Cash Management

A coworker told me a story about paying cash when buying her takeout lunch. She handed a $5 bill to the young man at the till and he handed it back. “I can’t take this, it’s fake,” he told her. She was pretty upset to think she might have a counterfeit bill, so she took it on her next deposit to the bank. When she asked the teller, she was told that it is missing the metallic strip down the left side, but not to worry. It was printed before 2004, when the Royal Mint added that security measure. It was indeed real.  In Canada, it seems almost everyone uses plastic for payments, either credit or debit cards. We use cash so rarely, that someone working retail didn’t even recognize an older bill.

There are benefits and drawbacks to not using cash. Few people feel comfortable carrying large wads of cash, and worry about losing it or having it stolen. Credit and debit cards are a little safer, since fraudulent purchases can be disputed. They also take up less space in a wallet. But for keeping track of spending: cash is king.

I lived in Taiwan for two years. We didn’t even consider getting a credit card for two reasons: we were unlikely to be approved and no one else seemed to use one. We were never even paid by cheque. Either we would receive a cash transfer in our bank account or we would be handed an envelope of cash. It was not uncommon to walk into the bank with $4000 for deposit.

This made it extremely easy to control our spending. Once a week, I would withdraw enough cash for the week. When we ate out, went shopping, or took a taxi we would pay cash. If we wanted to know if we could afford something, we could look in the wallet to see if there would be enough money. I also noted spending in a simple spreadsheet, to keep track of where the money went. And, because everyone carried cash in the same way, we weren’t concerned about safety. Because of our experience controlling our spending, we developed good habits regarding what we would and wouldn’t spend money on. We also developed a sense of where our money was going and how long it would last.

Now, in Canada again, we use credit for almost all purchases and debit on rare occasions. We almost never use cash. My six year old and three year old sons have very little concept of money. Whenever they get a little money, they want to immediately take it to 7-Eleven and buy candy. I take them, and help them count out the candies so they can get an idea of the value of their different coins. When they get “five bucks”, they get extremely excited and want to buy “one hundred candies!” It’s fun and it’s a good start, but it will take time for them to scale their understanding to larger things. When we explain that we aren’t going to buy something large because it’s expensive and we aren’t going to spend our money on that, they say: “Just go to work, Dad, make more money and put it on the credit card. Then we can buy it!”

I plan to start the kids with a small cash allowance. We’ll help them understand the value of money, and the choices that come with spending it. From there, we’ll teach them about saving some for the future. We have the hope that by starting out using all cash, they can also develop good cash management habits before they get the inevitable credit cards.

So how do you teach your kids about money?  Do you use an allowance for them or even yourself?

3 thoughts on “Cash Management”

  1. It will be a while before I can teach my daughter about money (she’s 15 months!). I really like the idea of teaching them about cash management, then opening up a savings account. I think I will teach the “save 10% of what you make” right off the bat, so they will understand when they get their $10 allowance that $1 needs to go in the piggy bank.

    Credit is a little more complicated and obviously that lesson would come later in life. Tough to preach not to use a credit card when I use one for ALL of my purchases to get the rewards points 🙂

  2. Hi Robert,
    I love the fact that you go to the store and help them recognize the value of the coins. I can just see the expressions on their face while they try and figure out how they can maximize the amount of candy!
    There is a great piggy bank that I have given to my Nieces and Nephews that I wil give to my daughter in a few years as well. It has four different compartments – Spend, Save, Invest, Donate. It helps you to have conversations with your kids about investing, saving, and giving back. It also helps you to understand that most of you money shouldn’t be spent on candy!
    Here are a few links!
    I am thinking that these might be a great gift to give to most adults so they can learn how to save as well! 🙂
    Frank Wiginton

  3. Don’t have kids to teach yet. However, I treat our monthly budget as our “allowance”. The budget includes a portion for “fun stuff” that we can save and accumulate over time if we want something big.

    As for credit cards vs. cash. I use credit cards whenever possible to avoid having a bunch of change lying around. Also, I find that when I have some change I tend to spend it on coffees, snacks that aren’t very healthy!

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