CJ MacDonald, the founder and CEO of Step, noticed that teens didn’t know how to interact with money, in part because personal finance wasn’t taught in most schools. He decided to do something about it. He created a banking app designed for teenagers so they could learn how to be financially literate.
“I'm a firm believer [that] money is part of our everyday life, rich or poor, you kind of have to understand how to navigate the money and banking system just to get by in life,” MacDonald said. “It's very easy for [people] to make these costly mistakes and build and accrue debt or damage their credit at a very early age.”
MacDonald’s app Step joined the market of teen financial apps in 2020. Teen banking apps are fairly new, and all slightly different, but they all have the same goal in mind: to improve financial literacy in children and teens so that they are prepared to deal with finances when they become adults. Experts say that currently, there is a financial literacy problem in the United States. But teen banking apps might be a new way to improve financial literacy for the next generation.
The TIAA Institute-GFLEC Personal Finance Index annual study found that on average United States adults could only answer 52% of the questions correctly, 68% of millennials feel anxious about their finances and only 19% of millennials who perceived themselves as financially literate actually are, according to a 2020 TIAA study.
“There's an abundance of statistics that really confirm that the vast majority of Americans, many of them don’t have enough, just an emergency fund,” said Jennifer Myers, the CEO of SageVest Wealth Management and SageVest Kids. “Part of that is not always related to not having a construct of financial literacy or the education but in many cases it is.”
A large portion of this problem stems from the fact that only 40% of millennials were offered financial education, and of those, only 68% of them participated, according to the TIAA study. Only 21 states currently require a personal finance credit to graduate high school, which means, by default, when it comes to teaching young people how to be financially literate, it is the parent’s responsibility.
“It's really important that it's happening at home and that parents [and] family members are really helping to foster strong knowledge and role modeling,” said Myers. A lot of children’s financial knowledge comes from observing their parents and having conversations about money with their parents, even if that is socially taboo, according to Myers.
“I always tell [my students], you have no better teacher than me because I have made every single financial mistake that is to make because I didn't have the education,” said Lydia Stutesman, a high school finance teacher from Florida. “I didn't have access to financial literacy. I didn't have access to a finance class.”
So, are these apps a useful tool for teaching financial literacy? The answer: a resounding yes.
One of the hardest parts about gaining financial literacy is knowing how to start. These apps have entered the scene to fix that.
“I strongly believe that if many of the adults today had had these apps and resources where you can literally just monitor things from the palm of your hand,” Myers said, “we could be in a better place today.”
The concept of having educational resources within banking is fairly new, and could change how people interact with their finances and financial institutions.
“A few past generations have never really had any sort of education baked into their core banking product,” said Eddie Behringer, CEO and co-founder of Copper, “Historically most banks have not spent any time here just because it's not profitable for them.”
Apps like Step, Greenlight, and Copper are all resources for parents and teens. Along with the banking services each app provides, their websites are filled with mini financial lessons that teenagers can read or watch. Many of the teens who are using these apps are noticing a difference.
Ailey Kinsella, a 15-year-old from Illinois, has been interested in the financial world since she was only eight years old. While listening to financial podcasts to try to gain a better understanding of finances, she learned about the Step app and immediately asked her mom if she could set up an account. Kinsella wanted to start building practical money habits, and not just ask her parents for money when she needed it, and the Step app seemed like the perfect tool she said.
As she was using the app, Kinsella noticed that she had become more aware of how she was spending her money and had a better idea of her finances in general. Compared to all of the other research she had done to try and make herself financially literate, using this app made the biggest difference.
“I think ultimately, just starting and getting that experience is going to be a lot better of a teacher because you really experienced these events and you just understand how things work better,” said Kinsella.
Kinsella drew a comparison to another important teen milestone: getting a driver’s license.
“I'm in driver's ed right now,” Kinsella said. “And we're just learning out of a textbook, but it doesn't really help as much as if you just were on the road and learned all the things as you go.”
In the same sense that people are expected to understand the written regulations of driving and also have some practical experience of actually driving before they get their license, it makes sense to apply similar logic to finances. Because both driving and handling your finances can have disastrous consequences if you don’t know what you’re doing.
Myers, who dedicates a lot of time to creating a resource to teach kids about their finances, agrees that putting real finances in front of teens is an excellent starting point, and it’s better for them to do it while they still have the financial security of being with their parents.
As a teacher, Stutesman recommends her students get the Step app, but as a parent, she also uses it for her son. Stutesman has found that the ways these companies do their branding make learning about finances fun and trendy. Step has brand deals with famous TikTok stars including Charli D’Amelio which would help appeal to its target demographic.
Telling her students that someone they admire, who is similar to their own age (and ridiculously wealthy due to her TikTok fame) is using the same app they could manage her finances has inspired some students to download the app and take their finances more seriously, according to Stutesman.
“Whether you're a parent or a teacher, or anybody who's engaging with young people,” said Dave Malone, the project manager of Money Confident Kids presented by T. Rowe Price, “it's so great to be able to augment whatever learning materials you have with something that's fun.”
Copper leans into using fun to teach. When a teen first starts their account, they’ll view short TikTok-style videos to teach them the difference between credit and debit.
Besides setting up for future financial strength, the need for teen-centric banking exists because teenagers start to reach their first financial milestones and might have money they don’t know how to use.
“Most people get their first bank account before they turn 18,” said MacDonald, CEO of the Step app. “Most people get their first debit or credit card before they turn 18. And most people get their first job before they turn 18. And you know, we don't believe that large traditional banks do a really good job tailoring towards the younger demographic.”
What is Financial Literacy and Why is It so Important to Learn It?
The answer to the first part of this question is tricky simply because there are so many slightly different ways to define it.
In an official capacity, The U.S. Financial Literacy and Education Commission defined financial literacy as “the skills, knowledge and tools that equip people to make individual financial decisions and actions to attain their goals.”
MacDonald defines it as both financial education, and the ability for people to learn about finances. Myers defines it as “having the bedrock of knowledge that one needs to make sure that they can have a healthy and successful financial life and support their objectives and understanding the basic mechanisms of how money works in society.”
For teenagers like Kinsella, financial literacy simply means equipping young people with the knowledge to become financially independent.
But what everyone can agree on is that it is necessary to start financial education when someone is young because that is when habits are formed.
“The earlier you understand that the earlier you start, the better you have a chance of success for a secure financial future,” said Malone.
Which App Should You Pick?
There are quite a few teen banking apps but here is a sense of three of the most popular:
Step, Greenlight, and Copper all function like a normal bank account with a debit card, and offer financial lessons on their websites, but there are some important differences.
- Allows users to start building credit.
- Provides push notifications to both the user and the parental figure every time a purchase is made.
- Is completely free with no hidden fees, including ATM fees.
- Reimburses ATM fees.
- Is accepted anywhere VISA is accepted.
- Offers a Venmo-like feature where users can directly send money back and forth to each other.
- Offers more parental control. Parents can set withdrawal limits and set store controls where the card can be used.
- Has a different layout for parents than it does for the children to better accommodate the different purposes.
- Has options for investing.
- Supports Apple Pay and Google Pay which makes mobile payments easier.
- Is a subscription service that costs between $4.99 to $9.98 a month depending on the plan the user signed up for. Each plan can cover up to five children.
- Has no overdraft or minimum balance fees.
- Has both the physical card and a digital card that can be added to the digital wallet for Apple Pay and Google Pay.
- Allows teens to set savings goals.
- Alerts parents that a teen has created a savings goal.
- Withdrawals can be made fee-free at 55,000 Allpoint ATM locations.
- Is accepted anywhere that Mastercard is accepted.
All three apps are FDIC insured. The Greenlight card is issued by Community Federal Savings Bank, and the Step card is issued by Evolve Bank & Trust.
Will These Apps Have an Impact?
Experts tend to agree that anything that helps young people gain financial literacy will have a positive impact. Nothing can be done in isolation. Once kids start to use these apps, they are more likely to have conversations with their parents to learn about how money affects them.
“If it helps with those types of learning,” Malone said, “and if there's someone that can provide some, some discussion around it and conversations around money management, I think that's what becomes the most powerful.”
However, these products wouldn’t be making any difference if teenagers weren’t interested in their finances.
“Gen Z is a generation that there's a tremendous amount of social cachet based upon being smart about your money,” said Behringer.
Behringer believes Gen Z is so interested in their finances so that they can avoid financial mistakes they’ve seen previous generations make, like getting into credit card debt.
Experts agree that starting early is the key to financial success, and any tool that can help people get started is worth giving a shot.
Having a generation that cares about finances while also having the resources to become financially literate will set Gen Z apart from past generations, hopefully, in a way that will allow them a strong financial future.