Do kids need cash to learn how to manage money?

Do kids need cash at all?
Do kids need cash to learn financial skills?

Here’s a new question for parents to consider about allowances. Do kids need cash to learn how to manage money? Cash is the traditional way to pay allowances with kids starting their money experience with cash spending.

As we continue to increase our use of cashless spending this issue is part of the allowance discussion. Recently a mom asked me, “If I don’t use much cash, why should I give my kids a cash allowance?”

That was the same question I asked when starting my kids allowances. Because I was a credit card and check writing mom, getting cash was inconvenient. Very likely I wouldn’t have the right amount of cash on allowance day.

More importantly I risked not paying my kids allowances on time because I used very little cash. I did not want to become that unreliable parent muttering, “I’ll pay you later”.

Like most people I don’t like getting paid late (or not at all) and didn’t want my kids to never know if they would get the allowance or not. Or to have to ask repeatedly for something I promised them.

My solution was to grab paper and pencil and write their allowance as a number. That developed into a years-long allowance method that taught my kids how to manage money as a number.

A seven-year-old child who records weekly allowances as a number will make almost 900 deposits before high school graduation. This hands-on experience combined with subtracting each spending decision teaches kids the bottom-line value of their money.

Having kids keep track of their allowance with pencil and paper gives them a visual understanding that money exists as a number. Kids deposit money as a number, but have the ability to withdraw as cash with the parent acting as banker. Seeing the balance change with each money event is a learning experience in itself.

Giving the child responsibility for tracking their money relieves parents of trying to remember allowance payments and eliminates confusion about if or when allowances were paid. In her book she explains how to transition to a digital spreadsheet, savings and checking accounts, all part of the process in helping kids be prepared as adults to manage money in the digital world.

According to the 2012 MasterCard World Beyond Cash Survey, three in four Americans (73 percent) report using less cash than ten years before. A recent survey by Bankrate says that 9% don’t carry any cash at all. Of those that do, more than two-thirds carry $50 or less.

Kids see ATM withdrawals but don’t see deposits added as a number.

By 2012 consumers were visiting an ATM 7.4 times per month with the average withdrawal being $60. At the same time consumers are relying more on credit and debit cards, sometimes using their debit cards to get cash back when they shop.

Kids see swiping but don’t see debits subtracted as a number.

A report by Javelin Research showed that in-store cash sales declined 10% from $874 billion in 2012. In 2014 the company expects that cash will account for less than one-fifth (19%) for the first time ever. In a 2003/2004 Study of Consumer Payment Preferences 31% of in-store purchases were reportedly made with a debit card.

Kids don’t see transactions made without cash.

Parents get paychecks, receive tax refunds, and pay bills online using electronic payment systems. While these transactions show up routinely on banking statements, kids are not seeing that money exists as a number.  Kids also don’t understand that money can be spent only in one form or another whether it be as cash, check, debit card, credit card, or through an electronic transaction.

Today’s kids spend cash but don’t connect cash to a number because no one expects them to.  Give your kids a pencil and paper instead of cash. Let them be responsible for keeping track of their money.

In looking at the changes in the past ten years, it is reasonable to believe that the cashless trend will continue. Future advances in technology and information systems will create new and different ways to spend and receive money.

The answer to the questions, “Do kids need cash to learn to manage money?” is a resounding “no.”

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. 

How to give your kids debit card experience

Give your kids debit card experience
Give your kids debit card experience

Today’s adults are using less cash when spending. They reach for a debit card instead.

According to a 2013 Federal Reserve Payments Study, the number of debit card payments increased more than any other payment type from 2009 through 2012.

What does that say about the likelihood that your kids will use cash when they grow up?

You can give your kids hands-on experience with the concept of cashless spending using their allowance. It’s easier than you think.

What happens when someone uses a debit card? At checkout the card takes the place of cash without having to get cash from a bank or ATM. With a single swipe, the account balance is updated faster than digging cash out of pocket or purse.

Debit card experience for kids

Here’s how you can give your kids that same experience using their allowance and a pencil. If your child is tracking allowance on paper they can shop with you using a virtual card. Think of it as your family bank’s cash  card.

The next time you take your child shopping, pay for their purchases with yours. Then have them subtract their purchases from their accounts. Your child just made a debit card purchase.

We did this while our kids were growing up. They had written accounts and could withdraw cash with me acting as banker. But when we shopped they more frequently preferred to shop with this approach.

Using our family debit system  was easy and clear for all of us to understand. What was most important to the kids was having the ability to buy stuff, they didn’t care if they were using cash or not.

In fact, most of the time they did not withdraw cash before shopping. Even at a young age cash was irrelevant and unnecessary for my kids.

As parents we can help our children prepare for their adult future by helping them understand how people spend their money. Debit cards are here to stay.

Give your kids a valuable experience with cashless spending by paying for their purchases and having them subtract from their account.

Learning to manage money that can’t be seen or touched is an essential survival skill for our kids. It’s a lesson that you can teach in your own home.

Lynne Finch helps parents teach their kids about money from piggy banks to online banking. ” Let’s 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 to manage money as a number starting with kids as young as pre-school and continuing through high school. 

Helping parents teach their kids how to manage money as a number.