The age-old debate of giving kids cash continues with a new twist, possibly affecting their generosity. New research that suggests that handling money as cash makes a child less generous.
Yet many allowance experts content that kids should use cash so they feel the pain of spending when they see the cash disappear.
As the author of The No-Cash Allowance, I recommend that parents never pay their kids with cash. This allows them to avoid both of these potential issues. To learn more about a no-cash allowance click here. Having said that here is my analysis of this cash spending and generosity dilemma.
The study, published Psychological Science, is based on experiments with children ages four to six. They compared behavior of kids who sorted coins with those who sorted buttons
In one experiment, the kids were asked to help collect crayons. Cash handlers collected fewer crayons than button handlers. Other experiments produced similar differences in behavior.
The conclusion appears to be that if you want you kids to have generosity of spirit, don’t give them cash.
Another finding showed that the cash kids were more industrious and worked harder on something like a puzzle. This demonstrates that even young kids understand a relationship between effort and monetary reward.
However, this suggests that if you want your kids to work hard, do give them cash.
Hence the dilemma: cash decreases generosity vs. cash increases industriousness. What’s a parent to do?
So ask yourself why you want your kids to have money? Do you want them to feel pain when they hand over the cash? Or do you risk letting them be less generous? Do you want them to be industrious? Then how do you solve the apparent dilemna created by the handling of cash?
My approach is to teach your kids how to manage money as a number, not as cash. Your kids are growing up in an almost-cash free society where money exists primarily as a number. You manage most of your money as a number. Imagine what the reality will be when your kids are adults.
Here are the benefits of a cashless allowance system, one that will teach your kids to manage money without handling cash.
What can kids learn by keeping track of their money as a number?
- Numbers show how much money one has (balance).
- Depositing (earning) money makes the number get larger (addition).
- Withdrawing (spending) money makes the number get smaller (subtraction).
- Money can be spent as withdrawn cash or check or credit card or debit card when received–reflecting adult behavior.
- Each spending transaction is subtracted from the total.
- Managing money as a number requires thinking and decision-making.
No-cash allowance in action
One daughter adds her weekly allowance and records the new balance. She announces that there’s enough to buy some new clothes. Her sister updates her own balance and asks me if we could stop at the bookstore.
I take the girls shopping and pay for their purchases using my credit card. When we get home they subtract their shopping expenses and update the balances in their accounts.
As a result, no cash has exchanged hands yet everyone knows exactly what happened. Money (as a number) is deposited, account balances grow, purchases are made and account balances get smaller.
Cash is cash, but most of today’s money is a number. We’ll never eliminate cash but cashless transactions will increase. If your kids are getting a cash allowance they are not learning the basics of managing money in a cashless society.
In conclusion: Go cashless. Give your kids money as number using these simple guidelines.
- Provide money regularly to child, with opportunities to earn more.
- Allow child to have complete decision-making ability with own money.
- Assign spending responsibilities for child to manage.
Lynne Finch helps parents teach their kids about money from piggy banks to online banking. Buy The No-Cash Allowance today and follow Lynne’s common sense approach for teaching children that money is a number.