Category Archives: Parents & Allowances

Parents and allowances. Sounded a bit scary to me.  As a check and credit card mom I never had the right amount of cash to pay my kids.. So I stopped giving them allowance as cash. Allowances would forever be paid as a number. Problem solved.

Where Can Kids Learn Money Management Skills?

Money management skills start early, at home.
A mom helps her daughter add her allowance to her account.

Teaching children financial literacy is important, yet it is not the complete solution. Children need to learn money management skills that give them competency.

What’s the difference between literacy and competency?

Literacy is knowledge. Therefore, knowing about financial matters will not help children manage money. Simply knowing about saving, borrowing, insurance, compound interest, investing, is not enough.

Competency is skill. Competency requires practice and learning from mistakes. Consequently, learning to money management skills requires hands-on practice using real currency.

This hands-on practice does not happen in the classroom, because schools can’t provide real money. Schools can offer simulations, exercises, games and discussions, but not real currency.

As a result, parents are the only ones who can provide the one tool required for learning financial skill, namely money. Parents can help their children gain money management skills by giving them hands-on practice at home with their own money.

Reinforce financial knowledge at home

Financial knowledge can be learned at school. Then it can be reviewed at home. Family discussions about financial topics helps kids become comfortable with money management.

Money topics to talk about as a family include:

  • Using different types of financial tools such as cash, checks, credit, debit,
  • Accessing funds from financial institutions using checks, ATM and electronic fund transfers (ETF).
  • Knowing basic financial terms including credit, debit, overdraft, interest, deposit, and withdrawal.
  • Financial documents: checking account, savings account, loans, credit card statements, bank statements, tax returns and other financial documents you use in your family.

Develop money management skills at home

A child can have many years of financial hands-on experience with parental guidance at home. When a child is responsible managing his or her own funds the following skills take on greater importance.

  • Addition and subtraction. Managing money is all about numbers.
  • Record keeping. Knowing how much is available and when money is needed requires keeping track of money flow.
  • Decision making. Deciding how to use money is an exercise in making choices.

As a result, children who learn to manage their finances will be more confident and capable to manage finances as adults.

Furthermore, parents who raise financially competent kids will not need to bailout their adult children. Hence, parents can protect their own savings and retirement funds.

Managing money is a combination of knowledge and practice. One without the other is ineffective. The ability to control one’s money provides the power to make choices.

Money management skills are essential

In conclusion, when we help our children develop financial competency through hands-on practice, they will be better prepared to navigate economic challenges as adults.

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. 




Could Cash Make Your Child Less Generous?

Are cash kids less generous?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

Are cash kids 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 not pay their kids with cash. This allows parents 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.

Does cash affect generosity?

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.

Does cash makes kids more industrious?

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.