What is Money, Anyway? Here’s the Definition and History of Money.

Teach Your Kids About Money

Updated April 27, 2023

To teach kids about money….

…You have to talk about money

The facts don’t lie.  Most of us don’t like to talk to our kids about money.  We dutifully teach them how to tie their shoes, we remind them to wear their bike helmets, and some of us even tackle the birds and bees with our littles.  When it comes to money, however, we often stay mum.

Some of us find it rude to talk about money.  Others don’t feel armed with the right resources to answer our children’s money questions.  And let’s admit it, you’re not officially a parent until you’ve bold-faced lied to your expectant kid at a vending machine: “I forgot my wallet!!”  We’ve all been there.

It’s time for that to change. Whether we like it or not, kids learn the vast majority of their money habits from their parents before they’ve even hit double digits. The buck starts with us.  But where do we even begin?

Let’s get back to basics and start at the beginning. What is Money, Anyway? 

Talk to your kids about money and what it is used for.

Let's talk about cash, baby.

In a world where mom taps her phone twice and an Amazon box magically materializes within hours on the doorstep, our children have lost an essential experience - repeatedly watching cash change hands as we make daily purchases. How do we teach kids about money if they never see it? They see us swipe credit cards and use Apple Pay, send Venmos and Paypals, but kids these days rarely see their grown-ups pay, count, or save in cold hard cash.

While we can’t argue for the convenience of these money-sharing shortcuts, something is indisputably lost for our children as technology now governs our purchasing habits. Money doesn’t feel real when it zips through the internet ether, so it is up to us as parents to bring it back to basics with our little ones. Since children barely see money exchanged these days, do they actually know what money is? We put the question to the test.

We asked our not-so-cheap-by the dozen kiddos this very question. Their pithy little answers ranged from, “how you pay the bills,” to “dollars and coins.” A solid start for sure. But when we dug a little deeper, we realized they had quite a bit to learn. Even adults scramble to nail down the true meaning of money, because this simple, everyday commodity has layers of complexity to it. For that reason, we will do our best to break it down for kids and parents alike.

What is money? Here’s how to define money for kids.

W.K.S.K. (What Kids Should Know)

The dictionary tells us that money is something generally accepted as a medium of exchange, a measure of value, or a means of payment. That means literally zero to our six year olds. 

In kid-speak, we say money is what we use to buy things we need or want and pay people for work that they do. But while those shiny coins and smooth bills are intriguing, they don’t actually hold any value themselves...what use is a thousand-dollar bill on a deserted island? Instead, the coins and bills measure and store value based on how much we all collectively determine different goods (i.e. soccer balls, gummy snacks, LOL dolls) or services (i.e. babysitting, haircutting, table waiting) are worth.  Are you with us so far?

Teach kids about the history of money

It’s a snoozefest...grab your coffee.

Money is actually a modern phenomenon. For most of history, people simply bartered, or traded, for things they needed. They might exchange a loaf of bread for some fresh eggs, or pottery for tools. But bartering can be cumbersome (who wants to lug around some camels in exchange for 10 bolts of cloth?) so humans adapted. Just over 3000 years ago, people started using simple materials such as grains, shells, or even basic metal coins as forms of currency. These early forms of money were more portable, uniform, and divisible, so people could make easier, more accurate transactions for the goods and services they needed. 

The introduction of paper money was the next step in the currency evolution. Paper money was first used in China in the 700s, but it wasn’t until 1862 that paper bills were issued here in the United States under President Abe Lincoln. Around this same time, Americans started using personal checks, or written agreements, to transfer money from one bank account to another. 

A century later, it was all about the plastic. The swinging sixties brought us bank cards, such as debit or credit cards. These allowed people to make payments at retailers or withdraw money from ATMs with just a simple swipe. Later in the 1990s, people routinely started using these bank cards to make online payments and the sale of goods and services online has now become the norm.  Now “tap and go” instant payments have replaced that laborious swipe and with just a mere touch of our card, we are off with our cold brew in hand. The future looks even more efficient. Soon technology will incorporate biometric scanners to recognize our fingerprint, face or voice to allow for a truly seamless transfer of money.

BUT, cash isn’t passé quite yet. Countries or currency unions (like the Euro Zone) continue to print their own paper money and mint their own coins for their citizens to use to purchase goods and earn wages.  How does this work in the United States?  After the U.S. Mint and Bureau of Engraving mints coins and bills, they get sent to the Federal Reserve System and transported by armored trucks to financial institutions.  Businesses and individuals can then make deposits and withdrawals from their accounts.  Once minted, most bills change hands about 500 times over their lifespan.  Now that’s what we call money movement. 

How to get money (earning).

WAKE UP! There’s no doubt money never sleeps.

Even if we wanted to live completely off the grid, the simple fact is that we need money to survive in the modern world. We need money to pay for basic needs like clothing, food and shelter. We need money to travel from place to place in buses, trains or cars. We also need money for essential services provided by doctors or dentists. 

But where do people get the money to satisfy even their most basic needs? The short answer for kids is that people work or provide services to earn money. Some scoop ice cream, teach nursery school, collect the trash, build houses or wash windows to make money. Others design clothing, drive trucks, farm vegetables, or care for the elderly to earn their income. There are seemingly countless ways to bring home the bacon and jobs are constantly evolving as technology and innovation shape the future of both work and money.

Times are changing and they are changing fast. The future is looking towards cashless societies, where digital payments and cryptocurrencies may alter the face of money altogether.  We are here for the ride and we want our children to be armed and ready with the knowledge and resources they need to stay nimble in our fast-paced world.  An understanding of what money actually is, where it comes from, and how we earn it provides them with the financial foundation they need to thrive.

To take the mystery out of this seemingly magical money, we simply recommend narrating as you spend:

“I’m using my debit card to pay for this coffee and bagel that costs $4.75.  The money is going to zoom out my bank account and zip right into the coffee shop’s account so they can be paid.  How cool is that?”