I fondly recall the trips I took with my mom to the bank, usually via the drive-through, to withdraw money or cash a check. She got what she needed—money—and I got what I wanted: a lollipop from the teller.
Obviously, there’s more to a bank than just cash and candy, and those trips prompted lots of questions from the back seat of the car: “Where does the bank keep all the money?” “What is a ‘check’?” “Why do we keep money in the bank instead of at home?” The answers to these questions help lay the foundation for a child’s understanding of money management and sets them up for a future of financial success.
These days, managing money has gone digital. Whether it’s receiving paychecks, sending friends money, or even cashing checks, most of those things can be done from an app on your phone. While this technology makes for greater convenience, it also means that our interactions with our financial institutions are largely invisible. Unless we teach kids about banking, they will grow up thinking that money is just magically accessible with a swipe or tap, unaware of the systems behind it.
Ready to school your child in the world of banking? This article’s got you covered with all the basics, from understanding the roles of banks and credit unions, to protecting yourself from digital payment scams. Whether you’re a parent trying to make your kid financially savvy or your kid is just starting to get into the world of money, this article is a goldmine of info for everyone!
What are Financial Institutions?
Money can be really difficult to manage all on your own! In between deciding on a budget for your day-to-day life, saving for the future, and maybe even keeping track of a personal business, sometimes a little help is needed. Financial institutions come in many shapes and sizes, and they help individuals stay on top of their financial goals.
Gone are the days of bartering, where a farmer could pay a medical debt with chickens, corn, or whatever crop the doctor could use some of that day. In this age, financial transactions are managed with money – both cash and digital currencies. In order to complete these transactions and use our money, especially in an increasingly digital world, we need financial institutions. Financial institutions are organizations that help manage money. From banks and credit unions to investment firms and wealth management companies, there are many different places which aid us on our financial journeys.
What are Banks and Credit Unions?
Banks and credit unions both play essential roles in their communities and the economy. They provide critical financial services, such as safeguarding deposits, offering loans, and enabling financial transactions. Both institutions are deeply involved in their local communities—supporting schools, sponsoring sports teams, running financial education programs, and contributing to the well-being of families. Together, they form a system that supports individuals, businesses, and the broader economy. While banks and credit unions have distinct structures—banks operate as for-profit institutions, while credit unions are member-owned nonprofits—they share a commitment to providing reliable financial services.
Both institutions:
- Provide checking and savings accounts to store your money securely.
- Offer loans to help people buy homes, start businesses, or achieve other goals.
- Support their communities through educational initiatives and sponsorships.
- Are regulated to protect your money and ensure safe financial practices.
Other Financial Service Providers
While banks and credit unions keep your money safe, financial service providers assist their clients with making their money work for them. Wealth management firms, brokerage houses, insurance companies, and tax and accounting firms are all examples of financial service providers.
One important provider which many individuals utilize as their wealth grows, is wealth management companies. When you need help choosing investments, making long-term financial goals, understanding your taxes, or dividing money between charitable causes, these companies are there to help!
- Financial planning: Wealth management companies help their clients create a financial plan to meet a variety of goals. This includes considering their risk tolerance and time horizon for investments. They can help individuals save for retirement, make a plan to pay for their children’s education, or complete their taxes in the most advantageous way.
- Investment advice and portfolio management: Investments can be confusing! Wealth managers help clients research and choose investments that align with their goals and risk tolerance, monitoring clients’ investments and making adjustments as needed.
- Estate planning: Help individuals create wills to pass on their wealth to their families or charitable causes.
- Charitable giving: Assist their clients with charitable donations.
What are Checks?
Checks might seem old-fashioned to kids growing up with digital payments, but they’re still an important financial tool. A check is a written promise to pay money from one person’s account to another. Historically, checks were a convenient way to transfer funds before electronic payments became popular, and they’re still around! Some businesses still pay their employees using physical checks, and in certain situations like paying rent or sending money by mail, physical checks are preferred.
Teachable Moment: Practice writing a check with your child! Kids can learn by filling in the date, the recipient’s name, the amount, and their signature. They can also learn how to endorse a check, which involves signing the back of a check addressed to them so it can be deposited into their account. Depositing checks can be done at a branch, through an ATM, or even via a mobile app. Click Here for a downloadable worksheet you can use for your child to practice writing a check.
How ATMs Work
The Function of ATMs
Even in our increasingly digital financial lives, it is still a good idea to have cash on hand. You never know when you’ll come upon a garage sale you just can’t pass up! For getting cash, your bank is an option, but can be tricky if you need cash outside of normal business hours. When you need cash quickly and conveniently, ATMs or Automated Teller Machines are a real godsend.
ATM fees and usage considerations
ATMs are machines that allow you to withdraw money from your bank account without actually visiting the bank. These machines can be located directly outside of a bank branch or outside of grocery stores, near malls, or in government agency buildings. Typically, ATMs are simply used to withdraw cash, but some, specifically those tied to a specific bank branch, offer additional services like checking account balances and depositing cash and checks. While convenient, it is important to be cautious when using ATMs. Some ATMs will charge substantial fees if they are not tied to the financial institution you bank with.
In addition, safety around ATM use is a critical consideration. Since these machines are typically in public places, and cash is very difficult to recover if stolen, keep safety top of mind when using these machines.
Tips to stay safe when using ATMs:
- Choose an ATM location in a safe area with plenty of visibility
- Shield your PIN
- Be quick – don’t count your cash at the ATM or linger around the area for very long
- Be aware of your surroundings and watch for anyone following you
- Avoid withdrawing large sums of cash at one time
Teachable moment: The next time you withdraw money from an ATM with your child, take the time to explain how it works as you use it. This can be a good time to talk about how the cash comes from your personal bank account and the importance of securely entering your PIN.
How Digital Payments Work
Whether it’s cashing checks, paying babysitters, or that $15 you owe your friend, payments have gone digital. From apps to bank transfers to tap-to-pay, there are so many different ways to pay without using anything physical.
We call payments made using a digital platform or mobile app peer-to-peer (P2P) payments. This method is quickly becoming the norm for transferring money between friends and family. As a parent, it’s important to help your kids navigate the ever-evolving digital banking landscape.
Basics of Peer-to-Peer (P2P) Payments
P2P payments allow users to securely send and receive money directly from their bank accounts or digital wallets. This can be useful for splitting bills, paying back a friend, or even sending a birthday gift.
Sending and Receiving Money Through Zelle
One of the most popular P2P payment apps is Zelle. With Zelle, users can transfer funds almost instantly by simply entering the recipient’s email address or mobile number. This makes it easy for kids to pay their share of the pizza bill or repay a classmate for concert tickets.
Cautions and Dangers of Digital Payments
While P2P apps offer convenience, it’s crucial to educate your kids about the potential risks. Stress that once they send money through these apps, they likely won’t be able to get it back if they made a mistake. Encourage them to always double-check the recipient’s information before hitting send.
It’s also important to warn your kids about scams. Teach them to be wary of any suspicious payment requests, as cybercriminals can scam them out of money by impersonating individuals or pretending to be authorities from the apps themselves. Stress the need to be wary of any suspicious payment requests and to never share account details or confirmation codes with anyone. Let them know that if they encounter a suspicious request, they can come to you for guidance before trying to figure it out themselves.
Getting Started with P2P Payments
To help your kids learn the ropes, consider supervising their first few P2P transactions. Walk them through the process of setting up an account, adding their bank details, and sending a small amount of money to a trusted friend or family member. This hands-on approach will ensure they understand the proper way to use these apps before going it alone.
Comparing Zelle to Other P2P Apps
While Zelle is a great option for those whose banks offer it, there are no shortage of choices when it comes to P2P payment apps. Venmo, CashApp, Applepay and PayPal are all examples of payment methods that your kids may encounter.
Just like certain people like to use cash and others never carry it with them, everyone has their preferences when it comes to payment methods. Each app or method has its pros and cons. For example, Venmo is not as secure as Zelle, but it is a common choice because it allows individuals to pay each other no matter where they bank. Apple Pay or Google Pay Paypal allow you to send or receive money with just a text, or PayPal is great for international or merchant payments as it offers additional security measures like fraud protection. Discussing the pros and cons of each will help your kids understand which app might be the best fit for their needs.
How Debit Cards Work
Understanding how debit cards work is a crucial step in teaching kids about banking and money management.
Making purchases and withdrawals with a debit card
A debit card is directly linked to a bank account, meaning the money spent comes from funds already deposited. This connection helps kids grasp the concept of spending within their means since they can only use what they have in the account.
Using a debit card allows kids to make purchases at stores, online, or even withdraw cash from an ATM. These everyday transactions can teach them the value of money and how to prioritize spending. Parents can also encourage kids to monitor their account activity regularly, either through a banking app or monthly statements. This habit helps kids learn to track their expenses and spot any unexpected charges.
Debit card security and protection
Debit card security is another vital lesson. Kids should know to keep their card and PIN safe, avoid sharing account details, and immediately report any suspicious activity. With fraud protection measures in place at most banks, they’ll also learn that while mistakes or theft can happen, there are systems to safeguard their money.
Teachable moment: A great teachable moment could happen when you’re out shopping with your child and use your debit card to pay. You can explain, “This card takes money directly from my bank account, so I can only spend what I have in there, just like when we use cash.”
Using Banking Apps
The Digital Teller
Nearly every modern financial institution, credit union and bank, has a mobile app that makes checking your account balances, transferring funds, and managing bills and payments very accessible.
Mobile apps make it simple to monitor your account, manage your credit and debit cards, and contact support. All without ever having to visit a branch in-person!
Teachable moment: You can very easily use digital banking apps to teach your child what impact that debit/credit card tap has on your bank account. That trip to get milkshakes? It costs money! By showing your child the activity (within your comfort level) of money in and out of your account they can better understand banking.
Recognizing and Avoiding Banking Scams
Banking scams are an unfortunate reality in our modern financial lives and it is crucial that we educate our kids on how to recognize and handle them. Scammers often use clever tactics to trick people, even kids, into sharing personal or financial information. Early familiarization can save them (and possibly you!) from being taken advantage of in the future.
Phishing emails and text messages
One common type of scam is phishing, where fraudsters send emails or text messages pretending to be from a bank. These messages often include fake links asking for personal information, like account numbers or passwords. Teaching kids to recognize suspicious messages and avoid clicking on unknown links is crucial.
Impersonation scams in person
Impersonation scams are increasingly common where someone pretends to be a bank representative in person or over the phone. Encourage kids to verify the identity of anyone asking for financial information by contacting the bank directly through official channels.
Protecting personal and financial information
To protect personal and financial information, kids should learn to keep details like account numbers and PINs private. They should avoid sharing this information online, in public spaces, or even with friends.
Resources for reporting and preventing fraud
Finally, teach kids where to turn if they suspect a scam. Encourage them to come to you with any questions or suspicions they may have. In addition, many banks and credit unions have fraud hotlines, and local authorities can help investigate suspicious activity. Websites like the FTC’s fraud reporting page provide resources to report scams and learn more about preventing fraud. By building awareness early, kids can develop the skills to navigate the financial world confidently and safely.
Car Loans
Buckle your seatbelts because here comes the first big expense in many young adult’s lives: a car. Teaching your kids about car loans is a valuable way to set them up for financial success when they’re ready to purchase their first vehicle. Start by explaining the purpose of a car loan: it allows individuals to borrow money to buy a car, with the promise of repaying the amount over time, usually in monthly installments. Walk them through the loan process, from applying to understanding the loan agreement, so they’re familiar with how it works.
Factors that influence car loan interest rates
Next, discuss the factors that affect car loan interest rates. A strong credit score, steady income, and a larger down payment can help secure a lower rate, reducing the total cost of the loan. Teach them how the loan term (the length of time they have to repay) and the type of car (new or used) can also influence the rate and monthly payments.
Negotiating loan terms and comparing offers
Negotiating is another important skill to cover. Encourage your kids to shop around and compare loan offers from banks, credit unions, and dealerships. They should look at more than just the interest rate—fees, penalties, and overall terms matter too. Let them know it’s okay to ask questions or try to negotiate better terms, which can save them money in the long run.
Importance of making timely payments and building credit
Finally, emphasize the importance of making timely payments. Paying on time not only avoids late fees but also builds a strong credit history, which is critical for future financial opportunities. Highlight how responsible car loan management can pave the way for better loan options, lower interest rates, and improved financial health. By helping your kids understand car loans, you’re empowering them to make informed, confident decisions about their finances.
Conclusion
Learning the basics of banking—from the difference between credit unions and commercial banks to the ins and outs of payment methods, cybersafety, and loans—can be an exciting adventure that sets kids up for a lifetime of financial success! In today’s fast-paced digital world, understanding how banking and financial institutions work isn’t just helpful; it’s essential. By building both banking and digital literacy, kids gain the tools they need to confidently manage their money and make smart financial choices.
Intentional education about these topics helps to familiarize kids with the financial aspects of being an adult, empowering them to one day make responsible financial choices. Making the effort now to educate them about the world of banking will help them develop essential skills in budgeting, saving, and spending, and also learn how to navigate digital platforms securely.
Encouraging ongoing financial education empowers kids to make savvy choices, avoid common pitfalls, and confidently build a bright financial future in today’s tech-driven world. By becoming familiar with tools like debit and credit cards, ATMs, and mobile banking apps, they can make informed decisions that will mold them into independent, money-savvy adults. Banking literacy is not just a skill—it’s a key to unlocking financial independence and success for life in the digital age!
