Why using cash is still the best way to teach kids about money
“When my three-year-old plays ‘store,’ she swipes rather than count out the play money that comes with the toy cash register.”
“I give my eight-year-old allowance in cash, but then I let him to use my credit card number so he can use it to make in-app purchases for a video game he plays. He reimburses me.”
“I was at Target buying juice boxes, and when I got to the register and pulled out a $20 bill, my four-year-old son said, ‘Don’t pay for it, Mommy. Use your card.’ I was shocked.”
From suburban Chicago to Fort Bragg to Manhattan, this is just a sampling of the dozens of stories I’ve heard from parents all over the country. They worry about how to teach their kids the value of a dollar in a world where so much of purchasing is done with a swipe, a tap, or an app.
As families rely more and more on electronic forms of payment, conversations about the future of cash seem to be popping up everywhere. Recently a pair of supersmart economists—Kenneth S. Rogoff, a professor at Harvard and former chief economist at the International Monetary Fund, and James J. McAndrews, a fellow at the Wharton Financial Institutions Center and former research director at the Federal Reserve of New York—duked it out in a Wall Street Journal piece called “Should We Move to a Mostly Cashless Society?” As the Journal points out, Americans “used cash in 32% of all retail transactions in 2015, down from 40% in 2012, according to the Federal Reserve’s most recent survey of payment choices.” As people veer away from paper money, should the U.S. government follow their lead?
Rogoff says yes, claiming that pulling cash—and especially big bills like fifties and hundreds—from circulation will make it more difficult for the bad guys to do business, among other advantages.
McAndrews sees a greater role for cash. A significant chunk of American do not even have bank accounts—and no account means no plastic or Venmo, etc. Unless the U.S. does something to make debit cards more accessible, “underbanked” Americans will always need paper money. Others have raised concerns about personal data. Do we really want our every purchase to be recorded? What happens if that data falls into the wrong hands? In the wake of the Equifax breach, this isn’t just an abstract worry.
The act of handing over bills causes us to experience what’s known as the pain of paying.
Harvard and Wharton make some pretty smart points. But for my money, Massachusetts Institute of Technology wins the debate. A study from MIT shows that we spend more when we use plastic (credit or debit cards). The act of handing over bills causes us to experience what’s known as the pain of paying. This isn’t a metaphor, either. MRI scans have actually shown activity in areas of the brain corresponding to pain when we use cash. Using cash is tactile. There is an actual transaction—that you can see and feel—reminding us we have to give something up to get something we want. Using cash teaches us to handle our money more mindfully. And the lessons don’t end there.
Making change with cash teaches numeracy, a key skill for kids. And it also forces them to make choices. I’ve always said that a smart way to teach the value of a dollar is to hand your kid a wad of bills. (Stay with me here.) Send him to the mall with that limited amount of cash—no prepaid debit cards, no credit card “just in case.” When he gets to the register and finds that he’s $1.83 over, he won’t be able to charge it—and he’ll have to (gasp!) choose. Deciding what to put back teaches kids to be wiser consumers.
To the mother who told me she was considering getting a platinum AMEX card for her college sophomore so he’ll have access to airport lounges like the rest of his friends—and to the mom who told me how she absent-mindedly rattled off her credit card number to her daughter, only to find she was charging hundreds of dollars online—there’s a real reason to keep cash in circulation, at least within your family. It will make your kid a smarter spender and saver down the road—whether she goes on to use paper or plastic. When it comes to the power of cash to teach our kids financial responsibility, there is no debate: Cash is king.