How to teach your children about money when you don't use cash

Written By Douglas Matus

For many adults, cash has gone the way of the payphone: an archaic piece of technology long superseded by more convenient alternatives. One area where cash still remains useful, however, is the education of young people about money.

Children have difficulty with concepts that lack a physical corollary; the piggy bank and cash allowance thus become seemingly useful tools. As the “real world” of buying, selling and saving trends more toward the safety and ease of electronic currencies, however, parents may wonder about the true practicality of the piggy bank approach.

If you don’t use cash, or simply want to broaden your children’s knowledge, the following strategies can expose them to the world of credit and personal finance.

Open An Account


A parent’s first step in financial tutelage should be the creation of an account for the child’s use. This can take one of two forms: either an actual account at the bank, for which the parent must assume partial responsibility; or a “pretend” account through the Bank of Mom and Dad.

The latter approach works best for young children. Tell the child that a set amount of money gets put in the “bank” every week, and keep them up-to-date as to what they have available.

“When they ask for something in the store, tell them they have to use the money in the Bank of Mom and Dad,” explains Steven J. Weil, president of RMS Accounting. “If they don’t have enough, tell them they will have to save up for it.”

If you choose to open an account at an actual bank, choose one close to the house. That way, the child can accompany you to make deposits, an activity that reinforces the idea of savings and creates awareness of money’s importance.

Encourage Savings


Rather than spend money immediately, kids should learn to hold onto their money or save for larger purchases. To encourage this attitude, parents can promise to match any amount placed into a long-term savings. To prevent temptation, the savings account should not be accessible by the child for a lengthy period of time.

A savings account can also promote awareness of so-called “lost funds,” or the small amounts that get negated through loose change. Parents can allow children to gather loose change from around the house, so long as they deposit it into their savings.

Keep Their Interest

A savings account can provide a valuable introduction to the concept of compound interest. Paul Richard, executive director of the Institute of Consumer Financial Education, considers this one of the most important financial topics to stress to a child.

“Parents should indoctrinate their children to accumulation instead of consumption,” says Richard. “Explain the concept of interest, and have children calculate it so they can see how fast money accumulates through the magic of compound interest.”

Parents can also encourage respect for negative interest. If the child wants to borrow money — say for a new toy or a trip with friends — the parent can charge a fee. This will create an awareness of how credit works, and show the child that borrowed money is not free money.

Prepaid Debit Cards


If the child is old enough to manage money, a prepaid debit card is an excellent repository for a weekly or monthly allowance. Timothy Shanahan, president of Compass Capital Corporation, suggests one caveat: accountability.

“I put my kids on an electronic allowance with a debit card,” says Shanahan. “The only condition was that once or twice a year, they had to show where their money went.”

This forces children to keep track of spending and remain mindful of their money. A simple way to do this is to keep receipts, which the child can then tally up at the end of every week.

Of course, the best way to teach your children about money is through your own good example. As soon as your child can count, you can introduce them to the concept of money, and a simple trip to grocery can become a lesson on price comparison and value. A parent’s modeling of responsible financial behavior is a lesson that will pay a lifetime’s worth of compound interest.


Written on March 24, 2016

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