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3 Modern Tools for Paying Your Kid’s Allowance

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Kids and MoneyNo matter how you decide to answer the allowance question, the fact remains that you have to pay it somehow.

While paying with cash can be a good way to teach younger children how to visualize their money, older kids are likely to want to use other methods of money management.

You probably don’t buy things with cash very often; a cash-based allowance doesn’t adequately teach your kids to manage their money in a society that’s increasingly cashless. Here are 3 modern tools for paying your child’s allowance:

1. Mobile Deposit

I recently started using mobile deposit to help my son keep his money in a high-yield savings account. I still pay his allowance in cash, but I feel bad about having him take the savings portion down to the local credit union for deposit, since the yield is so low. So we had an age appropriate discussion about interest and then I wrote him a check for the amount he had accumulated for savings. We used the iPhone to deposit the check in his Capital One 360 kids savings account, and he loved it.

This is a good way to start getting kids used to mobile banking, as well as the concept of shopping around for the best place to keep their allowance money.

2. VirtualPiggy.com

This interesting web site allows you to create accounts for your children and then set spending limits. You can also create a list of approved stores for your kids to shop at. You can transfer some or all of your child’s allowance to the site, and then your child can shop for what he or she wants.

Of course, the shopping portion only works when the kids are within the set spending limit and shopping at the approved stores. This makes it possible for you to help your child learn about online shopping, learning to manage money that they might not see or touch. Plus, you have a great deal of control. VirtualPiggy can also help you and your relatives figure out what to get as gifts, since it’s possible for your kids to create wishlists.

3. Prepaid Debit

Another option is to give your child a prepaid debit card. Usually, it’s possible to load the card from your bank account, so you can arrange the transfer of the allowance to the card each month.

A prepaid debit card can be a good way to help your child learn how to manage credit card spending. It’s training wheels for plastic. Encourage your child to track his or her spending, and make sure that you check in as well.

You do have to watch out for fees when you use prepaid debit, though. Many of these cards come with monthly fees and other fees. Shop around for cards with low (or even no) monthly fees. There are a number of prepaid debit cards out there that aren’t as bad as some of the celebrity endorsed prepaid options.

If possible, though, a better idea might be to open a joint account with your child (if he or she is old enough) and get him or her a debit card. You don’t have to worry about fees, and you can usually transfer the allowance into the account as needed.

What do you think? What are the best modern tools for helping your child manage his or her allowance?

(Photo: Hobbies on a Budget)

{ 6 comments, please add your thoughts now! }

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6 Responses to “3 Modern Tools for Paying Your Kid’s Allowance”

  1. I still like the cold hard cash idea.

    For little kids, it can be difficult for them to understand something that isn’t physical.

    The act of actually giving the cashier physical money has an affect on the psychology of little kids that I believe helps them understand its limited quantity.

  2. Kate says:

    I agree with Derek about small kids needing to physically hold money to learn good spending habits. But as they get older, they also need to understand how to use “plastic” and spend their money well even when they don’t see or touch it. For about a year my boys, 8 & 11, have had debit cards for their allowance. It works well for us, only time will tell if they are learning good habits from it.

  3. Shafi says:

    What’s wrong with just giving them cash? Granted technology can be good for convenience but why bother with buying kids smartphones that basically serves no purpose with their high cost.

    On the one hand you’re teaching them to save and spend less, on the other, you have already bought them the most expensive smartphones available in the market. That’s not saving. That’s pure and simple waste.

  4. money says:

    don’t have kid cause costs 100k

  5. Prepaid cards (ones with low fees) are a great solution because they are accepted pretty much everywhere kids/teens need/want to purchase things. Unlike cash, prepaid cards provide an audit trail of what was purchased and when and can be used online for things like iTunes. I recommend using multiple prepaid cards to create different “buckets” of spending, saving, and giving. Split your child’s income between the buckets so it isn’t all about spending. Calculate a compelling interest rate for your child’s savings card and credit that interest amount to the card each week or month to encourage building a balance. Perhaps agree to match donations from the giving card to encourage philanthropy. Card to card transfers are often free. So get a card for yourself, load it up with a reasonably large sum, and then parcel it out to your child’s cards incrementally over time using free transfers to deliver allowance or make chore payments. Basically, your running your own little family economy and banking system using prepaid card accounts. As the banker/parent, you define the rules, incentives, and even penalties in a way that matches your personal values.

  6. Nice piece. We started using FamZoo with my daughter when she turned nine after close to five years of apportioning her allowance to three jars – Share, Save and Spend Smart. I think it’s really important to use physical money to get started – they need to see the money accumulate as they save for goals, for example. We decided to start teaching her about physical money after I chatted with Bill at FamZoo (who also commented on this column) about the importance of kids learning to understand virtual money as well. It’s been a smooth transition so far. Both the physical money and virtual money programs allow parents to provide larger interest amounts than they would earn in a credit union account (which she also has). At this age, it’s good to overemphasize the allowance as you want to teach them the power of money when saved over a period of time.


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