People "of a certain age" have similar recollections of how they learned about the value of money. Saving nickels and dimes in a piggy bank, plunging their hands under their pillows to discover the tooth fairy left a dollar, cashing their first paycheck, or holding their first $100 bill taught us that money had value to buy what we wanted. But a 2016 Pew Research article revealed that nearly a quarter of Americans don't use cash at all in a typical week. Between debit cards, currency apps like Venmo and PayPal, direct deposit and auto-pay features on every thing from rent to utility bills, we live in a society that's becoming increasingly cashless. If cash is no longer king, how do we teach our children about the value of money?
It is common for children as young as five to begin to show an interest in money. Not only are they becoming more aware of the world around them, they begin to understand that the things they want come at a cost. Set up opportunities for them to not only earn money, but save for larger purchases. The idea that their effort pays off (literally) can only help them in the long run.
Start with Cash
Even though we live in an increasingly cashless society, there is a tangible sense of loss when you hand over your hard-earned cash that you simply don't get when you swipe a card. That is why cash is still a great place to start with young children. Learning the value of coins and bills, how to count it and how to spend it appropriately (including sales tax) is much easier to do when the money is tangible. However, it is important to introduce debit cards, how to track spending and even the concept of credit to preteens so they don't make the same mistakes many adults do when it comes time to enter a cashless society.
Save, Spend, Give, Invest
The "four bank system" is a great way to introduce the idea that money can serve more purposes than feeding an endless toy and candy addiction. Setting up a standardized percentage that goes into four different areas — save, spend, give, invest — lays a sound foundation for your children's long-term financial health. This can start as four jars where your kids deposit coins and expand to multiple accounts as they get older. It is simple to open separate savings or checking accounts with specific purposes at most financial institutions. Having designated accounts for saving, spending, giving and investing can even give adults a way to follow through with their good money intentions.
Give Them Their Own Account
There are few things more eye-opening for kids than walking into a bank with a jar full of money and walking out with a savings account. This is one of the best ways to drive home the point that a debit card is tied to real cash. Bonus points if your child's savings account is interest-bearing so they can learn the value of compound interest in the process.
Even though we live in a digital world, cash continues to serve a purpose not only in financial transactions, but also in teaching our children how money works. Connecting digital money to real-life cash may be a challenge, but the more open and honest we are with our children, the better their financial health will be in the long run.