A new crop of mobile money apps are promoting
themselves as part of the solution to a stubborn problem: a lack of financial
savvy, particularly among
young Americans.
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The apps offer slick educational videos and
tools while enabling children and teenagers to save and spend — and even invest
in
stocks. The
apps pair with plastic debit cards designed with kids and teens
in mind. They have caught the attention of researchers and financial advisers
who say the tools may help engage and enlighten young users, even as they worry
that the apps, without close parental involvement, may encourage bad financial
behavior.
Numerous reports have noted that financial
literacy in the United States has resisted improvement for some time, even
though more states have begun requiring schools to teach it. An analysis
published this month by the Milken Institute, a public policy think tank in
Santa Monica, California, deemed the lack of sound financial knowledge among
young people and adults to be a “worrisome” barrier to economic advancement.
Yet although many Americans lack the knowledge
necessary to make smart decisions about money, the Milken report said, digital
tools have the potential to be a “catalyst” for financial education,
particularly among young people, who are avid users of apps.
Young people may tune out dry concepts they
hear in a classroom, but the apps convert information into colorful,
interactive graphs. “The tool makes it very real,” said Oscar Contreras, an
economist at the Milken Institute and one of the report’s authors.
Financial technology, or “fintech,” startup
companies are embracing the financial literacy trend, seeing a way to sign up
customers early by offering personal finance instruction along with spending
and saving tools.
Copper, for instance, bills itself as “the
only bank that teaches teens about money,” and offers brief, peppy videos and a
financial literacy quiz that teens or their parents can take. A sample
question: “Suppose you have $100 in a savings account earning 2 percent a year.
After five years how much would you have? (A) More than $102; (B) Exactly $102;
(C) Less than $102; (D) I honestly don’t know. (The desired answer is A,
because of the effect of compound interest — a bedrock financial concept.)
Engaging tools and clear information are key,
said Copper co-founder and CEO Eddie Behringer. The rise in student debt
coincided with the explosion of smartphones, he said, suggesting that
“increasing digital access doesn’t always translate to financial literacy.”
Rachel Pendergrass, a teacher and softball
coach at Columbia High School in Huntsville, Alabama, said she found Copper
last spring while searching online for updated lessons to use in a
personal-finance class she was teaching for the first time.
“I didn’t feel like teaching them to write a
check was very relevant to them,” she said.
Copper provided introductory letters that
Pendergrass sent home to parents, who could approve their child for the app,
which links to a digital bank account and a debit card — or not.
Most were receptive, she said, because they
liked the idea of being able to easily send their children money: “It was all
voluntary, not an assignment.” In the classroom, Copper’s “cheat code” videos,
which offer quick lessons on topics such as “What do banks actually do?” and “What
is an IPO?,” helped inspire discussions.
Step, an app that is intended for teenagers
and has about 2 million users, declares on its website: “We want to make
learning about money fun and interesting.” Step’s website offers trendy videos
and short articles such as “Outfits that slay: The ultimate guide to thrifting
showstopping, back-to-school looks.”
Greenlight began as a tool to help parents
manage children’s chores and pay them an allowance or give them spending money,
since people increasingly don’t have cash on hand. Now Greenlight, which
debuted in 2017, has more than 4 million accounts and has added features,
including cash back on its debit card, and an option that lets kids invest
through a brokerage account opened in a parent’s name.
Kids of any age can research, buy and sell
stocks — including fractional shares — as well as exchange-traded funds. The
app including the investing option costs about $8 a month, but there’s no extra
fee for trades. To trade, the child must request approval from the parent
through the Greenlight app.
Greenlight CEO Tim Sheehan said the investment
option was a logical step after children learned the basics of saving and
spending within their means. The option includes access to research from
Morningstar and offers short videos that explain investing concepts, including
a price-to-earnings ratio.
Although the apps appear promising, they make
some financial education advocates wary. Lennette Coleman, president of the
FoolProof Foundation, which promotes “healthy skepticism” about financial
products, said it felt “irresponsible” to allow children — who may not have
fully absorbed lessons about the necessity of working to earn money, saving it
and spending it wisely — to invest in stocks. If apps make a game out of
investing, she added, children may be more engaged — but they may also be more
likely to take risks.
“There’s a lot of nuance in the stock market,”
she said, “and they don’t understand those nuances.”
Tim Lambrecht, director of education at Budget
Challenge, a program that uses simulations to teach students about bill paying,
budgeting and investing, said that apps could get teens excited about
investing, but that most emphasized buying individual stocks and skimped on
information about long-term investing in index funds in tax-advantaged
accounts.
“That sends the wrong message,” he said. “You
have to invest for retirement; you can’t save enough.”
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