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Allowances in the 21st century: There's an app for that

Key Points
  • New card offerings, such as Greenlight, are specifically geared toward children and teens and allow parents to monitor their child's spending right through an app.
  • There's also a savings component to demonstrate the power of compound interest.
  • Kids who learn about money early on have higher credit scores and are more likely to save for retirement down the road, studies show.
Debit card for kids

The piggy bank is virtually extinct.

That's not to say that teaching kids the value of a dollar and how to save money over time isn't as worthwhile as ever. Yet you can forget counting coins these days, as most payments are electronic and even kids are joining the noncash majority.

To that end, a growing number of card offerings, including Greenlight, gohenry and Current, are geared specifically toward children and teens. Each allows parents to load funds onto them and monitor their child's spending through an app, rather than using a prepaid card or linking a debit card directly to a checking account.

Greenlight's mission is to help raise financially savvy kids in a cashless world, said Tim Sheehan, the co-founder and chief executive. The company is backed by Amazon and several big banks, including Ally Financial and SunTrust.

The money on the card can be divided into two categories: funds that can be spent anywhere and money that can only be spent in specific spots, such as Chipotle, or types of establishments you've approved in advance, such as restaurants (hence the name "greenlight"). Parents can also receive an alert whenever the card is used, as well as the amount spent.

"I like the training wheels aspect," said Ted Rossman, an industry analyst at Plus, "kids growing up nowadays are transacting in a world of apps and plastic, it makes sense to give them that experience," he added.

Next up: Greenlight will be integrated with Amazon's Alexa, so parents can check the balance or send cash through a voice command. "A parent might say 'send 20 bucks to Jack for Chick-fil-A,'" Sheehan said.

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There's also a savings component that lets kids set money aside and watch it grow. Parents can set an above-average interest rate that they fund themselves — like 10 percent or 20 percent — to encourage their children to witness the magic of compound interest.

"Interest rates are moving up but they are still so low, it's hard for kids to grasp — if parents can set a higher rate, [their children] will see the power of saving," Sheehan said.

Many financial advisors say families need to open up the lines of communication when it comes to spending and saving. In fact, young adults who discussed money with their parents are more likely to have a budget, an emergency fund and a retirement account and put 10 percent or more of their income toward savings in general, according to a parents, kids and money survey from T. Rowe Price.

Those are also lessons kids aren't likely getting in school. Only 17 states require high school students to take a class in personal finance — a number that hasn't budged in the past four years, according to the 2018 Survey of the States: Economic and Personal Finance Education in Our Nation's Schools.

About 28 states have some financial education standards in lower grades, including middle school, according to a recent report by the Brookings Institution. Advocates for early financial education say it's essential to start teaching at a younger age so kids will be able to better manage their money as adults.

Perhaps not surprisingly, students who are required to take personal finance courses have better average credit scores and lower debt delinquency rates as young adults, according to data from the Financial Industry Regulatory Authority's Investor Education Foundation, which seeks to promote financial education.

In addition, teenage financial literacy is positively correlated with asset accumulation and net worth by age 25, Brookings said.

As it stands, about 1 in 5 children in the U.S. don't meet baseline levels for financial literacy proficiency, according to the often-cited PISA 2015 Financial Literacy assessment. Only 10 percent are considered "top performers" capable of analyzing complex financial products and problems.

That's where these finance tools can help. But as with any banking product, it's important to read the fine print, Rossman said.

Greenlight's card, for example, comes with a $5 monthly fee. Others may have one annual fee or additional fees for lost cards or ATM withdrawals.

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Figuring out your net worth isn't just for the 1 percenters

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.