How Do You Explain Digital Money To Your Children

One of the challenges that most parents face these days is teaching their children about digital money or payment made via card or smartphone. Money is no longer as “tangible” as a few decades ago when we were children. The only card we saw when we were younger was probably the ATM card and credit cards. 

Children saw their parents go to a “magic machine” aka the ATM machine, press some buttons and the machine will spit out some cash. 

It’s like magic! 

Well, if parents had not taken time to explain how the money goes into the machine in the first place, the children would use their own imaginations to create a story.  

When did you first understood how the ATM machine worked?

These days, money transactions are getting more seamless and we don’t see much cash exchanges anymore. Just think about your experience taking a taxi now versus the past. 

Today, many people in the cities link their cab rides to an e-wallet. You can call for a taxi, get on and off without exchanging any cash. It is like taking a free ride from your friend.

And in the past, taxi drivers carry around lots of loose change, do mental calculations, take cash and return change for every ride. 

In many schools nowadays, young children get a cash card to tap or swipe to buy their food. 

So in the e-world that our children are growing up in, how do we teach them about money or digital money?! 

Well, if you think about it, money is just a medium of exchange. The paper money that we are familiar with currently did not exist centuries ago. In the past people traded with actual gold and silver. Before that, money could have been some shells, some metal or even sheep and cattle. 

The medium of exchange can change over time. We are in the midst of transiting from physical cash bills to digital money. The medium of exchange is not as important as the fundamentals of money and financial literacy which is timeless. 

Since this is the era of digital money, let’s embrace it and we teach children the fundamentals of money and financial literacy.

How To Introduce Your Children To The Concept Of Money

Discuss how money is earned and spent in your family

If you are one of those who like to say “Money don’t grow on trees”. Stop saying that from now on. 

Your child will not understand what money is about unless you teach the basics. Teach your child where money comes from.

Money is earned usually through the exchange of goods and services. For example, Daddy goes to work daily, so that he can get a stash of money at the end of the month. This money is used to pay for the house you stay in, to purchase the food you eat and to buy the clothes and toys you have. 

Teach them that money is a limited resource

This can be introduced initially though games, like playing make-believe stores at home, playing cashier games for the younger children or games like monopoly for the older children. 

Teach them about opportunity cost. When they pick one item, they indirectly give up another item/option. It is essential for them to learn how to choose wisely what to spend money on.  

Here it might be a good time to introduce a new habit like making a shopping list each time you head out to the supermarket, so that the children can focus on looking for items on the shopping list. This may reduce their tendencies to request for impulse buys of sweets or toys.  

Introduce them to the bank or e-wallet, where money is kept

Explain the concept of the bank or savings account to them - a safe place where extra money is kept. It’s a store of your cash value, and you can see the numbers in the bank statements or app. 

Whenever I top up the cashcard for my child in school, I will bring her along and let her hand over the cash to the cashier. So that she is aware that the cash balance in her card has again increased. 

It’s also time to break the bubble of the “magic ATM machine”.

Each time when you go to the ATM machine, you are drawing out from your savings. When the savings in the bank is zero, no magic will get you more money from the machine. 

You’ll be surprised how quickly children will understand the concepts of money when you explain it to them. 

It is also important to note here that while teaching children about money, do it in a neutral way. Do not impose fear and uncertainty during this process. You cannot “scare” a child into being good and confident with money.   

Remember, just like how a child knows the alphabet or table manners, they learnt it from somewhere. We want to intentionally teach our children about financial literacy too, so that they can acquire this useful knowledge and grow up to be financially responsible adults.