is preferable for me, too. Not only can I give them an allowance via a Web site or mobile app. But I can pay them instantly in small increments via text.
And that ease of use spurred the next big shift I made to their fiscal lives. I no longer give them an allowance. Instead, I pay a salary.
They get a base rate for doing the bare minimum: getting decent grades, doing assigned chores, acting like good citizens, setting and clearing the table, etc. And they can earn more by doing yard work, getting an A+, extra cleaning, or even by giving Mom a manicure or driving Grandma to the store. I can text Cole a big payday as soon as he is done painting the house or send Ava a few dollars while my nails are drying – right from my phone. But I can also take money back if they get into trouble. In fact, we operate a lot like the real world. If I park in the wrong spot, I pay a fine. Same for them. Bad grades, it turns out, can be very expensive. So is a messy room.
Cash to College
I also foresee a day when my teens are away at school and handing them cash will be difficult. Since they are already accustomed to texting me money requests that I can respond “yes” or “no” to, I won’t have to worry about either of them being stranded without cash. And, if I need to send money for a plane ticket, I can easily do that from my phone. And then I can log on to make sure the money got spent on actual travel and not on a World of Warcraft upgrade.
The interesting thing about this plan is that they like it as much as I do. They both enjoy earning their own money, making their own decisions, and managing their own budget. They like not having to go shopping with me. (And the feeling is mutual.) But if I ever decide to take pity on them and take them shopping for school clothes, they are happy and grateful (just like someone ought to be when you buy them something.) In fact, neither of them likes to get a handout anymore. They see handouts as charity, which is something they would prefer not to need. For example, my daughter recently outgrew all her clothes at once and had no cash reserved for this unforeseen event. So I took her shopping for some basics. It was fun since I hadn't been allowed to dress her in years. And she was pleasant and grateful as we shopped and later felt guilty that she had blown my budget!
Here are a few places to get a digital wallet for your teen. Each have their own benefits and fees so check them all out before you decide which is right for you.
Paypal Student: Free to open, no monthly fee, and free to fund, this MasterCard also comes with great mobile tools, which is why we use it. I can text payment for a chore (even if I’m only paying $5), my sister can email my kids their favorite gift (cash) when she remembers a birthday. And the kids can even tell the parents they babysit or mow lawns for that they prefer a text or email to a check. And the parental controls are great. I can see every transaction, block certain kinds of purchases, and get alerts sent to my phone.
Visa Upside Parental controls let you see spending and set limits. Several plans with fees range from $2.99 a monthly to $29.95 a year with (some) free transfers. Minimum transfer is $25.
Discover Young Money Card: Geared more at older teens ready to manage their own money, this one – in addition to online tools similar to other services – also has the option of loading money by buying a MoneyPack at CVS, Walgreen's, Walmart, and other retail outlets. That would make it easy for our Grandma to make the shift from giving the kids checks to giving them money they can spend.