The parent’s guide to digital wallets

Your kids are more likely to use a digital wallet than any other generation. Are they ready for the responsibility?

“You wouldn’t give your child a bicycle without teaching them the rules of the road,” says Alec Lindenauer, Chief Allowance Officer at Cents of Responsibility, which helps parents raise money-savvy kids. “It’s important for parents to have a strategy—and lay some groundwork with financial education—before you enable one of these apps.”

Ideally, the conversation about digital wallets begins before kids get a smartphone. We asked the experts to share their tips to help you be more strategic about how your kids learn about financial literacy and use digital wallets.

What is a digital wallet?

A digital wallet, also known as an e-wallet, is an app or online service that lets you pay for things without making a physical transaction with cash or a credit or debit card. And some digital wallets can also hold essential documents, like a digital version of a driver’s license, or a concert or airline ticket. The wallet may also help you transfer money between bank accounts.

The three main types of digital wallets

There are various types of digital wallets, each of which allows a different range of access to the family’s funds.

Open digital wallets. Some digital wallets can be used to make purchases anywhere that digital payments are accepted. Examples include Apple Pay, Google Pay, PayPal, Cash App, Samsung Pay and Venmo.

Closed digital wallets. These are developed by businesses to make specific purchases with those businesses. For example, Scholastic Book Fairs offers an eWallet that allows kids to make purchases at an event using funds preloaded by their parents.

Family digital wallets. These are designed to help parents manage and guide their kids’ digital spending. Two of the most popular family digital wallet providers are Step and Greenlight, but banks are likely to follow suit with their own family options soon.

Some starter tips for using digital wallets

Help kids understand cash first

Lindenauer recommends that parents start their kids’ financial education in kindergarten—or today, if they’re past kindergarten age. And it’s best to start with cash. It’s important that kids understand the value of money before they start spending it as if they’re playing a video game.

“My kids are in 10th and 8th grade, and we sit down once a month so they can get their allowance in cash,” Lindenauer says. The kids then divide their cash into four piles—spend, save, invest and donate—and then hand each back to Lindenauer, who deposits the amounts in the girls’ corresponding digital accounts.

“This helps them remember that there’s something tangible behind the screen,” he says.

Connect your digital wallet accounts

Parents often don’t know what their kids are spending cash on. But if the kids are using a digital wallet that their parents can access, the parents can see all the purchases itemized. “This can be surprising, funny and even worrying, depending on the purchases,” says Catherine Pearlman, Ph.D., LCSW, a parenting expert with The Family Coach and author of “First Phone.”

Make a printed copy of their transaction history

Lindenauer suggests printing out the monthly transaction statement for each kid’s digital wallet, and then asking, “How do you feel about how you spent your money this month?” When Lindenauer does this with his own kids, he doesn’t judge or offer commentary, unless they ask his opinion. He simply writes down what they said so they can look back later on all they’ve learned.

This approach often has a surprising added bonus. “Parents say they can’t believe how doing this has changed the way the whole family deals with money, themselves included,” he says. “It makes parents be more mindful about their digital spending, too.”

Not ready for a digital wallet just yet? Pearlman recommends that parents open a separate debit card account with just a little money in it—or one attached to a credit card that allows you to impose a strict spending limit. “Children need to build up trust, responsibility and an understanding of credit fees and costs,” she says.

Like anything else with parenting, this takes time. And when it comes to learning about digital wallets, time is money—literally—so it’s worth the investment.

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