A teaching moment: Grandma, where do you get money?

Child holding coins
Child holding coins

My seven-year-old grandson surprised me with this. “I was wondering about something. You don’t work, so where do you get money?”

His question came out of nowhere but made perfect sense. He knew that parents work to earn money, but he couldn’t figure out how his grandparents got money if they didn’t have jobs.

How could I make this a “teaching moment” for my grandson?

I decided to explain to him how while his grandfather and I worked we were not spending everything we earned. We were saving some money in a retirement account so we would spend it later.

That made sense to him because when he knew that when he didn’t spend his allowance one week he had more the following week. So he understood the concept that saving money is making a decision to not spend now.

This explanation shows kids that not spending money is, in fact, a way of saving money. By not spending money now one has money to spend in the future, be it in the short term or for a long-range goal like retirement.

 Then I added one more thought for him to consider, “When you start working you will want to not spend all your money, just like you do know when you wait to use your allowance later. If you let that money grow during the years you work you will have money to spend when you retire.”

Here’s where his mom and dad can then take the conversation further by showing him the power of compound interest and how much his money can grow over his working years. When he sees those numbers his eyes will light up. A big lesson for a little boy.

Lynne Finch helps parents teach their kids about money from piggy banks to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school. 

 

 

 

 

 

 

Kids can track allowance in a check register

Tracking allowance
Kids track allowance and spending in this checkbook register

Looked at your transaction register (AKA check register) lately? They come complete with a lengthly list of codes for a variety of cashless transactions: DC, ATM, AD, AP, BP, and T. Hmm, can parents use this concept to teach their kids about money management?

Track allowance and spending

Maybe this is the time to start paying your kids their allowance as a number instead of cash. Maybe this is the time to give hands-on experience tracking their money transactions as a number, just like you do.

Obviously, kids wouldn’t use all these types of transactions. However, with a kid-friendly code system your kids can track all the ways they spend and receive money in their allowance account.

DC      Debit Card

ATM   Teller Withdrawal

AD      Automatic Deposit

AP      Automatic Payment

BP      Online Bill Pay

T        Online or Phone Transfer

Kids quickly get the idea that you can buy stuff without using cash. They simply swipe a piece of plastic that looks like a credit card. Works like magic!

To get your kids in the habit of recording their transactions, pay their allowance as a number written in an account. You become the banker and your kid is the account owner.

Then hand them a pencil and an allowance log to record their transactions. Require them to record every transaction in writing. Start with these basic codes.

AD    Allowance deposit

Parent:  Today is Saturday, time to record your allowance.

Child gets allowance log and writes in the weekly amount and adds to the previous balance. Notice how the kid has to use some addition skills here to get the new balance.

Child: Wow! Now I have enough money to go to the movie.

ATM   Teller withdrawal

Child: Can I withdraw ten dollars. I need cash for the book fair.

Parent digs in purse or pocket and hands over the cash.

Parent: Here it is .

Notice the the kids is seeing that the money is coming from a real person, not a machine. And, more importantly the kid has to subtract the amount from the balance. It’s not free money after all.

DC   The no-cash allowance version of debit card spending where parent pays while shopping.

Child: I have enough money in my account to buy this today.

Parent and child roll into the check out line.

Parent: Okay. I’ll pay for it with my stuff. When we get home you write the number from the receipt in your account to get your new balance.

There is one more code on these allowance logs that you can gradually work into your system. This is the AP (Automatic Payment) code. This code introduces your kids to the idea of paying bills that are regularly subtracted from their account, whether they like it or not.

Suppose your child pays a share of the cell phone bill. Have your child treat this as a recurring subtraction on the due date. As a parent you review the account occasionally to see that these payments were recorded.

Parent: I see you remember to subtract your cell phone bill yesterday. Good work.

Download allowance logs here.

Basic Account  This is for younger kids with larger spaces for writing.

Checkbook Account Older kids can use this version that looks more like a bank’s transaction register.

Spreadsheet Account Kids can use a computer to track their allowance, but need to print it out regularly for parents to review.

While this writing of numbers may seem trivial to you, this hands-on activity is very significant to a child. Every time your child subtracts an expense and sees the number get smaller he is learning that every money choice has a consequence. Likewise, everytime he gets to add money through a deposit he sees his balance increase.

Already we are seeing a generation of young adults who do not keep any type of transaction log. No record-keeping at all! They log in to their online account and wiggle their thumbs to see how much money is left.

That’s the grown-up version of dumping out a piggy bank with that one nagging problem. Those automatic withdrawals or a check that clears could very well sneak in overnight and create an overdraft tomorrow.

If you want your kids understand how money travels in today’s digital world, start now by requiring them to record every transaction in writing. Knowing how to manage the numbers on paper will give kids hands-on experience now before they become adults.

Lynne Finch helps parents teach their kids about money from piggy banks to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school. 

 

 

 

 

 

 

 

 

 

 

Helping parents teach their kids how to manage money