Your Kids Need More Than Cash and Piggy Banks

Why are we trying to teach our children how to manage money? If the answer is, “So they will be able to manage money as adults,” then why do we give them gimicky tools and unrealistic guidelines? (Yes, I’m talking about giving kids cash and four-chambered piggy banks or envelopes labeled: save, invest, donate, spend.)

Do we believe our children will continue to have these choices when they become adults and receive their first paycheck? Do we actually think they will get paid in cash that can be divided into neat piles? It’s like giving children a Model T to drive and a road map from 1920 to follow, or a giving them a stone tablet and chisel to learn how to use a computer keyboard.

Parents need to help their children understand what money really is. Put simply, money is a medium of exchange and trust; money represents an amount of spending power. Money can be coin and paper currency, money can be a plastic card, money can be simply a number on your computer screen that can be transmitted anywhere in the world. In fact, virtual money is the medium that your children must master to be financially competent as adults.

To manage your money, you must first know how much is available (your total resources) and how much is already promised because of previous spending decisions. In other words, you must have a big picture view of your resources.

When you access an ATM you are transferring part of your numerical balance into cash therefore reducing your account total electronically. When you write a check you are giving your bank written notice to do the same thing. When you use a debit card you are subtracting from your balance without transforming it into cash. When you set up an automatic payment you are instructing your bank to transfer money on your behalf.

All of these activities require money management decisions, none of which can be done using only cash and a piggy bank. As parents we need to recognize that we are increasingly more dependent on cashless transactions; parents need to help their kids learn the new rules of the money game.

According to research by TowerGroup, a subsidiary of MasterCard Worldwide, debit cards are taking the place of pocket cash. Already 72 percent of salaried workers have their pay sent directly to bank accounts making debit cards a convenient way to spend without having to withdraw cash from an ATM. In dollar terms, debit cards are used for more than 50 percent of all non-cash sales. Many of these are small purchases typically paid for with pocket change, such as a cup of coffee, fast food, and gasoline.

There is a learning curve associated with managing virtual money. Next time we’ll look at why managing such money requires a different thought process than dropping cash in a piggy bank.

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