Cash is easy for kids to understand. You save by adding coins to a money box, then spend by handing them over to pay for something.
But nowadays, there are loads of ways to pay, from plastic cards to digital payments and from smartphones to smartwatches. It’s harder for children to make the link between earning and spending, and understand the value of money. Talking about the different methods can help kids realise plastic cards aren’t a magical source of money!
Years ago, people didn’t use money to pay. Instead, they would swap things, called ‘bartering’. So one person might agree to buy a cow by handing over several sacks of wheat.
However, showing up at a supermarket with a sheep to pay for your shopping isn’t very convenient.
In the past, people used some pretty weird stuff instead of money. For example, Roman soldiers were paid with salt, the Dutch used tulips to buy houses and cowrie shells were used as money in Africa and Australia. Even bars of tea could be used to buy things in China and Tibet!
Nowadays, there are lots of ways to pay. Some you can see, like coins and plastic cards. Others are invisible and only take place on the internet, like direct debits to pay bills from a bank account or PayPal when shopping on eBay.
Plastic cards might seem like magic money machines, paying for shopping and extracting cash out of a hole in the wall. But no matter how you pay, you need to make sure you have enough money in your bank account to cover it!
Here are some of the main ways to pay:
Notes and coins. Easy to use and easy to see how much money you have left. But also easy to lose, and if your cash is stolen, you can’t get it back! If you are buying something really expensive, like a house or a car, you might want to use a different way to pay, rather than taking a wheelbarrow full of cash.
When you use a debit card to pay, the money is taken out of your bank account straight away. You can use debit cards for shopping or for taking money out of cash machines.
Credit cards let you borrow money so you can buy something now, and pay it back later. You get a bill once a month. If you pay the whole bill, you won’t pay any extra. But if you don’t pay it all at once, you will have to pay more money to the credit card company and this added amount is called interest.
Normally gift cards can only be spent at particular shops or websites. People buy gift cards for a certain value. So, you might get given a £10 gift card for a toy shop as a present. If you want to spend more than £10, you will need to add extra money. If you spend less than £10, usually the extra money just stays on the card and you won’t be given coins for the difference.
Direct debits are regular payments from a bank account to pay bills. You might use direct debits to pay for things like electricity bills, phone bills and magazine subscriptions.
PayPal lets you pay for things and accept payments without telling people your bank details. PayPal then takes money from your bank account, which you can also transfer to whenever needed. If you get people to pay you using PayPal, you may have to pay fees on top.
Apps like Apple Pay, Google Pay, Samsung Pay and WeChat Pay let you pay for things using a phone or even a watch, then take the money from your debit or credit card. Some apps let you pay someone by choosing their mobile phone number and the money then moves from your bank account to theirs.
All the different ways to pay can make it difficult to keep track of how much you have spent, and how much money you have left.
Once money is spent, it’s gone. Sadly, you can’t spend the same money twice!
If you do spend more money than you have, this creates ‘debt’, when you owe money to someone else and promise to pay it back. Normally, you will have to pay extra to spend someone else’s money, if you don’t have enough money yourself. So buying things with someone else’s money is more expensive than if you saved up your own money to spend.
Take care before giving out bank account details or card numbers. If criminals get the information, they can use it to steal money from your bank account. Look out for the padlock symbol next to the website address when you are paying on the internet.
The way you pay can influence how much you spend. Turns out, the easier it is to pay, the more money people spend.
Counting out coins and notes makes people think about the cost and spend less. Switch to using credit cards instead, and one study found people spent 12% to 18% more than they would using cash.
We love a good chat at NatWest Rooster Money, so here are some ideas to kick start conversations with your kids about ways to pay:
Discuss the benefits of cash compared to cards. Which is easier to use? Which helps you better keep track of your spending? Which works for bigger payments? Which one might be more expensive to use and why? When you’re out shopping, explain which method you are using and why.
When shopping in a supermarket or paying at a restaurant, ask your child to check the bill against what they had. What cost most? Did it add up to more or less than they expected?
If your child wants to buy something, from sweets to a bicycle, ask them where they would buy it and which way they might use to pay.
Talk to your kids about taking care that no-one can see the PIN when using a cash machine. Explain that it’s not a magic money making machine - any withdrawals come out of your bank account, and you need to earn money so you can look after them!
Expert View“Kids love everything digital, but it's not easy to grasp that there is ‘real money’ behind the numbers on a screen. You can help this by talking about your own money decisions. If you get money out of a cash machine, say "I'm going to check my bank balance first, so I know how much I can afford" so your child sees this as the grown-up thing to do. Contactless payments are especially hard to explain - even for adults they can feel too easy! It's much easier to understand that, if there is only £24 in your purse, you can't buy something that costs more.”
We all learn best by doing, so here are some fun activities you can try:
For younger children, play with a toy cash register. Encourage them to count out coins to pretend-buy and sell small objects. Talk about how, when the money is spent, it’s gone.
Show your child all the cards in your wallet and explain what they are for. Explain the difference between debit cards, which take money out of your bank account straight away, and credit cards, which send a bill once a month, and charge interest if you don’t pay it.
Play games like Monopoly, which teach children about the role of the bank, paying tax, earning rent and running out of money. The Game of Life also includes tax, overspending and investing.
Print out a bank statement or show a bank statement online or on your phone. Talk through the different items and the different ways used to pay, so they can see money coming in, money going out for bills and other spending, and what’s left afterwards.
Parent View“It's really important to talk about different ways of paying for things. Otherwise it can be difficult for children to grasp the concept. For example, my nine year old son wanted to spend his Christmas money on a new game so I paid with my credit card and asked him for the money when we got home. He couldn't get his head around why he should give me cash when he hadn't seen me pay any money so I had to explain how a credit card works and, importantly, how the money still comes out of my account even when I am not using cash to pay for something."
