Allowance experts told parents that paying with physical cash created a sense of loss. Today there are 4 types of cash for kids to manage, but only coin and currency can be seen and touched.

Experts said that pain of paying with physical cash would make kids better appreciate the value of cash. However, we are moving away from cash-only payments to a world where numbers rule.

In the adult world money exists as numbers in financial accounts where every financial decision changes the bottom line even when we’re not looking.

Cashless methods such as checks, debit and gift cards behave like physical cash. We could say they are one-and-done forms of spending. Cashless spending tools have properties that kids need to understand as they learn to manage their money.

Let’s look more closely at these 4 types of cash spending. Just like cash, these forms of cashless spending can be lost, stolen, and often impossible to replace. Teaching kids to protect these them is essential.

Managing 4 types of cash

Physical cash

Kids don’t understand the basic math of cash spending. A father told me of working at a school book sale where kids handed over currency to pay for book and walked away. They had no idea they overpaid for their purchase.

The newest generation, Gen Alpha (born between 2010 and 2025) is likely to be the first cashless spenders with only 10% of 6-18 year-olds’ spending in cash today.

Paper checks

A somewhat curious process to today’s kids is using paper and pen to transfer cash from one person to another. When kids get checks in their name, parents usually deposit them and give the kids the physical cash, acting as a banker.

Today’s kids may never write a paper check. Already they are using online money-transfer apps, such as Zelle, Venmo, PayPal, Apple Cash, and Google Pay, which are new-fangled oddities to their grandparents.

Gift cards

Think of these as cash dressed up in a plastic card with a defined value. If the total is not spent, the balance can eventually be reclaimed by seller as profit.

Unfortunately, many people leave balances on their gift cards, with $175 being the average. Americans, as a whole, have a whopping $21 billion in gift cards they’ve yet to redeem.

Some kids don’t even want to deal with gift cards. A friend told me her girls “sell” the cards to her and add the numbers to their written accounts.

Debit cards

Another plastic card representing cash, but one that directly subtracts from a financial account at time of purchase. With debit cards, it’s important to immediately report a lost card or fraudulent use to limit liability.

When shopping with my kids, I would pay for all our purchases in one transaction, then they would subtract from their written accounts. They were learning how debit cards worked long before they had them.

Manage all 4 types of cash as numbers

If there is one thing you can do as a parent to teach your kids how to manage the 4 types of cash it is this simple rule:

Track all money in and out as a number.

The kids become account owners with no allowance apps needed. Parents become banker/facilitators because the kids are completely responsible for managing their money.

Make that the one rule for your kids to follow throughout their childhood. Think of this as your child’s financial diary or register that records all money activity over their childhood years.

Saving the written accounts and printing the computer spreadsheets provides a history to review. Plus, the logs make great reading.

Instead of seeing cash in hand, kids see numbers. Kids like bigger everything and seeing the number get smaller is real-life pain of paying. Every money decision visibly changes the bottom line so kids always know the amount of their money resources.

Spending makes the number smaller, not spending keeps the number the same, while adding money makes the number bigger. Kids see cash flow in action.

A written account tracks money from all sources. Additions include allowances, money from chores, the check from Grandma, the gift card amount, or any other funds given to the child to manage.

Subtractions include withdrawals of cash with parent as banker, subtracting debit card spending, gift card spending (from receipt), and any assigned regular expenses.

Kids are responsible for accuracy and updating. Parents become bankers who facilitate necessary money transactions and review for accuracy.

The process can be as simple as a notebook and pencil, while older kids can create their own spreadsheets.

The No-Cash Allowance is a guidebook for parents of kids from age 3-18 on how to set up this system in your home to teach kids how to manage the 4 types of cash.

You can give you kids years of hands-on experience managing their money as number so they can be prepared to manage money as an adult.

Watch on YouTube