Cash Is King When Teaching Kids Money Skills

I believe that learning how to spend money is more complicated and abstract today than at any time in our nation’s history.

According to the Department of Treasury Web site, the U.S. economy is responsible for one-fifth of the world’s economic output. Translation: we spend a lot of money. And with the advent of so many spending tools -- think debit and credit cards -- it is incumbent upon us to think about how those might impact the spending habits of a child.

As recently as 30 years ago, the majority of adults paid for things with cash. And that’s what a child would have witnessed. It was either cash pulled from a wallet or a check written from a bank account.

I am all about convenience and the advances of modern technology, but there is nothing like cash when it comes to helping a young person learn how to "do" money.

Every day, millions of young children witness their parents’ daily consumer decisions, whether it’s a stroll down the grocery-store aisle or a trip to the mall. The key is whether or not you realize how much those routine spending trips are shaping your child’s future spending habits.

One young mother offered the following. “When I go to the store with my 7-year-old, he frequently asks me how I pay for things. After a few attempts of trying to explain that I use a credit card so I can accumulate miles for future trips he seemed a bit skeptical,” said Karen. “I decided to go back to using cash when we were together so he could see that I use money just like he does when I pay for things.”

Bravo Karen! I really like her decision to use cash when her young son is watching. She wisely recognized there was a more significant teachable moment in how she was paying for things than in accumulating a few more airline miles.

The families that have mastered the art of teaching responsible money habits always start with cash. There will be plenty of opportunities to teach about plastic (e.g. debit and credit cards) when they get older.

Here are two quick suggestions to help you shape the healthy spending habits of a child or grandchild.

1. Think about who is watching. If your child or grandchild is accompanying you to the store, use the "check-out" experience as a teaching tool.
2. Pay attention to your method of payment. If it’s predominantly plastic, consider the value of using cash when they’re around.

When you were young and learning about spending, why was it important to learn with cash?

Depending on your age, it might have been the only option. But if not, and you did have other options like a debit or a credit card, you might want to think about how your cash skills shaped your plastic skills.

In 2005, the average American household spent $1500 each week, or a whopping $78,000 in expenditures, for the year. Not all of that spending was in cash, which also accounts for people’s expanding credit card debt.

Source: American Demographics

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