Money management for the grade-school set

This post comes from Kelli B. Grant at partner site MarketWatch.

Stashing allowance money and birthday cash in a porcelain pig as a kid is like hiding money under the mattress as an adult, if new money-management websites for youngsters are to be believed.

Think of them as Mint.com for kindergarteners: Kids (and their parents) can virtually monitor chores completed, allowance earned, and how assets like gift cards are spent. The funds can be allocated toward goals such as saving, spending and donating.

Sites like ThreeJars and Zefty have been around since the recession, and a half dozen or so more -- including MoneyTrail.net, PlayMoolah, Kids Cash and KashPile -- have launched in the past year.

The growth comes at a time when, experts say, kids are more likely to be unbanked. There aren't as many kid-specific savings accounts from big banks as there were a few years ago, says Greg McBride, a senior financial analyst for Bankrate.com.

Most financial institutions aren't interested in attracting underage savers. "The banks don't have a shortage of cash; they have a shortage of revenue," says Dennis Moroney, a director of research at Tower Group, a consulting firm. New products have tended to focus on college-age kids, who are more likely to bring in revenue from bank fees and credit card purchases as they move into adulthood, he says.

The growing virtual piggy bank market could be a smart way for parents to teach kids about real-world money matters. "It's making learning about money interesting for kids," says certified financial planner Lynn Ballou, a managing partner at Ballou Plum Wealth Advisors in Lafayette, Calif. "It's their money, which makes it more real than a game."

Parents can tweak settings to mimic (or even beat) the returns on real accounts, picking a high yield so that interest accrues, and setting up "direct deposits" and "bill payments" for repeat transactions of, say, allowances and cellphone app purchases, respectively. Kids, meanwhile, can request chore money and create saving goals.

A few sites, notably Kashpile and Kids Cash, also have e-commerce options that let kids request parental permission to buy certain items. (Bobby Singh, Kashpile's founder and chief executive, says choices are limited to kid-friendly picks from Amazon.com.)

But these accounts could also create budgeting issues for parental trustees. The accounts aren't bank accounts, per se: They don't take actual deposits. That means parents will need to hold the cash in trust somewhere, and make sure it's accessible when Junior has saved up for that $300 video game console.

Kids could lose out in that situation. In a recent survey, a third of parents told British price-comparison site MoneySupermarket.com​ that they had recently raided their kids' piggy bank or savings account to pay off bills.

Parents should also be cautious about committing to a system that requires too much of a commitment in managing kids' accounts, Ballou says. "The follow-through is important; otherwise, the kids won't take it seriously," she says. "It's not going to be real to them."

The sites say most functions, like interest payments and allowance deposits, can be set to recur automatically. Most of the effort is in the initial setup, says Pam Whitlock, a co-owner of MoneyTrail.net.

Experts say a better strategy could be to use virtual piggy banks for management, and back them up with a real-world kid savings account so kids can practice in-bank deposits and withdrawals. Some financial institutions are still pitching themselves as piggy bank replacements: PNC Bank, which launched its "'S' for Savings" Sesame Street-influenced account last fall, also opened a student-run bank branch at a Michigan middle school last month.

Credit unions and community banks tend to have more kid-friendly options, McBride says. Texas-based Texell Credit Union recently revised its kids' money-management tools, while Edge Federal Credit Union partnered with a Phoenix elementary school for students to open savings accounts.

Both virtual piggy banks and kids' bank accounts offer another important lesson: fee avoidance. Charges can kick in at the former for premium features, and on the latter for low balances or too many withdrawals. With smaller accounts to manage, those fees take a bigger bite, so look for a fee-free option. "That’s a lesson you might as well learn with your first bank account," says McBride.

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