Sensible Cash Podcast for Children: The place Does Cash Come From?

Welcome to NerdWallet’s Sensible Cash podcast, the place we reply your real-world cash questions.

This week’s episode we tackle cash questions from two youngsters, Ellington and Langston, who need to know the place cash comes from, the place it goes after you spend it and learn how to determine how a lot you might want to save.

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Chances are high, you consider cash an excellent quantity. However it may be useful to decelerate and take into consideration the basics of the way it truly circulates across the economic system and the function you play in that cycle. On this episode, we tackle two questions from younger listeners who helped us do exactly that. One requested: The place does cash come from, and the place does it go after you spend it? One other questioned learn how to determine how a lot cash to spend and how a lot to avoid wasting.

The solutions are extra difficult than you may anticipate. Cash is created by the federal authorities, however earlier than it will get to you, it takes an extended and circuitous journey by way of money registers, banks and different individuals’s wallets. If you spend a greenback, you’re casting it again into the economic system as soon as extra, and also you by no means know the place it’d wind up. We visited a financial institution to get a way for the other ways cash can journey.

• Seek for the straightforward reply: In case your youngsters are asking you cash questions you possibly can’t reply, don’t be afraid to dig in and problem your self to interrupt by way of the shorthand you employ daily.

• Lose the lingo: To assist reply youngsters’ cash questions, search for particular examples and supplies they’re acquainted with. And don’t be shy about asking specialists to elucidate what they know utilizing plain English!

• Grasp the fundamentals: Even having a primary idea of how a lot cash you might want to save and the way a lot you possibly can spend can do wonders for serving to you meet your monetary targets.

Extra about cash and saving for teenagers on NerdWallet:

Sean Pyles: Welcome to the NerdWallet Sensible Cash podcast. I am Sean Pyles. On this podcast, we often reply adults’ cash questions, however not this time. This time round, we’re answering a few youngsters’ cash questions, truly. And main the Nerdy cost this episode are Nerds Andy Rosen and Johanna Arnone. Are you able to guys every say slightly bit about yourselves and what we’re doing right here at present?

Andy Rosen: I am Andy Rosen. I am a author on the investing staff at NerdWallet. I have been a journalist for greater than 15 years, and in my spare time, I’ve at all times loved making content material for teenagers, together with some podcasts for teenagers previously.

Sean Pyles: Cool. And you’ve got youngsters of your individual?

Andy Rosen: Yep. I’ve two youngsters, aged three and 6.

Sean Pyles: OK. And Johanna, what about you?

Johanna Arnone: I am Johanna Arnone, and I am an editor right here at NerdWallet on the mortgages staff. Earlier than I received to NerdWallet, I edited magazines for teenagers. And I’m additionally a mum or dad. I’ve an 11-year-old and a seven-year-old.

Sean Pyles: OK, nice. So I’ve received to ask you, what is the deal right here? Children aren’t recognized for having loads of monetary selections to make, however right here you two are answering a few youngsters’ cash questions.

Andy Rosen: So we received some nice questions from youngsters across the nation, however I used to be significantly all in favour of a message we received from Ellington and his brother Langston, who stay in Baltimore. That they had some actually basic questions on how cash comes and goes.

Johanna Arnone: This is among the causes I take pleasure in attempting to speak to youngsters about grown-up subjects. As a result of if you actually break down the questions they ask, it challenges our personal understanding of issues that we thought we knew. Take into consideration all of the shortcuts that we take simply to get by way of the day. And people shortcuts do not work for teenagers. What’s cash? Strive answering that query shortly.

Sean Pyles: OK, cool. Effectively, I’ll allow you to guys take it from right here.

Andy Rosen: I referred to as up Langston and Ellington, and this is what they requested.

Ellington: My identify is Ellington, and I am eight, and I am from Baltimore.

Andy Rosen: All proper. And do we now have one other one there?

Langston: My identify is Langston. I am six years previous. I stay at Baltimore.

Andy Rosen: Nice. Effectively, it is very nice to satisfy you each. I heard you guys had some questions on cash. I would like to know what they’re and inform me how I may help you discover out. And you recognize, possibly why you are curious.

Ellington: I need to know the place does cash come from, and the place does it go as soon as you employ it?

Andy Rosen: Effectively, what do you assume?

Ellington: I believe the cash comes…it is similar to, it comes from…I truly do not know.

Andy Rosen: Do you ever get cash?

Ellington: I even have a piggy financial institution that appears like a automotive with wheels that really flip.

Andy Rosen: Oh, that is fairly cool. And the place do you get the cash to place in that piggy financial institution?

Ellington: A few of the cash was l already in there once I received it. Some cash I simply discovered and I put it in my piggy financial institution.

Andy Rosen: Have you ever ever considered taking cash out to do one thing with it?

Ellington: Sure, however there is a key that goes with it and I haven’t got the important thing.

Andy Rosen: Effectively, that causes you to avoid wasting, I suppose.

Ellington: My brother has a query, too.

Andy Rosen: Let’s hear it.

Langston: I need to know why, how a lot cash to spend and the way a lot cash to avoid wasting.

Andy Rosen: Is there one thing you need to purchase or one thing you need to save up for?

Langston: I needed to get a Bumblebee Transformer.

Andy Rosen: Oh, that is so cool. Bumblebee is a good one. So I believe we now have two questions right here. One is, how do you save up for one thing? And the opposite is, the place does cash come from and the place does it go? I will take these questions and work on them with my colleague and we’ll get some solutions for you.

OK, I am right here with my colleague, Johanna.

Johanna Arnone: I suppose the primary query that we must always begin with is the place did the cash come from to start with, and what was its beginning location? I undoubtedly assume we have to speak to some individuals who can inform us extra about their nook of experience.

Andy Rosen: What I would love to do is see what occurs on the financial institution.

Johanna Arnone: I believe that is a good suggestion. Whereas you determine the place the cash is coming from, and the place it is going, to reply Ellington’s query, I will look into learn how to purchase a Bumblebee Transformer to assist out Langston.

Andy Rosen: I received in contact with some individuals at Brookline Financial institution, which is among the regional banks right here in Massachusetts, the place I stay. So, who’re we speaking to now?

Peter Moroney: Peter Moroney, department supervisor of the Clarendon Avenue workplace with Brookline Financial institution. We’re a department, so we settle for deposits from clients. Clients come and make withdrawals. We additionally open accounts for private clients and enterprise clients.

Andy Rosen: So, the cash is available in right here and it goes out of right here.

Peter Moroney: It does, yeah. We’re sort of like a big piggy financial institution, if you’ll. Clients will carry cash right here, and we’ll maintain it for them. We pay curiosity on it at instances, so it is a good suggestion to place some cash in a financial institution so you can doubtlessly make slightly extra money. And in case you ever need your a refund, you can come get it from us and make a withdrawal from the piggy financial institution.

And we additionally assist companies the place you can spend your cash. The ice cream retailer across the nook or the comedian e book store, they may come right here with the cash that you’ve spent at their outlets, and likewise put it within the financial institution.

An ATM machine is one other method for individuals to entry cash. Once more, take cash out of the financial institution or put cash into the financial institution electronically moderately than come into the department. Most banks have an ATM machine the place you can also make these sorts of transactions. So you could have a debit card, loads of youngsters’ dad and mom most likely have them, and so they’ve seen them use them at shops. So you need to use that card right here at our machine to get money or make a deposit.

Andy Rosen: So in case you put cash into that, what occurs? You may put cash into an ATM in addition to take it out, proper?

Peter Moroney: Oh, completely, yeah. An ATM is a teller. You have seen tellers at a financial institution if you go, most likely together with your dad and mom, someone’s standing behind glass accepting deposits. It does the identical factor, besides it is a machine. So it should take the cash in, it should maintain it for you, it should course of it for you.

Andy Rosen: When you put your cash into the ATM machine and also you come again and get cash out, it is most likely not going to be the identical greenback invoice, proper?

Peter Moroney: That is an excellent query, however no. I would like to say that it stays in slightly pot within the again, nevertheless it would not. There’s slightly compartment that may settle for cash that is available in, after which we course of it a technique, and there are different compartments that maintain cash that is going out. So there may be an out and in field, if you’ll. That is separate. So yeah, it isn’t the identical stuff.

Andy Rosen: So if you put it in, the financial institution will then file that your account now has this a lot in it, and also you may use these greenback payments to do one thing else, however you possibly can at all times come again to the financial institution and get greenback payments, is that proper?

Peter Moroney: That is completely right, yeah. That is the easiest way to place it.

Andy Rosen: Bought it. OK. Michael Rawan, who’s accountable for all their deposits, that is cash coming into the financial institution, supplied to interrupt it down for me slightly bit extra.

So Langston and Ellington have been speaking about having piggy banks and saving that method, and so they needed to know, “As soon as I spend my cash, what occurs to it?”

Michael Rawan: Let’s speak concerning the piggy financial institution itself and the way it works at present. And it is nice for the individuals which might be utilizing it. So you could have it in your own home, hopefully someplace safe, you set cash in it, your dad and mom or different members of the family can put cash in it, and it really works nice. So when you’ve got the cash within the piggy financial institution, how have you learnt how a lot is in there? Effectively, you can open it up after which rely it, however that could possibly be problematic each time you need to know the way a lot cash is in there. So there are some drawbacks to the piggy financial institution. So actually that is the place the financial institution is available in, in case you consider it. So it is nonetheless the identical idea. It is nonetheless your cash. However as a substitute of it being within the piggy financial institution, it is right here on the financial institution in what we name an account.

Andy Rosen: Possibly we are able to speak slightly bit about why it is completely different to have cash in a financial institution when it comes to what occurs to the cash after you spend it. So, if I need to purchase a cookie from my buddy, I carry a greenback to his home. I give him the greenback, now he has the greenback. It simply actually sits there, proper? If I’ve cash within the financial institution and I purchase a cookie from the shop, what occurs with the cash is kind of completely different. And I am questioning in case you can speak about what occurs to that cash after it will get spent and the way it will get right here, and possibly what occurs to it as soon as it is right here.

Michael Rawan: Certain. So let’s return to that instance. You are on the retailer and you purchase the cookie, the sweet bar, the journal, no matter. And for example all that is $10. You give the shop the $10, nevertheless you do it. Whether or not it is the cardboard, the examine, the money. Now the shop has that $10. So the extra sweet bars, and the extra magazines that retailer sells, all all through the day, they accumulate all that cash and so they deposit that at their establishment.

However then additionally they return to their establishment, their financial institution, and so they make funds out. They pay all their workers. They pay all their distributors which might be offering them with the stock for the shop. They pay their landlord for the lease. After which what occurs is these individuals are all receiving the cash, and guess what they’re doing? They’re paying their workers, or they’re saving the cash, or they are going out and shopping for issues for themselves.

They’re shopping for meals, groceries, no matter. So the cash is, actually if you consider it, is for probably the most half, with the setup of the banking system, what we’re doing is we’re routing the cash, the place the cash is all transferring all through the day 24/7. And it is going out and in of all these completely different banks. And actually if you consider it, the significance of the banks is, at any time, in case you want us to inform someone how a lot cash you even have, they get an impartial, approved, trusted useful resource saying you could have this a lot cash on the financial institution right now.

All proper, Johanna. So I went to Brookline Financial institution and I discovered loads of cool stuff about the place cash comes from, the place it goes and what occurs if you spend it.

Johanna Arnone: I really like an excellent subject journey and it appears like that’ll assist us reply Ellington’s query, however let’s not neglect about Langston’s query. So I have been shopping the toy aisles, taking a look at Transformers, and I did some analysis into what Langston requested us about, which was learn how to spend cash and the way to economize, and the way a lot to do of every. So, that will get at that concept of affording a Bumblebee Transformer. I can speak extra about that once we converse to the youngsters.

Andy Rosen: OK, nice. Let’s name up Langston and Ellington and inform them what we realized.

All proper. Effectively, thanks all in your superior questions. We’re actually excited to share with you what we realized. I introduced in my colleague Johanna right here, and he or she helped me reply these questions. Do you need to say hello, Johanna?

Johanna Arnone: Hello there. Good to satisfy you guys.

Andy Rosen: Effectively, I suppose we must always simply get began. So I actually took on Ellington’s query. I believed it could be good to go to a financial institution, and what I discovered was actually attention-grabbing. When you put a greenback within the financial institution, it is actually completely different from placing it right into a piggy financial institution, as a result of what you actually do is you give them the greenback and so they write down how a lot of your cash they’ve. They only have a sure variety of {dollars} and so they maintain monitor of it for you. So it makes it simpler for you if you wish to spend it or reserve it with out carrying it round, that is sort of what a financial institution does. I suppose, what did you assume would’ve occurred if you spent a greenback? What was in your creativeness earlier than?

Ellington: I believed the individuals would get the cash after which use it to pay for stuff that they wanted. After which the stuff that they paid for would go, after which it could simply maintain going round, after which possibly typically the identical cash would come again to you.

Andy Rosen: You already know, it’s doable. It is actually laborious to inform as a result of all {dollars} principally look the identical. However in case you look actually intently, you may have the ability to discover some indicators {that a} greenback you had earlier than is similar greenback you could have once more, however you have been actually spot on. I believe you had an awesome grasp of it entering into, and I believe that is most likely why you requested such an awesome query. So I will hand off to Johanna right here, and he or she’s going to speak slightly bit extra about Langston’s query.

Johanna Arnone: Tremendous. So Langston, I heard that you just requested about how a lot cash to spend and the way a lot cash to avoid wasting. And I simply needed to inform you, I believe that’s such a wise query. And the brief reply is that it is a good suggestion to spend a part of your cash and save one other half. Maintaining your cash for an additional day as a substitute of spending it at present, that is saving, proper? I guess that is one thing you already knew. Am I proper about that, Langston?

Johanna Arnone: OK. However I believe you have been interested by how a lot, precisely. So I seemed up some ways in which grown-ups make these decisions utilizing one thing referred to as budgeting. However I believe you and I ought to do an exercise to determine it out collectively. Are you keen to do this with me?

Johanna Arnone: OK, thanks. I need to use our arms to assist work out budgeting. So anybody listening can comply with together with us as we do this. Let’s maintain out each of our arms in entrance of us, with our fingers unfold out, and let’s wiggle our fingers and thumbs. So I am taking a look at mine, and these fingers and thumbs are going to symbolize all the cash that we now have proper now. Are you able to see your arms proper now in entrance of you, Langston?

Johanna Arnone: Cool. All proper. Now let’s do that. Tuck in your thumbs, and wiggle simply these fingers which might be above your palms. That half is the cash you could spend now. And you can spend it on the issues that you just want or the issues that you really want. All proper, now we will reverse it. Now, fold down your fingers so solely the thumbs are protruding and the fingers are all tucked in. Wiggle your thumbs. That is the a part of the cash you could save for an additional day. All proper. I will shake out my arms and allow them to calm down. You are able to do the identical if you would like. Langston, I heard that you just needed to purchase a Bumblebee Transformer. Is that proper?

Johanna Arnone: Cool. Is there anything that you just’re hoping to avoid wasting up for and purchase?

Johanna Arnone: What’s it?

Langston: Most likely, I might simply purchase some groceries.

Johanna Arnone: Yeah? You’d? You’d assist out your loved ones like that?

Johanna Arnone: Would you get one thing good to eat?

Langston: Sure. And in addition I might get one thing for my brother.

Johanna Arnone: Wow. That is very nice. All proper. Effectively, let’s take these two examples then. When you try how a lot a Transformer, or how a lot the groceries that you just like price on the retailer and that quantity is what you could have proper now, that is a part of your spending proper now cash, proper? Or you can examine, and the worth could possibly be greater than you could have proper now. And that might be OK since you may maintain saving a part of your cash till in the future you’d have sufficient.

So typically, saving is a good behavior to apply if you’re a child, when your aim is to purchase one thing tremendous enjoyable, like a Transformer or tremendous considerate, like snacks in your brother. However then if you develop up, you’ll have already got a plan for learn how to at all times be setting apart cash for the longer term, so you possibly can cowl surprises and large bills. So possibly the reply is, spend simply a part of your cash, and if you save the remainder, give your self two large thumbs up.

Andy Rosen: Effectively, what do you assume? Do you assume we have answered your questions? Do you assume you can make good cash selections now?

Langston: Sure. Thanks for serving to us.

Andy Rosen: Thanks. It was actually enjoyable to listen to your questions, and I believe I realized lots simply attempting to reply them.

And that is all we now have for this episode. Do you could have a cash query of your individual? Flip to the Nerds and name or textual content us together with your questions at 901-730-6373. That is 901-730-NERD. You may also e-mail us at [email protected] Additionally, go to nerdwallet.com/podcast for extra details about this episode. And bear in mind to comply with, charge and assessment us wherever you are getting your podcasts.

Johanna Arnone: And this is our transient disclaimer, thoughtfully crafted by NerdWallet’s authorized staff. Your questions are answered by educated and gifted finance writers, however we aren’t monetary or funding advisors. This Nerdy information is offered for basic instructional and leisure functions, and should not apply to your particular circumstances.