“The digitally-native generation may feel more adept than their parents at navigating life online, but many still lack financial literacy.”
Banking is rapidly shape-shifting to fit users needs with contactless payments for health concerns, seamless transactions between long-distance friends, virtual donations to support social causes, and alternatives to outdated banking institutions.
The digitally native generation may feel more adept than their parents at navigating life online, but many still lack financial literacy. Only 21 states require high school students to take a course in personal finance, according to a 2020 survey by the Council for Economic Education.
As online financial services become more popular, adults may want to rethink the way they teach financial literacy to young people, incorporating best practices for keeping data and personal information safe online.
What to Know Before Using Digital Banks and Payments
Virtual payment systems can take many forms beyond traditional banking, so young people and their parents may want to understand the difference between alternative payment types and the risks associated with them.
Types of Alternative Payments
Mobile app for users to make transactions with businesses online or in stores, similar to a physical credit card. Ex: Apple Pay, GooglePay, CashApp
Mobile payments that redirect the user from the e-commerce site to their online bank account, or a direct link from a user’s bank to the e-commerce site. Ex: PayPal, Venmo, Zelle
Digital gift cards purchased with cash or another payment for the purpose of using them to pay for a good or service in the future. Ex: Groupon, Nift, LivingSocial
Deferred payment systems for users to buy a good or service and pay for the cost in installments, often with interest. Ex: AfterPay, Klarna, PayPal Credit
Currency that only exists digitally, recorded by decentralized authorities instead of a central currency issuer such as the Treasury Department. Ex: Bitcoin, Ethereum, Tether
While some of these alternative payment systems only require credit card information, some apps can link directly to a user’s bank account. Opening a kid’s first checking account can be a great time to discuss the safety of protecting personal information online, especially if it’s also around the time they’re beginning to use social media platforms.
For example, many mobile wallet and social media payment systems are considered peer-to-peer payment systems, where money is exchanged between peers, instead of between a business and consumer. Users can exchange money with friends, family members, colleagues or even fundraisers for any reason.
Peer-to-peer payments are known among adults for the ease of splitting restaurant bills, but young people might have questions about when and why to respond to a request for payment.
Adults and their kids are likely to have very different understandings of online behavior. Young people who have grown up with technology at their fingertips might be confident in their digital skills, but have much to learn from adults who have a longer history of maintaining a bank account and using financial services.
10 Financial Protection Measures Anyone Can Practice
Giving kids an early financial literacy education has been found to lead young people toward better financial decision making, including taking out fewer loans, maintaining a higher credit score and more.
Tips for Parents Teaching Their Kids About Financial Literacy
Be proactive about tech use. When gifting a mobile device—even if it’s not the first time they’ve used one—teach the recipient how to use it, and follow up periodically about how it’s going.
Find out what they know. Because they might already have ideas about money and tech from other sources, ask kids about their concerns to understand what they may already know.
Have everyone participate in the rules. Make realistic, enforceable rules together that each person follows equally. Be open to changing rules over time based on financial circumstances.
Establish a safe space. Discussing money can make people feel vulnerable; let kids know their mistakes may have consequences, but that honesty can help keep them—and their finances—safe.
Make use of parental controls. For younger children, consider monitoring their browser use or installing a kids’ version of a browser to limit access to unsafe websites or apps.
Help teens help each other. Accept the likelihood of peer influence, where teens are likely to turn to their friends for financial advice and decision-making support.
Be specific about safety. Teach kids what personal information is, what it might mean to different users, and how to protect it online.
Discuss the golden rule. Use this well-known adage for instilling kindness and safety when posting information that might lead to a security breach for peers, friends or family.
As the digital landscape continues to evolve, parents and their families may benefit from keeping conversations about money open and revisiting issues over time. For example, each time kids sign up for a new social media account or download a new app, discussing the expectations and boundaries about what they share, post and consume may help parents understand the nature of the new apps and the habits their children may be developing. The contents of social media posts on microblogging sites such as Twitter or Reddit may be different from more media and commerce-driven apps like Facebook, Instagram or YouTube.
The more specific parents are with their expectations, the easier the rules may be for kids to understand and follow, according to tips on financial literacy from the Federal Trade Commission (FTC). When everyone is on the same page, safety and security become easier to manage, which can help young people build the skills they need to manage their financial protection throughout adulthood.
10 Financial Protection Resources For Young People
Financial inTuition Podcast, Consumer Financial Protection Bureau (CFPB): podcast series for high school and college students about making informed financial decisions related to student loans, debt and banking.
National Cyber Security Alliance: nonprofit organization offering online safety basics with resources geared toward adults who work with young people and K-12 students.
Identity Theft Resource Center: nonprofit organization funded by the Department of Justice to bring awareness and resources to victims of identity theft.
Protecting Kids Online, FTC: list of resources for young people and their families to better understand online finances and security.
FBI Kids, Federal Bureau of Investigation: cybersafety program for students in grades 3 through 8, featuring games and fun resources to learn about staying safe online.