What is money?

Have you ever tried to explain the concept of money to a child? Possibly along the surface,  most children have some sense of what money is at an early age. Try this with your little one. Ask them what money is?

My guess is that your child would respond with something along the lines of “Money is something that I/we use to buy things that I/we want.”

While that definition is a sufficient starting place, it is certainly limiting if you want your child to have a firm handle on personal finance. When we look closely at that definition, it only talks about the spending of money. Additionally, it only just touches on why we need money, but it leaves me wanting for more.

How To Define Money

Here is my definition of money, and I would suggest you use it with your child too.

“Money is something that we trade for things of value.”

This definition is general enough that it captures new digital currencies, as well as, the well-established notes and coins that we are all so accustomed to using. I also like it because it uses the word “trade” rather than “buy” or “sell.”

Trade Vs “Buy and Sell”

When you buy or sell something for money, you are essentially making a trade. We must trade something to acquire money. We could sell something for money. But if you are like the vast majority of people, you likely make a living by working, not by selling something. When you go to work, you could say that your employer buys your time and your skills, or you could say you sell them your time and skills. Both of those statements are factually true. But I think it is more apt to say you trade your skills and time to your employer for money. The use of the word trade captures both parties’ motivations. You want the money, and they want the time and skills. You both come out getting what you want.

Similarly, when you go to the store, you trade the money you acquired to buy the food, and clothes your children eat and wear. No matter what side of the trade you are on, if you are buying or selling, it is always a trade. I feel like trading is a concept and term that children can relate to intuitively. From a young age, children start the practice of trading. They trade snacks, cards, toys, books; you name it, they trade it.

Needs vs Wants

The other reason I prefer this definition of money is that it better addresses what we trade for money. We need our children to be able to discern the differences between needs and wants. To do that, we need to broaden what they think we use money for. If they think money is only used to acquire what we want, it will be harder to cement in the differences between wants and needs. That is why I prefer speaking about money as a means of acquiring things that we value. Those things can be the things we want, but it can also be the things that we need, such as food or clothing. By speaking about what we value, we can more easily talk about what we prioritize.

How do you feel about my definition of money? Do you have a better description? Did your kids throw you for a loop when you asked them what money is? Let me know in the comments.

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