How To Make Your Kids Aware Of What Money Is

“Daddy, here, have some money.”

My daughter looked at me and stretched out her hand to hand me the imaginary money. I, of course, reach out and accepted the precious gift. She was playing that she went to the store to get ice cream and in her head, I guess I was the store clerk.

This event played out in a matter of seconds but it got me thinking a few things. The first reaction was that my inner finance geek was cheering. Now I can soon start teaching my daughter about money and everything I know about it.

But thinking more about this also raised the question, what is money? In the eyes of a child, I mean. My inner finance geek stopped cheering because at that moment I had no idea of how to explain money to my daughter. If I had to do it right then and there.

She's too young to hear any explanation on the topic now anyway. But I want to prepare for the topic when the time does come. And I want to share my thoughts with you since it can help someone else with the same explanation.


Money To A Two-Year-Old

It happened again. My daughter was playing with her older cousin a few days ago and they went to the store again. I wonder why they go to the store so much in their play. What does that say about us?

Anyway, again my daughter came to me and offered some fantasy dinero. I accepted and then asked her what money is. Her answer was rather logical.

"It's what we give to the store."

I tried a follow-up question and asked what the store does with the money. But the time for questions had passed and she was already consumed with her play again. I guess I will return to that question the next time an opportunity presents itself.

Money To An Adult

I will not write this part to insult anyone's intellect or knowledge about the world. I figure that if I'm going to be able to explain money to a child, I have to be able to explain it to a grown-up. Right?

Most of us are familiar with the concept of money. Most of us use it daily. Even if we don't use the paper bills or coins, we still use money.

In fact, the physical money is getting more and more uncommon to use on a daily basis. This is also a funny aspect of the idea of money for a child growing up today. Will they see physical money in the way we used to when we were growing up? Today money is often just a few numbers on a screen.

It's a little bit like the symbol of a phone on our smartphones. Do children growing up today even know what that symbol actually symbolizes? How many have seen that kind of telephone?

But this wasn't about phones, so back to the topic of money. If you search for “what is money” on Google you get the dictionary explanation at the top: “a current medium of exchange in the form of coins and banknotes; coins and banknotes collectively.” That makes sense. But what does that mean?

Let’s check Wikipedia too: “Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money.

Ok, cool. Let’s see if I can break this down into my kind of thinking.

Money needs to be something that’s kept on record somewhere, which you can verify. It needs to be in some setting like a country or similar decided construction. Like the European Union, I suppose. You can pay or repay stuff with it. The last part from Wikipedia is interesting.

The main function is to be something used for exchange. If you can verify this thing somehow it can count as money.

Money And The Trade Problem

I’ve explained that I’ve been a gamer for some time right? I used to play a fantasy game called Diablo 2. It was on a network called I’ll try to make an explanation of money through Diablo 2. In the game, you could find items. These items varied in attractiveness to other players. Let’s say you found the best bow in the game, you could trade that for a load of other things.

The problem was that what if the other player didn’t have all the things you wanted. Then they wouldn’t be able to trade with you until they got all the stuff you wanted, right? I will not go into nerdy details. Anyway, there was a ring called Stone of Jordan that was valuable but also rather abundant. A bit like money. To avoid the trading problem explained above, the community in the game accepted Stone of Jordan as money.

You could then buy the best bow in the game for say, I don’t know, 100 Stones of Jordan. The player who sold it could then go and buy whatever he or she needed with the “money” for the bow.

Ok, so the Stone of Jordan was not on any verifiable record I suppose. Or, that depends on what that means. In my mind, it means that someone keeps track of how many of those money items are in circulation.

Stone of Jordan was real in the game. But I doubt it would qualify as money with Wikipedia’s explanation. Apart from that though, it did function as a generally accepted medium for payment. At least within the game community (the socio-economic context).

For us, in the real world money serves the same purpose. We used to trade and barter in things. You could be a baker who needed to get your leaky roof fixed. You talked to someone handy and offered 10 loafs of bread. The handy dude, or dudette, who loves bread would see that as a sweet deal and fix your roof.

But what if the only person in town who could fix your roof was gluten intolerant and didn’t want to get near your bread? You’d have to find something that person wanted, let’s say the person loved carrots. You’d have to find a farmer who grew carrots and wanted to trade a bunch for bread. This would still be rather easy, but you see where I’m going.

Money gives us an accepted thing of some certain value that we can trade for the stuff we need or want.

But can we explain money to our children in this way? Nah. Don’t think so. Still too complicated. Or not too complicated but not relatable.

What Is Money In Our Social Context

When our children see us paying for things, either with cash or card they only see that we get it out of our wallet. Especially for younger children, it would be easy to assume that that’s where money comes from. I know I thought so when I was a kid. I could go get some money from dad’s wallet because it was always there.

I didn’t see where it came from. I didn’t understand that my parents worked for the money. Most children don’t know that either.

So what is money to us today then? Well, our children usually understand that we go to work and that we spend a ton of time at work. They don’t know why we work or what work is either. Unless you’ve been good at explaining this to your kids.

For us, we trade our time (work) for money (salary). In there somewhere you have the factor expertise too if you want. I’m dumbing this down so that I can use it to explain to a child, you know. Not that children are dumb, they certainly aren’t. But I want as few variables as possible.

So our time and effort spent at work give us money in the bank or the wallet. This is true in a simplified way for every profession. A baker today gets paid for the bread. But there’s more baked into the bread than only fancy ingredients. In the bread, you also bake in the time taken to bake a loaf of bread, the electricity used for the oven, the rent for the bakery and other costs that might be relevant.

This gives the total cost of the bread. It’s a combined cost of everything the baker needs to bake the loaf, plus the value of the baker’s time. Money gives me as an office worker the ability to buy this nice loaf of bread. Because I doubt the baker need my services if I would offer them as a trade.

Teaching Kids About Money

Let’s see if I can put this into practical use too, with some sort of plan on how to explain it. Otherwise, it’s just been a long rant on what money is, right? I want you to have something useful at the end of this, that’s why you’ve read this far after all.

We Trade Our Time For Money

With the explanations above, how do we put that to use when we talk to our kids then? I say that the first step is to explain that our work is what makes us money. This will include talking about what we do at work. Your kid might just love hearing you explain your work also.

The time we spend at work generates money. But money disappears when we use it. So we have to work more. We exchange our time for money, that’s the simplest way to say this. However, time is an abstract construct as well. So this isn’t easy to explain. It, of course, depends on how old your child is.

But bottom line, simply explain that when we’re at work, we make money.

Trading Money For Wares

Next, we need to explain that when we go shopping we use the money we get from work to buy things like food. Buying things use money and the money goes away. The way we usually get more money is to work more.

A good way is to visualize this for your child. Use toy money or real money. Play store and make them buy imaginary things from you. Take money and put it in your pocket. It’s good if your kid understands that money changes hands this way.

The important lesson to get across here is that money that we use money to get other things. Things we need in our family.

Explaining Money To A Child By Using Languages

Money is something rather abstract. Something we have created to make it easier for us in the adult world. Abstract thinking isn’t something most children handle very well, at least not at a young age. Today, many children have encountered children from other cultures who speak other languages though. Thank you globalization.

Let’s think about the trade society again and let’s also pretend that the baker’s loaf is the language French. The roof mender’s services are the language German. If they don’t find someone to translate for them, they can’t talk to each other in an easy way. Sure, they can gesture and point. So let’s say that the signs and gestures would be the carrots in the example above. Something that can make the trade work, just not very smoothly.

But what if they found a translator? Or better yet… do you know about the language Esperanto? It’s a constructed language that should remove the problem of us all speaking different languages. See where I’m going with this?

Money, in this explanation, is Esperanto. It’s the language that makes us all understand each other. I guess it could be English, Spanish, or Mandarin as long as a big enough group of people speak the language the function would be the same.

Did This Make Sense?

It’s the first time I’ve written something like this to make it easier to explain things for children. What do you think, is this a good way to explain it? If not, what would you do in a different way? Have you explained money to your children - how did you do it in that case? 

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About the Author

I've always had an interest in personal finances and money. Since money is so closely connected to our happiness I want to share what I've learned during the years. My mission is to make things a bit better in the financial area for people who read my post.

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