Kids and Money

I remember when I was a kid, my parents would take the time to show me how money worked. (This was in the days before ATM’s and online banking.) My mom would show me how to write a check out to “cash,” hand it to the teller, and get cash in return. She showed me how she deposited Dad’s paychecks. She showed me how to fill out a deposit slip and hand the cash to the teller. She taught me how to balance a checkbook by just using simple math, no special software required. I watched her write checks to pay the bills and put them in the mail. I watched her pay cash for many of our purchases and I linked that cash to the money she’d gotten at the bank, which was the deducted from the check register. I had a savings account to hold birthday money and I was taught how interest works and got to review my passbook every time I made a deposit. In other words, money was very real to me. I understood how it was earned, how it was spent, how it was saved, and how it had to be managed. As a result, I grew up appreciating and understanding money.

More than once in recent years I’ve heard parents complain that their kids don’t understand money. The kids think that mom just puts the plastic card into the machine and money comes out. Or, that mom puts the plastic card in the machine at the store and the cashier hands over the merchandise. Kids don’t see money as real. I talked to the mother of a sixteen year old the other day. The woman told the kid that she didn’t have the money for the clothing item that the teen wanted. The kid replied, “You do so have the money. Just use the plastic card, mom.” This sixteen year old has no real clue about money, credit cards, interest rates, and what it means that there is no money.

I think kids today are in trouble when it comes to money because money isn’t real to them (at least not until they get their first jobs). When the parents never use cash or manually pay any bills, all the kids grow up seeing are cashless transactions. Money comes out of a machine, bills are paid with the click of a button, and purchases are made by swiping a plastic card. Even the games kids play today have removed the money. Versions of Monopoly, Life, and other games are now played with credit cards rather than making players count out cash. How can a kid learn about money when he never sees any in use?

It is harder today to teach kids about money, simply because our convenient lifestyle doesn’t make it part of everyday life. When I grew up, cash was the only game in town and you couldn’t help but learn how it worked. Parents like mine that took the extra time to teach reinforced the lessons, but a kid could pick up the basics even without parents that weren’t inclined to teach. Today it’s much different. Unless a parent makes a concerted effort to teach kids about money, kids are only likely to associate money with plastic and easy access. The link between a job, cash, expenses, and savings is much harder to establish.

What can you do if you want to make sure your kids understand money beyond the plastic and online world? Here are some ideas:

Use cash when you can

Try not to make all your purchases with credit or debit. Let kids see how cash transactions work and that once the money is handed over it’s gone.

Show kids how you pay the bills

If you do still write checks, let kids see the process. If all your bills are paid online or auto-drafted, sit kids down at the computer and explain where the money goes. Show them the transactions and the deductions from the account.

Show them your paycheck

Even if your paycheck is direct deposited, you probably get a pay stub or have online access to your pay record. Show your kids that this is where the money comes from. You work, you get paid. Then work to establish the link between that pay stub and all of the other transactions you have to make.

Show them how to balance the checkbook

Let them sit with you while you reconcile your statements. (Not doing this? Shame on you. You need to balance your books every month!)

Show them your credit card statements

Explain about interest and debt. Show them how your payments are applied to the balance. If you pay the balance off in full, explain why this is good. Show them the things you bought so they can understand that household expenses are sometimes paid with credit cards. Demonstrate that a credit card is not free money.

Let the kids work with cash

Buy the “old fashioned” versions of games that use play money so kids can get used to handling and managing money. Give them cash for their allowance and let them make their purchases in cash so they understand that parting with cash hurts.

Demonstrate savings

If you have some money direct deposited into savings every month, show them how it works and where it goes. Open a savings account for your child so he can put his own money in there and see how interest works.

Even little kids can understand the basics of money. Even if they don’t understand all the intricacies of the process, they can begin to make the link between work and money and what it takes to run a household. They can begin to understand that money isn’t magic and it isn’t “just there” when you want it. If you have financial problems, you don’t have to reveal every little detail to the kids, but don’t hide from them, either. That does more harm than good. Involve them in the household money processes so that they learn how money works.

It is harder to teach kids about money today. With everything being done electronically it takes a special effort from parents explain those processes and demonstrate where money comes from and how it is managed. But, it’s an effort you have to make if you want to raise financially savvy kids. Without education, kids grow up with false beliefs about money and they never learn how to manage it. Take the time to break money down to its basic components and strip away the plastic shell and electronic frippery. Let them work with cash and let them see you working with your money. Then maybe your kid won’t come to you one day and tell you that of course you have money to buy him stuff because you have the plastic card.

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8 Responses to Kids and Money

  1. hair bow girl says:

    We just opened a savings account for our five year old. I have to say I think she is learning a lot when she sees me depositing money into my accounts as well as hers. Good advice I liked your post.

    PS She also gets tokens for every $1 deposit that she can put towards certain items the bank gives kids for free.

  2. Princessperky says:

    I don’t really think it is harder to teach, I just think the opportunities are not there. Because kids and adults are not together much at all. This situation was possible ‘back in the day’ but not quite as common.

    Now we are advised to get a babysitter for grocery shopping, and schlep the kids off to yet another dump and run activity so we can pay our bills online.

    My kids have plenty of activities, but they are also right here when I pay the bills often enough to hear about it.

    Though I do think kids need to play with cash, I don’t feel I need to switch to a cash paying for that.

  3. snshijuptr says:

    You can also turn it around. Many kids have virtual experiences with money that they might not equate with their real life experiences. Help a child understand that just like in NeoPets, World of Warcraft, or other games you must work for money and when you purchase something you must work more.

    A game Wizards 101 let’s students work in game to keep their account running. Alternatively real money can be used to purchase levels or play time.

  4. Jackie says:

    Yeah, I don’t think you need cash to teach kids about money. A check isn’t cash either, just as a credit card isn’t. Kids have said the same things to parents who write checks as parents who pay with credit cards – “just write on that piece of paper to pay for it.” It’s still something that can be divorced from the reality of money. In this day and age, kids need to be taught about money – cash, credit, checks, retirement accounts – the whole shebang. Not necessarily all at once, of course.

    And lastly, while it help tremendously to teach these things you still have to let kids make their own mistakes and fix their own mistakes. My parents are some of the most frugal, fiscally responsible people I know and always have been. And yet, all four of us kids have made poor financial decisions in our lives, some of us still do. Teaching your kids is a great foundation, a needed foundation, but it’s not a cure all.

  5. Awareness Home Funding says:

    Thank you for stressing the importance of teaching our children about money and how it works. The point isn’t so much how you do it, but that you do. Match the method to your kids and what works for them. The idea is to get the concepts across that you have to work to earn a living, that the money you earn is used to support your life style (at any level) and that what goes out, must be less than what comes in. The bigger problem, how do we get more adults to understand these concepts?

  6. Monkey Mama says:

    Agree with the gist – of course.

    I have to echo some of the comments about “electronic money” not necessarily being that hard for kids to understand. It might actually be more “their language” in this day and age.

    Though, truth is, I do have my 4&6 year old pay for things in cash. To get a basic understanding of how cash works. But once they know how to count money and can navigate online banking, they will be switching to mostly electronic banking, I am sure.

    People are appalled I had my first credit card at 16. My parents made it a learning opportunity when I Was young. I’ve never had credit card issues – never paid a dime of interest or a penalty, etc.

    OF course, kids aren’t going to learn through osmosis. You have to talk them through it. We talk extensively with our small children about our finances. Age appropriately of course, but they are well aware that money doesn’t grow on trees.

  7. Amy Turner says:

    I totally agree with you on this post. It IS harder to teach kids about money these days, especially with all the technology we have.

    I am new to the debt blogging world, but just started my own blog to track our experience paying off our CC debt and student loan debt. I am doing it so my kids can read it when they grow up and learn from our mistakes. I look forward to keeping up with your blog as well.

  8. Jamel Rose says:

    Teaching your kids a sense of social ethics includes a sense of charity or giving.

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