What’s the best way to raise kids who spend money wisely? Most experts recommend finding teachable moments. Many of these will occur during the holidays. Kids are likely to buy gifts and give to charities. They may receive unexpected gifts of cash or discover, to their dismay, that they’ve overspent and will need to go on a financial diet in the New Year.
Like other life lessons, good money management is, increasingly, being learned online. One study from asset management firm Piper Jaffrey found that teens increasingly prefer to shop online rather than at the local mall, and that many prefer to spend on experiences such as food, entertainment and games rather than possessions. Regardless of where kids spend their money, they should learn to ask some basic questions:
What can you afford? Before shopping anywhere, children need to have a rudimentary understanding of budgets. First, what are their sources of income? An allowance? A part-time job? Gifts? Handouts from parents? Second, what does that money need to cover? Talk often about how you differentiate needs—things that are truly essential—from wants-–things that are nice but not necessary.
Some experts recommend setting up envelopes or banks for younger children so they can actually see what they have available for essential everyday expenses (lunch money) and what they are setting aside for short-term goals (a concert, clothes, a video game), long-term goals (a car, a college fund) and charitable giving. Older kids may want to use an app like Mint to do the same thing.
What’s a fair price? Even if your kids don’t make purchases online, encourage them to use apps like Red Laser, Shop Savvy and Scan Life to get a feel for what things should cost. Teach children to hold out for sales whenever possible. If nothing else, delaying a purchase is a good way to avoid impulsive buying. Take a little time to look for coupons and discount codes from apps like retailmenot, slickdeals or coupons.com. And, remind kids that when they are shopping online, they have to factor in shipping costs as well as sales tax.
Who should you trust? Most teens do their online shopping with Amazon or retailers they know in real life. That’s a habit parents should reinforce whenever possible. Remind your child not to make purchase by clicking on ads or links in e-mail. In addition to putting devices at risk for malware, such links often lead to sites that aren’t reliable. Before doing business with anyone online, be sure they have a physical address and a phone number for customer service. Teach your child to look for https in the website address and the tiny lock that shows personal information will be properly encrypted.
How should you pay? For kids learning to shop, cash has real advantages if only because, when it’s gone, it’s gone. Online, of course, that isn’t an option, so you’ll have to give your child access to some sort of electronic payment system. A credit card is safer than a debit card. If there’s fraud, the credit company will limit your losses to $50 as long as you report the problem promptly. If your debit card is compromised, thieves have direct access to your bank account. Many families designate one credit card for all online purchases so it’s easier to review purchase and confirm that they are legitimate. If you’re paying the bills, your child should always get permission before using the card.
To give a child slightly more autonomy—perhaps for holiday gift shopping–consider a single use credit card. Many banks offer them. At Bank of America, for example, the ShopSafe service will automatically generate a temporary 16-digit account number, with expiration date and security code. Parents can set a spending limit which essentially allows you to give your child a fixed allowance for online spending. For older teens who have demonstrated their ability to be responsible shoppers, third party payment services such as Paypal and Google Wallet can also be good options. Just be sure to link the account to a credit card and not your bank account.
How can you protect yourself? Offline, parents teach kids to keep their wallets in a safe place and not to flash cash in public. Online, they need similar skills. Never shop on a computer used by the public, and don’t use public wifi. Install updates on computer and phones because they often correct flaws in security. If you make purchases from your phone, use your data plan instead of Wifi. And be sure to log out of your account after completing a purchase.
Encourage your child not to create unnecessary accounts. Even reliable companies get hacked. The slight convenience of being able to sign in isn’t worth the aggravation of having a credit card number stolen. If you do decide to create an account for a company like Amazon, use a strong password that includes a number only family members will remember—maybe an old address or the day the dog was born. You might also want to set up a family email account that’s used only for purchases.
Many schools now include classes on financial literacy in the curriculum, and parents can find helpful teaching tools at sites like themint.org. Research, however, indicates that kids don’t learn to manage money by taking a class or two. Instead, they need day-in-day-out guidance from parents who talk through these five questions until kids can reliably answer them for themselves.
Carolyn Jabs, M.A., has been writing the Growing Up Online column for ten year. She is also the author of Cooperative Wisdom: Bringing People Together When Things Fall Apart. Available at Amazon and Cooperative Wisdom.org. @ Copyright, 2016, Carolyn Jabs. All rights reserved.