There’s a truth about money that cannot be overlooked in teaching kids how to manage their finances. When we continue to change from cash to cashless spending our kids need a reliable way to track money they can’t see or touch Invisible money complicates how kids learn about today’s money–and the money they will use as adults.
Most transactions today rarely exist as cash, yet each one can be tracked as a number. This has been true ever since we first started using coins and currency centuries ago.
More than a quarter of parents feel that cash is obsolete. T. Rowe Price Parents, Kids and Money Survey
Money, in much of our daily commerce, is a simply a number. No matter how you spend it–credit cards, electronic transfers, ATMs, or debit cards–all money can be tracked as a number.
Spending virtual money is a way of life for kids growing up with the internet. Most kids spend their money on video games, clothing, and accessories.
In a 2021 survey, children ages 12 to 17 spent almost $100 a month online, more than double two years prior according to estimates by Forrester Research.
Only parents can help kids learn to manage invisible money
Kids are attracted to new spending methods that are marketed to families. In addition, kids want to spend like their friends do. However, the variety of ways to get and spend money makes allowances more challenging for parents who want their kids to learn financial responsibility.
I rarely use cash myself and the girls see me use the (automated teller) machine, checks and credit cards, As a financial advisor I see many adults who struggle with cash, have huge credit card balances and rarely balance their checkbooks. I felt that if I could help (the girls) to understand how credit works, they would be way ahead of the game. ~ Karen, president of investment group
Cashless spending complicates money management
With this shift from cash-in-hand to plastic-in-hand and online spending, kids need new skills to manage their money. Transactions using invisible money, or virtual money, are recorded in online accounts as numbers. The running calculations in an account result in a single number, the balance. The problem with cashless spending is keeping track of what is happening to that bottom line.
To complicate the money tracking even more, money can be spent using more than one method to access the account. A dollar in your account today can be spent as cash, check, credit (loan to be paid back later), debit (subtracted like cash), or through electronic funds transfer (pre-scheduled or real-time).
One way to explain this to kids is using the analogy of pie representing the money available. No matter how you cut it, one dollar can only be spent one time. With invisible money the only way to track spending is to see the truth of money in the numbers. Your kids may have a handful of gift cards, a debit card, and maybe some cash from Grandma, but how do they know the bottom line of their total amount of spending power?
The truth about money is in the numbers
As we’ve shifted to cashless spending our kids have many options to spend money, while allowances may not focus on the truth about money. As a mom. I discovered that requiring my kids to track their money as a number put them in charge. At any time I could ask, “What’s your balance?” And at any time they could tell me to the penny. It was their money; it was their power. It was their responsibility and they took it seriously.
Giving my kids money with the responsibility and control to manage it all by themselves is one of the best parenting decisions I made. When you think about it, learning to manage money is maybe the only childhood experience where kids can’t hurt themselves, but can learn essential life skills to help them as adults.
If today’s kids do not learn how to manage invisible money effectively they may see their financial resources as adults constricted. Cashless transactions come with a price when the associated rules are not followed. Overdrafts, late fees, and credit card interest waste precious financial resources. As an adult, these negatively affect a credit rating resulting in higher interest rates for borrowing because of lower credit scores.
The no-cash allowance provides a reliable, consistent process for kids to keep track of their money. The numbers get bigger and smaller with each money decision.
Allowance anecdotes
Getting change: A father, managing a school book sale, was surprised when kids bought books with cash and walked away without asking (or knowing) they could get change.
Childhood memory: I loved entering and subtracting money in my account book. It also made money more valuable because I had a lot of control over how much I earned and spent. Daughter who grew up with the no-cash allowance.
Read more: Pencil and paper help kids learn to manage money
When your kids track all their money as a number, they become better money managers
Next: Past and future choices define the difference between your money and your kids’ allowance
