Over the last fifty years, personal finances migrated from primarily cash and checks to many forms of cashless transactions. As we add more money tools we increase the chance of a money crisis because we haven’t learned how to manage them all.
Transactions using digital money, or invisible money, are recorded as numbers. The running calculations in an account result in a single number, the balance. Many transactions never exist as cash. Therefore, one can say that money, in much of our daily commerce, is a simply a number.
The problem is that kids are not learning to manage money as a number. Seeing a number increase and decrease in an account over time is an essential lesson in money management.
Cashless transactions increase money crisis risks
Over the last fifty years, we’ve added many form of spending without using physical cash. Cashless purchases are now common at vending machines, parking meters, and mobile payment devices. In fact, many people use debit cards that mimic cash spending. Many people use smart phones.
If today’s kids do not learn how to manage cashless spending effectively they will see their financial resources as adults constricted. It more important than ever to know what the balance is in our accounts, a balance that is represented by a number. By not tracking that number we risk any type of money crisis that cost us extra money.
Cashless transactions come with a price when the associated rules are not followed. Overdrafts, late fees, and credit card interest waste precious financial resources. All of these negatively affect a credit rating resulting in higher interest rates for borrowing because of lower credit scores.
This all reduces young adults’ buying power, limits their resources to save money for short-term needs, and constrains their ability to invest, start businesses, or contribute to retirement accounts.
The potential result will put a drag on young entrepreneurial efforts to grow the nation’s economy. As a result, parents may find themselves using retirement funds to help their adult children for business or personal needs. Consequently, parents with reduced retirement money may place additional burdens on government.
Learning a new skill
Money management is also a skill that can be learned. However, there are some key differences when it comes to money.
First of all, parents with all good intentions do not want their kids to make mistakes. Consequently, parents direct allowance spending, thereby making decisions for the child. This is similar to parents playing the piano keys, or catching the outfield fly. The kid is not engaged in the process.
The solution to the money control problem is for parents to give their children complete autonomy over whatever funds are in their control. Parents let go of the bicycle knowing there will be bumps ahead. So it is with money. Kids will not gain experience if parents maintain control.
According to a T. Rowe Price Parents, Kids & Money Survey, kids who manage their own money have better money habits.
Making money decisions
Secondly, money management is all about making decisions. Wisdom is only gained by learning from mistakes. A $10 mistake by a kid is a gentle lesson compared to a maxed out credit card as a young adult. Now that is a money crisis!
Perhaps the most challenging part of teaching kids about money is the ever-changing money landscape. We cannot ignore the reality that physical cash is diminishing in importance, while digital transactions are the driving force in our financial system.
Whether money is physical or a number in an account, all money can be represented as a number. Today’s parents need a new approach to the allowance system, one that treats money as a number.
Prepare your kids to avoid the money crisis
As a mom, I taught my kids about money using a cashless system and wrote a book about the process, The No-Cash Allowance. Parents can provide allowance but do it without cash through a written account kept in the home. Kids keep accurate records of money in and out, have the autonomy to make their own decisions and mistakes, and have age-appropriate spending responsibilities.
Such hands-on experience with money teaches kids confidence, decision-making, and responsibility. Now, more than ever, I fear that if parents don’t change their approach to allowances, their children will pay the price as adults.
Watch on YouTube
Lynne Finch helps parents teach their kids about money from their first allowance to online banking. “It’s time to teach the kids how to manage money they can’t see or touch to avoid a money crisis,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school.