Children can learn good money habits at an early age, research says, and now a growing group of fintech startups is developing child-friendly tools and resources toward that goal, and attracting funding from venture investors who agree.
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“It bugs us that many schools don’t teach kids about money, even families don’t,” CJ MacDonald, co-founder and CEO of teen mobile banking app Step, told Crunchbase News. “You hear stories about people hiding what they buy and asking their kids why the kids bought what they did.”
The data varies somewhat as to the optimal age for children to start understanding financial concepts, but many researchers agree that young children, even as young as 3, can grasp the basic idea of money. And research shows that by age 7, many of their money habits are already set, mainly influenced by their parents.
Spending and saving
While researching the fintech space, Tanya Van Court felt many of the popular savings apps enabled children to spend money too easily. Leveraging her background working at Nickelodeon, which involved digital strategy of its preschool and parenting websites, and Discovery Education, where she launched digital textbooks to schools, Van Court saw a need to engage and excite children in learning about money.
In 2016, she founded Goalsetter to provide an education-first banking experience aimed at young children that could grow with them. The startup raised $3.9 million in seed funding in January led by Astia.
“We surveyed parents on what kind of platform they wanted, and they told us that they didn’t want children to just spend, but to learn how to save money and learn about financial literacy,” Van Court, founder and CEO, said in an interview.
She sees one of the challenges in learning about money is that while much of the world is going cashless, most parents are not.
“Kids ask for $10 or money to go and buy school supplies, and unless the parent has that cash on them, there are few ways of transacting,” she added. “Apps with peer-to-peer transactions have become an easy way for grandparents, aunts and uncles to send money to kids. It takes the entire family cashless.”
Dean Brauer, co-founder and president of gohenry, launched the company in 2012. His startup offers a debit card and smart money app for children and teens and has raised $66.2 million in known venture funding, according to Crunchbase data. That includes a $40 million venture round in December led by Edison Partners.
With only 17 states in the U.S. mandating financial literacy, Brauer said, there is an opportunity for companies to not only collaborate with schools, but also to drive education by forming relationships with users and potential users.
“We are giving a tool to parents who might not feel confident, and worry about how to teach their kids about money,” Brauer said in an interview. “We guide them to the right behaviors that empower their children. It’s not just around a card and spending, it is mindful nudges and notifications across earning, saving and spending.”
As these apps and platforms attract new customers, investors are taking notice, too.
Crunchbase data shows that in the past five years, investors infused at least $535 million into 89 known deals with fintech startups that described themselves as offering savings platforms for children, young people and parents.
Of that, $344 billion was raised just in 2020. Leading the pack was Greenlight Financial Technology, founded in 2014, which guides parents to teach children how to save with its app and debit card products. The fintech company secured a $1.2 billion valuation after closing on $215 million in Series C funding last September, led by Canapi Ventures and TTV Capital.
“What is different today is how quickly fintechs are growing in the consumer banking space,” Behringer said in an interview. “There are 85 million parents and teens in the U.S., and the perception is that this demographic is one of the last unbanked segments that exist.”
Likewise, Chris Sugden, managing partner at gohenry investor Edison Partners, said with today’s environment, particularly with many people losing their jobs due to the global pandemic, now is the optimal time for adults to speak with children about money. The pandemic also highlights how valuable startup banks, or neobanks, are in focusing on underserved populations.
“Kids are not worth much upfront to banks, so the incumbents aren’t paying attention,” Sugden said. “The challenge is for startups to raise the brand. We love the fact that gohenry is a market leader in the U.K. and love the opportunity for them to be a market leader in the U.S.”
Teens can learn about money, too, according to MacDonald and Behringer.
MacDonald believes financial literacy starts with a bank account, and Step’s sweet spot is children ages 13 to 18. The fintech startup was formed in 2018, but launched its free FDIC-insured bank account and Step Card in October 2020, MacDonald said.
Step has raised $76.3 million in venture backing so far, most recently, a $50 million Series B round led by Coatue in December 2020 that attracted some high-profile investors including Justin Timberlake and Eli Manning.
MacDonald scouted out movie theaters to observe and interview teens about their relationship with money.
“What became clear is a gap in the marketplace with banks,” he said. “Some fintechs are catering to the 18-and-over demographic. We said, ‘Hey, let’s start where the financial journey starts, build a relationship and offer products for each step of their life.’ Our mission is to educate the next generation how to be smarter about money.”
Behringer’s Copper Banking, founded in 2019, also targets teens, and the app’s median age is 14. The company focuses on distribution through schools and is working with schools in Texas, California and Florida to educate students about bank accounts, debit and credit cards and saving, Behringer said.
One of the app’s signature features enables users to automatically save a portion, from 5 percent to 20 percent, of the money coming in.
“Parents feel overwhelmed and when they use apps like Copper Banking, feel like a massive weight is lifted,” Behringer said. “Teens often learn by doing, and you can teach teens early. The basics are not complicated, but you have to have someone start that conversation.”
In an increasingly digitized world, many children may never set foot inside a bank branch. That means there is an opportunity for fintech startups to help parents teach their children about money, MacDonald said.
Van Court agrees. The sector targeting financial technology for kids and young adults “is the most important fintech out there,” she said.
“The earlier you can acquire a customer, the more control you have over that customer’s eventual financial path,” she said. “If we acquire a customer at 5 years old, we have an opportunity to keep them and be there for every one of their milestone moments.”
Meanwhile, Nancy Bock, senior director of communications and marketing at the American Association of Family & Consumer Sciences, finds fintech startups to be helpful partners in financial education as long as they have qualified professionals and collect personal data in a way that follows privacy laws that protect minors.
Many of the apps have processes in place to address security, such as not keeping a Social Security number after a bank account is set up, notifying both parent and child when money is spent, the ability to lock an account from the app if a credit card is lost, and partnering with banks to offer FDIC-insured accounts.
“Financial literacy is an essential life skill,” Bock said in an interview. “Youth need to build sound habits so that it doesn’t lead to higher debt. They are also very impressionable and think that what they see on their phones and social media is the truth, so it is often hard to talk to them about tomorrow because they are only thinking about today.”
Illustration: Dom Guzman
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