My plan for always paying my kids allowances promptly ran into one big snag. I didn’t have cash or didn’t have the right amount. One allowance Saturday, out of desperation, I grabbed a piece of paper and wrote their allowance as a number. That turned out to be one of my best mom inspirations as it led to the creation of The No-Cash Allowance.
A No-Cash Allowance is a system in which a child controls all funds received from parents through a written account initially kept in the home. Adults act as bankers and the child as account owner.
When the topic of allowances came up while talking with other parents, my husband explained that we paid our children with credit instead of cash. Now I realize it was that one simple change–from paying with cash to paying with our version of direct deposit that set the stage for our children to learn how to manage money as a number.
The one rule we were committed to from the beginning was that we would not pay our children with cash. Because we were the bankers they could withdraw cash from their accounts, but they had to plan for it.
Turns out that kids like big numbers, so subtracting causes a wee bit of anxiety on their part. Good lesson, we thought.
Along the way we needed some terminology so we would all be on the same page when talking about money. Our kids were pre-schoolers when we started so we simplified some terms for them. As they got older we introduced more standard financial terms. By the time they were in junior high they could go the bank and intelligently communicate with the staff.
Here are terms and definitions as used in the book.
A written way to track money that is kept somewhere else. An account has rules for putting money in and getting money out.
Balance (in an account)
The balance is the difference between debits and the credits.
Balance an Account
The process of comparing an account with the statement from the financial institutions to confirm that transaction are recorded correctly. Also known as reconciliation.
A cash supply used in the no-cash allowance. The money is used for teaching the cash system in Chapter 7 and as a family cash source with a log book for recording deposits and withdrawals.
This term has several meaning. To credit an account adds to the balance. Credit can also be an amount of money available, as a credit card limit or line of credit for an account.
To debit an account subtracts from the balance. Debit cards subtract from the account electronically.
Adding money to an account without using a check or cash. A direct deposit shows up as a written entry.
An in-house financial service that maintains, receives, lends, and safeguards funds in a child’s home account.
An adult who provides banking and purchasing services for a child who has home account and/or accounts in financial institutions.
A log or diary of a child’s financial transactions with the family bank (parents). The account balance shows the amount of money or credit available to the child.
Additions to the account are income. Financial statements may call these deposits, additions, or credits.
Subtractions from the account are expenses. Financial statements may call these withdrawals, subtraction or debits.
The wage or salary for a job before any deductions is the gross income.
The amount that remains after all deductions are subtracted. Also known as take-home pay.
The parent pays part of certain expenses. Can also be called matching funds.
A group of expenses that a child “pays for” using funds in the child’s account. The plan includes information about parent contributions and when transfers will be credited to the account.
Using money in an account is done by adding and subtracting the amount of money for the transaction. People making transactions don’t have to see or even talk to each other.
A piece of paper that tells about the purchase. It is the last step n buying or making a payment. Payments not make in person might have a confirmation number instead of a paper receipt.
An amount of monetary value that is accepted in consumer transactions, yet never exists in the form of cash. Includes checks, credit and debit cards, electronic fund transfers (EFT), and automated clearing house (ACH) transaction. Often called plastic money, electronic money, invisible money, or cyber money. Virtual money has existed for centuries as bank drafts and letters of credit used by merchants and bankers.
An amount that is credited as a written deposit to the home account each week. The weekly credit is guaranteed and provides a constant inflow of funds to the child’s home account.
Cash may be tangible but kids also need to see that there is a bottom line. By setting up a system as explained in my book, The No-Cash Allowance, your kids will start learning how to manage money as a number. As kids learn the language of money it will be a good experience for the entire family.