Smart Money Podcast: 5 Financial Tasks for Fall, and Kid Debit Cards

Sean Pyles: Welcome to the NerdWallet Smart Money podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston. To contact the Nerds, call or text us on the Nerd hotline at 901-730-6373 that's 901-730-NERD. Or email us at [email protected]. Hit that subscribe button to get new episodes delivered to your devices every Monday, and if you like what you hear, please leave us a review.

Sean: This episode I'm joined by our occasional co-host, Sara Rathner, to answer a listener's money question about kid debit cards, how they work, and whether there are any risks. But first in our, This Week in Your Money segment, Liz and I are talking about five financial jobs that you should take on this fall.

So I don't know about you, Liz, but up here in the Pacific Northwest, the leaves are beginning to change and I'm busting out my cozy sweaters. I'm wearing one right now. And the transition into fall has me thinking about what we should be focusing on financially as we head into the final few months of 2021.

Liz: Well, here in LA, we don't really do fall. But what I feel like is that the holidays are going to be here before I know it. So I better get going and take care of some of these tasks.

Sean: Yeah, that's kind of what I'm thinking too. I tend to be a planner and I like to think really far in advance and anticipate any possible thing that could come up as futile as a task that can be sometimes, but I am in the same boat. So I've been thinking a lot about, No. 1, my 2021 financial goals. So I think it's really important for people to take a moment, as we head into fall, to look back on where they are in their goals for the year, how they can course-correct if they need to, and really come in for a smooth landing for their financial goals at the end of this year.

Liz: Yeah, because you've done that in paying off debt, you've done that in increasing your savings, you kind of set yourself yearly goals. Is that right?

Sean: I do, except this year was slightly different because I closed on my house in the middle of this year.

Liz: Oh, yeah!

Sean: So I used that as an inflection point to take some time away from my really focused saving that I've been doing for the previous 12 months, to sit back, see where my finances were, have enough allocated for all of my various bills and also understand that I'm not going to fully know how much I'm going to have due for all my various utilities until a couple months in and I get an understanding of that pattern. Now it's been three months, almost to the day, since I closed on my house. And I'm just beginning to realize, OK, now I need to have this much set aside for all of my utilities and everything else and my savings goals. So that way I can begin to formulate my financial plan for 2022.

Liz: OK, cool. Well, my big task is getting my tax withholding squared away, because if you are a small-business owner, a gig worker, if you're an active trader or investor, you've got a situation where not all your taxes are being withheld through withholding at your job. So you don't want to come up to April 15 and find out, not only do you owe a buttload of money, but you also have to pay penalties because you weren't withholding as you went along. So it's very important that if you do have one of those side gigs, or you are an investor, that you make sure that you're doing estimated quarterly payments, or adjusting your withholding at work, if you have a W-2 job, to make sure everything is covered. And that's something that I actually do every quarter, but it's particularly important to do it before the end of the year, because with holiday expenses and everything else, you don't want a bunch of big bills all at once.

Sean: Yeah. I'm actually going to take that and add that to my list of financial tasks for the rest of this year, because with my change, I'm now a Washington state resident….

Liz: Oh!

Sean: … and I want to make sure that my withholdings are totally correct as well. So thank you for the reminder for that.

Liz: You're welcome.

Sean: The third thing I wanted to talk about is that people should really be getting ready for the holidays. My neighborhood's full of Halloween decorations. I have a friend who is already playing Mariah Carey's Christmas music nonstop, as much as I'm telling him not to do it.

Liz: No, no, no! Too soon! No!

Sean: I know, I know. It's inevitable, we just have to embrace it, Christmas is year-round, apparently. But I think it's really important for people to start saving more now and also get a head start on holiday shopping. Because as we've heard, there are going to be supply-chain issues. Some toys may not be available as readily as you would hope. And the more you can get ahead of it, the less you'll be stressed later on.

Liz: Yeah. I'm going to have a column in a few weeks talking about how to factor in all those shipping delays and what you can do instead. And I'm planning to hit the craft fairs like crazy.

Sean: Ooh!

Liz: That helps local craftspeople. And it also makes sure that I actually have something to put under the tree when the time comes.

Sean: That's smart. And it also comes across as a more personal gift too, because I always feel a little bit like I'm not doing as good a job as I can if I'm just buying something off the shelf at the big-box store, I always want to have a little bit more of a personal connection and story behind it. So that's actually, why, not to spoil anything for my family or friends, when I was just on my trip in New York, I picked up a few things here and there that I can stock away as presents.

Liz: Sweet. Yes. Well, and that spreads the bill out too. That's a really smart thing to do.

Sean: Oh yeah. Yeah. I did that last year as well, after Lady Gaga's new album came out. I have a lot of friends who love Lady Gaga, and so I bought a bunch of her merch when it dropped last May, and that way in Christmas, they weren't thinking about her album anymore but I was, because I had a bunch of gifts for them that were from her stuff. So as much as you can spread it out, I think that's a great idea.

Liz: That's really smart. And speaking of spreading it out, that's what we normally recommend for retirement contributions. We want you to be chipping in with every paycheck. But it's a good idea before the end of the year, to check to make sure that you are taking as much advantage as possible of your retirement savings opportunities. And if you have a 401(k) at work, for example, see if you can pop up that contribution before the end of the year. You can contribute up to $19,500 a year to a 401(k) plan for 2021. If you're 50 and older, you can contribute up to $26,000. If you have an IRA or want to start one, you can put up to $6,000 into that, either a regular IRA or a Roth IRA, if you're under 50. And you can add another thousand dollars, so $7,000 total, if you are 50 or older.

Sean: That's a good amount of money.

Liz: That is.

Sean: Yeah. I would say if folks haven't been spending on travel this year, like they didn't last year, you might as well funnel some of that into your retirement accounts because you're probably going to see a great return.

Liz: There you go.

Sean: And the final task that I think people should take on as they head into fall and they're managing their finances is look forward to 2022. Think about your goals for next year so you can really hit the ground running in the new year. And another thing I'm thinking about, unfortunately, is my student loan payments resuming. So, starting this month, I am re-entering a period of minor austerity where I'm taking what I would be paying toward my student loans, putting it into a savings account, and I'm actually planning on budgeting with that accordingly so I'm used to not having that money. And then if I am really good, giving myself a gold star, I want to put all that I've saved over the coming months toward my student loans when payments resume, so I can kind of give them a good punch in the face.

Liz: That's really nice. I like that. And I'd also say we're probably going to be traveling more next year, fingers crossed.

Sean: Yeah.

Liz: So maybe saving up for a trip or trips would be a good idea as well.

Sean: Yeah! Yeah, absolutely.

Liz: You got to have fun things to look forward to, right?

Sean: Yeah. Yeah, I'm going to a wedding in France in the middle of next year and I'm already saving up for it, I can't wait.

Liz: Oh, wonderful! I can't wait to hear about that.

Sean: Yeah. But that kind of brings me to another point I wanted to bring up around annual goals, because there's this idea that you have your goal for 2021 and then when the clock strikes midnight on January 1st of 2022, you have a brand new goal, but that's not how people really manage their money. These things often bleed into each other. So as I'm beginning to save for my trip next summer, I'm also beginning to think about how I can manage my new house better next year and really take what I've learned from this year and continue it on into next year.

Liz: That's smart. Like what are you thinking?

Sean: Well, one thing I really need to do is get a fence for my house. Which is the maybe least sexy thing I've ever purchased in my life, but …. The last quote I got for it was that it was going to be $11,000, so I'm trying to think about how I can shave a little bit off my spending here and there to have that much more to put toward my fence fund, which is the name of one of my many savings accounts. So again, it's the idea of knowing how much I'm spending on my house, knowing how much I'm spending on things like travel, and being able to save as much money as I can in between.

Liz: There you go. That's one of the things about homeownership, because you spend thousands and thousands of dollars on things no one will ever see.

Sean: Yeah.

Liz: Or that they do see, they don't notice. So, sorry about that.

Sean: Yeah. But at least you know, and you have that satisfaction.

Liz: Yes, exactly. And you're not taking on debt to do it. Even better.

Sean: Yep. Exactly. Most importantly. OK. And with that, I think we can get onto this episode's Money Questions segment with Sara Rathner.

Liz: All right.

Sara Rathner: This episode's question comes from Renee, who emailed us a question about kid debit cards. Here it is. "I've seen a few debit cards for kids where parents can transfer allowances and teach money management. Do you have recommendations for which one to use? I have a 9-year-old and would like to get her started on money management. Thank you."

Sean: To help us answer Renee's question, we are joined this episode by banking Nerd, Margarette Burnette.

Sara: Welcome back onto the podcast, Margarette.

Margarette Burnette: Thank you for having me. I'm glad to be back!

Sean: I knew we had to have you on when we got this question, because you have written about just this topic. To dive into it, can you explain what these cards are and how they work?

Margarette: First of all, I do want to say that in the majority of cases, these are joint accounts. So the parent has the account and because they are joint accounts, and the parent is the adult on the accounts, there are parent controls.

Sean: And what types of parent controls are there in place?

Margarette: There could be controls about how much money can be spent in one transaction. And also parents may be able to see where their kids are spending their money.

Sean: OK. That's interesting because I actually still have the same bank account that I share with my mom that I opened in high school. I don't really use it besides to send her money for the cell phone bill every month. She can still see what I'm doing with my money, but there aren't the same controls and limitations on what I'm spending my money on, obviously. It seems like that is the main difference, is that the parents can say, "OK, you can only spend 20 bucks at a restaurant at a time." That kind of thing.

Margarette: As soon as you turned 18, your bank or credit union made note of that and took those parent controls off. But while they're still there, yes, parents, depending on the account and the financial institution, the parent does have some say into how the money is spent.

Sean: And these are still FDIC-insured accounts.

Margarette: They are likely to be. There are a lot of apps that are out there that partner with banks that have FDIC insurance. So they may not technically be bank accounts in the sense that we know them from a traditional bank. At the same time, a lot of the traditional banks — Capital One, Chase — they do offer regular bank accounts for children, and they do have the FDIC insurance. Or if it's a credit union, it would be NCUA insurance.

Sean: That's good to know, because I know there are a number of apps that you can download on your phone, and to me, it seems like maybe a little bit suspect being able to put your money into something that isn't connected with a bank that you're familiar with.

Sara: You know, with parents managing these accounts, you're dealing with, say, millennials and younger Gen X-ers, who are maybe used to some of the more traditional banks that we learned about as children. And so we're simultaneously teaching the next generation about money management, but also learning about new technology at the same time. So definitely parent experience is really important here.

Margarette: Absolutely. And you may be more comfortable going with a kid-focused account that your regular bank uses. That said, there are some apps that are stable, that are good and are very popular with parents and children.

Sara: As parents are shopping around for a potential way to bank with their kids, what are some of the advantages and disadvantages of these types of accounts?

Margarette: One advantage is that they can help kids learn how to manage their money. Even from a young age, a child can receive money maybe from a gift or from their allowance. And they can start to make decisions on what they want to spend it on or what they want to save it on. And these apps help kids develop those skills at a very young age.

Sean: It's interesting, I saw a study from Cambridge University that suggested that money habits can be instilled in kids by the age of 7. So it makes a good argument that it's almost never too early to start teaching your kids how to manage their money.

Margarette: That's absolutely true. And some apps let kids open up accounts as early as age 6. Some don't have any type of rule as to how old they have to be before they can open an account. Some of these accounts have virtual money. So it's more a, "Pretend you have this, where would you spend it?" But some of them allow parents to transfer real money into these joint accounts and kids can start making decisions, even from that young of an age.

Sean: It also seems like an easier way for parents to dole out their kids' allowances.

Margarette: I remember when I was growing up, if I got an allowance, it was usually with cash, but we don't carry cash as much around as we used to, and if you're trying to get your kid to do some chores or pay them their allowance, it can be helpful if there is an app where you could just simply transfer it, just like you might pay a bill electronically or transfer money to friends electronically.

Sara: I think that's really important to note the lack of cash as part of giving an allowance now. How many of us carry much cash in our wallets anymore, or use it to make payments or use it to buy things at stores? I mean, it's really allowing parents to teach their kids how to manage money, how to buy things, in a totally modern way. I think it's so easy to just be like, "Oh, well, my kid will count change and put them in jars." But you're not going to walk into a store and dump a jar full of change down on the counter, you're going to hand over some sort of card, or use your phone with a digital wallet.

Margarette: One thing about parents not carrying a lot of cash, and this has happened with me, is sometimes I don't pay my kids their allowance, even if they did their chores. And so they get their money whenever I can go by the bank and grab the cash. Which isn't really a good way of showing how to budget income steadily, or how to know that there is a steady flow of income. And the nice thing about being able to transfer money electronically is you can do it with a few seconds, with a few taps of your phone. And it's more realistic that you can keep it going and just be consistent with making sure that your child knows how to budget a consistent form of income.

Sean: It also teaches them to expect money when they've completed their work, which is just good as an employee.

Sara: Yeah. And also just expecting money at a regular cadence, which, if you have a job that's not, say, gig work or freelance work, but you are paid weekly, monthly, twice a month, you often budget based on when you know your paychecks are coming. So you know you have cash in your account to afford this bill or that bill. Kind of good practice for adulthood, in a way, where you might time your payments based on when you get paid.

Margarette: Yes, that is exactly right.

Sara: Or it's good practice for the gig economy where nobody pays you even though you've submitted work. You have to hunt down your clients and beg for money that they owe you.

Sean: Yeah, that's why the freelance world is my nightmare, so…

Sara: Exactly, so, I don't know. What are we teaching our children?

Margarette: You can decide. You can decide with these apps and kid debit cards, you can choose which economy you want to teach your child.

Sean: Mm-hmm (affirmative), maybe a little bit of both, actually.

Margarette: Yeah.

Sara: It teaches them to advocate for themselves, "Hey Mom, you still owe me two, week's worth of allowance and I'm going to send my…" They send you a sternly worded letter. It's wonderful. Yeah.

Sean: Are there any risks to these accounts?

Margarette: That is a good question. There may be risks, depending on the type of account or who is offering it. Some of these charge monthly fees, some of these offer debit cards or prepaid cards where you might have to have a fee to keep it going each month or to load cash. I will say that the best accounts don't have a monthly fee. That is something to look at. If you have a joint account, just more broadly, having a joint account means sharing responsibility. So if there is an account that allows overdrafts, or charges overdraft fees, even if it's not the parent, but the child that's doing that, they may both share responsibility for the fees.

Sean: Well, that brings me to my next question, which kind of goes back to what Renee was wondering about, which is whether we have recommendations on which to use and, while we're not going to say which one is better, I think there are some key elements people can consider when they're shopping around. And what do you think those should be? How do you think parents can find the right one for their children?

Margarette: I've written some articles on banking apps for kids and teens, as well as checking accounts and debit cards, and savings accounts for teens. And there are traditional banks that offer accounts that don't have monthly fees or overdraft charges. Typically speaking, accounts that are online-based accounts, where you don't necessarily have to go into a branch, they may be more likely to not charge a fee. Some of these accounts may even earn interest. So there may be checking accounts that earn interest.

Sean: I'm also thinking that it might be easier for parents to open up a joint account at the institution where they're already banking if they do have one that fits their needs.

Margarette: Some banks will waive a regular checking account monthly fee if certain requirements are met, such as a minimum bank account balance or the ability to have direct deposit. So if you as the parent are already having your fee waived, it would make sense. It may make sense to just open up another account for your child, a joint account, and have everything at the same bank.

Sean: I want to talk a little more about apps, because there are so many that parents can use nowadays. How do you think people can vet those and understand if they would be a good option that would be maybe better than the bank they're currently using?

Margarette: You would want to see about the features that they have. Some of these apps offer debit cards to children and so the account is officially in the name of the parent, but the child could have a debit card with their name on it that is sent to them. Some of them may also have ways to track savings goals within the app or to track balances. And those features could help the child learn in a simplistic or easy way how to visualize where their money is going and then make decisions on, they want to spend their money or save their money. So those could help the child look at their spending in a visual format.

Sean: And kids are always on their phones nowadays anyway. So it seems like it would be a lot easier for them to grasp rather than logging on to some sort of online portal or, God forbid, filling out a check statement on your checkbook, which .… Do people even do that anymore? I haven't done that in years.

Sara: Speaking of being on your phone, can kids use peer-to-peer payment services, different apps that let you send money to your friends?

Margarette: The large ones like Zelle or Venmo, you really do need to be 18. Now I have teenagers and sometimes they send money to others. I will say that technically speaking, you need to be age 18. So I would not rely on those. I would not count on those as a normal way to send money, especially for sending out your allowance or paying your teen for their allowance.

Sara: And I believe the money held in those accounts is not FDIC-insured, is that correct?

Margarette: The money may not be FDIC-insured. There are a lot of different peer-to-peer payment services out there, and it's worth it to just kind of dig in and look in and see, read the small print, and see if they address FDIC insurance or where the money is insured. Now, some of the apps do have partner banks so that if you are transferring money or depositing money and sending it to the kid's account, these partner banks have FDIC insurance even if the app technically doesn't hold that insurance.

Sean: So I also want to open up the question around other ways parents can inform their kids about how to manage money. And I know that you're a parent, Margarette, so I'd love to hear your thoughts on this and ways that parents can begin to get this conversation going and make sure their kids are set up for success financially.

Margarette: I would highly encourage talking about savings goals and letting some of that money that's being given to them, either for an allowance or through a gift, talk to your child about what they want to save it for. What do they want to use it for? If they put aside some money each week, how long would it take for them to reach their savings goal? A really nice feature about these apps and some of these kid-focused checking accounts is that they do have budgeting features. So you can set aside money for either a goal or look and see how much you're spending at restaurants, for example, versus buying candy or whatever budget feature works for you. I would definitely encourage creating a goal and working towards it.

Sean: Right. Just establishing the idea that money can be a long-term thing to manage instead of an impulse buy of bubble gum, which is what I spent most of my allowance on as a young kid.

Margarette: That's right.

Sara: So what else do you think is some sound advice for parents who are wanting to teach their kids about money, but are a little bit unsure about what to do?

Margarette: I would take an opportunity to teach them about saving and compound interest. And interest rates are currently low right now, but there are kid checking accounts that pay a little bit of interest. And even for those that don't, many of these apps have features that let parents pay interest into their kids' accounts. So the benefit of that is after a few weeks or after a few months, that interest that is, "paid to the child," can start earning interest on its own. And that would be compound interest, and the child can see, "Oh, the more I have in savings and the more that savings is earning interest, the faster my savings account balance or my bank account balance can increase because of compound interest." It's a really nice real-world example of how your child can learn about this and hopefully use it as a money lesson for the rest of their lives.

Sean: I'm honestly really envious of all the tools that kids have nowadays, because none of this was really around when we were growing up and it was conversations with our parents, which often weren't as in-depth as maybe we would have benefited from, that taught us about money management. And now there are so many tools like NerdWallet or these various apps that kids can take advantage of to learn about how to manage their money.

Margarette: I remember learning the compound interest formula in one of my high school math classes. And it just doesn't resonate in that format. I mean, it's a good algebra lesson, I guess, but then you grow up and you have a job and you have a bank account.

Sean: You see the numbers grow.

Sara: Yeah, and you start saving for retirement, or maybe you start investing in some way, and you're like, "Oh, that's what happens when the little percent thing that I factor in, the interest rate … It's like I'm making money without having to add additional money to the account." And that for me was a really powerful lesson that I didn't learn until I was working and in my 20s. It's certainly not something that I understood at the age of 12.

Sean: Yeah, I think for a lot of people, money is really nebulous until you are thrust out into the world and you have to account for your bank balance and figure out how you're going to get food in college. That's how it was for me, at least. And being able to have a bank account and an app even that could teach me this growing up would have been invaluable.

Margarette: Even if they're not ready to handle money, there are apps that are out there that let you teach them with virtual money, and they can have their own savings goals with virtual money and earn interest and compound interest in kind of the same way. So there are lots of opportunities for our children to learn today.

Sean: Yeah. And that way your own money is not on the line if your kid makes a mistake and buys a thousand dollars of things on Amazon, which has happened in the past.

Margarette: That is true! That is true, very true.

Sara: Don't let your kid have your Amazon password.

Sean: Yeah. Also a good money lesson. All right, well, Margarette, thank you so much for talking with us.

Margarette: Yes, thank you. I've enjoyed this.

Sean: All right. And with that, let's get onto our takeaway tips, and I'll kick us off here. First up, start early. Your kids are not too young to learn how to manage their money even if it's virtual.

Sara: Next, shop smart. Look for accounts with no monthly fee.

Sean: Lastly, use the guardrails. Parents can still monitor and limit transactions as needed on kid debit cards.

And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-N-E-R-D. You can also email us at [email protected] and visit nerdwallet.com/podcast for more info on this episode. And be sure to subscribe, rate and review us wherever you're getting this podcast.

Sara: And here's our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.