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 methods to determine how a lot it is advisable to save.
Take a look at this episode on any of those platforms:
Earlier than you construct a price range
Monitor all of your spending at a look to know your tendencies and spot alternatives to save cash.
Our take
Likelihood is, you consider cash quantity. However it may be useful to decelerate and take into consideration the basics of the way it really circulates across the financial system and the position 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 puzzled methods to determine how a lot cash to spend and how a lot to save lots of.
The solutions are extra difficult than you would possibly count on. Cash is created by the federal authorities, however earlier than it will get to you, it takes an extended and circuitous journey by money registers, banks and different folks’s wallets. Once you spend a greenback, you’re casting it again into the financial system as soon as extra, and also you by no means know the place it would wind up. We visited a financial institution to get a way for the other ways cash can journey.
Our suggestions
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Seek for the straightforward reply: In case your youngsters are asking you cash questions you may’t reply, don’t be afraid to dig in and problem your self to interrupt by the shorthand you utilize each day.
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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 consultants to clarify what they know utilizing plain English!
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Grasp the fundamentals: Even having a fundamental idea of how a lot cash it is advisable to save and the way a lot you may spend can do wonders for serving to you meet your monetary objectives.
Extra about cash and saving for youths on NerdWallet:
Episode transcript
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, really. And main the Nerdy cost this episode are Nerds Andy Rosen and Johanna Arnone. Are you able to guys every say just a little bit about yourselves and what we’re doing right here right now?
Andy Rosen: I am Andy Rosen. I am a author on the investing workforce 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 youths, together with some podcasts for youths prior to now.
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 workforce. Earlier than I received to NerdWallet, I edited magazines for youths. And I’m additionally a mother or father. 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 usually are not recognized for having plenty of monetary choices 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 eager about a message we received from Ellington and his brother Langston, who stay in Baltimore. They’d some actually basic questions on how cash comes and goes.
Johanna Arnone: This is without doubt one of the causes I get pleasure from making an attempt to speak to youngsters about grown-up subjects. As a result of whenever 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 the day. And people shortcuts do not work for youths. What’s cash? Strive answering that query rapidly.
Sean Pyles: OK, cool. Effectively, I’ll allow you to guys take it from right here.
Andy Rosen: I known as up Langston and Ellington, and here 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’ve one other one there?
Langston: My identify is Langston. I am six years outdated. 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 utilize it?
Andy Rosen: Effectively, what do you suppose?
Ellington: I believe the cash comes…it is similar to, it comes from…I really do not know.
Andy Rosen: Do you ever get cash?
Ellington: I even have a piggy financial institution that appears like a automobile with wheels that truly 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 save lots of, I assume.
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 save lots of.
Andy Rosen: Is there one thing you need to purchase or one thing you need to save up for?
Langston: I wished to get a Bumblebee Transformer.
Andy Rosen: Oh, that is so cool. Bumblebee is a superb one. So I believe we’ve 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’ll 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 assume the primary query that we should always begin with is the place did the cash come from to start with, and what was its beginning location? I positively suppose 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’ll look into methods to purchase a Bumblebee Transformer to assist out Langston.
Andy Rosen: I received in contact with some folks at Brookline Financial institution, which is without doubt one of 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 prospects. Prospects come and make withdrawals. We additionally open accounts for private prospects and enterprise prospects.
Andy Rosen: So, the cash is available in right here and it goes out of right here.
Peter Moroney: It does, yeah. We’re type of like a big piggy financial institution, if you’ll. Prospects will convey 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 could possibly doubtlessly make just a little more cash. And for those who ever need your a reimbursement, you could possibly come get it from us and make a withdrawal from the piggy financial institution.
And we additionally assist companies the place you could possibly 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 retailers, and in addition put it within the financial institution.
An ATM machine is one other approach for folks to entry cash. Once more, take cash out of the financial institution or put cash into the financial institution electronically somewhat than come into the department. Most banks have an ATM machine the place you can also make these forms of transactions. So you may have a debit card, plenty of youngsters’ mother and father in all probability have them, and so they’ve seen them use them at shops. So you should utilize that card right here at our machine to get money or make a deposit.
Andy Rosen: So for those who 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’ve got seen tellers at a financial institution whenever you go, in all probability along with your mother and father, any individual’s standing behind glass accepting deposits. It does the identical factor, besides it is a machine. So it’ll take the cash in, it’ll maintain it for you, it’ll course of it for you.
Andy Rosen: In the event you put your cash into the ATM machine and also you come again and get cash out, it is in all probability not going to be the identical greenback invoice, proper?
Peter Moroney: That is query, however no. I would like to say that it stays in just a little pot within the again, nevertheless it would not. There’s just a little compartment that may settle for cash that is available in, after which we course of it a method, and there are different compartments that maintain cash that is going out. So there’s an out and in field, if you’ll. That is separate. So yeah, it isn’t the identical stuff.
Andy Rosen: So whenever you put it in, the financial institution will then report that your account now has this a lot in it, and also you would possibly use these greenback payments to do one thing else, however you may 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: Acquired 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 just a little bit extra.
So Langston and Ellington have been speaking about having piggy banks and saving that approach, and so they wished 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 right now. And it is nice for the folks which might be utilizing it. So you may have it in your home, hopefully someplace safe, you place cash in it, your mother and father or different relations can put cash in it, and it really works nice. So when you have the cash within the piggy financial institution, how are you aware how a lot is in there? Effectively, you could possibly open it up after which rely it, however that could possibly be problematic each time you need to understand how 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, for those who 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: Perhaps we are able to speak just a little bit about why it is completely different to have cash in a financial institution by way of what occurs to the cash after you spend it. So, if I need to purchase a cookie from my good friend, I convey 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 for those who 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 as an instance all that is $10. You give the shop the $10, nonetheless 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 gather all that cash and so they deposit that at their establishment.
However then in addition 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 whenever you consider it, is for essentially 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 whenever you consider it, the significance of the banks is, at any time, for those who want us to inform any individual how a lot cash you even have, they get an impartial, licensed, trusted useful resource saying you may have this a lot cash on the financial institution at the moment.
All proper, Johanna. So I went to Brookline Financial institution and I discovered plenty of cool stuff about the place cash comes from, the place it goes and what occurs whenever you spend it.
Johanna Arnone: I like subject journey and it seems 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, Transformers, and I did some analysis into what Langston requested us about, which was methods to spend cash and the way to save cash, 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 to your superior questions. We’re actually excited to share with you what we realized. I introduced in my colleague Johanna right here, and she or he 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 assume we should always simply get began. So I actually took on Ellington’s query. I assumed it will be good to go to a financial institution, and what I discovered was actually attention-grabbing. In the event 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 put it aside with out carrying it round, that is type of what a financial institution does. I assume, what did you suppose would’ve occurred whenever you spent a greenback? What was in your creativeness earlier than?
Ellington: I assumed the folks 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 will simply maintain going round, after which possibly generally the identical cash would come again to you.
Andy Rosen: You recognize, it’s doable. It is actually laborious to inform as a result of all {dollars} principally look the identical. However for those who look actually carefully, you would possibly be capable of discover some indicators {that a} greenback you had earlier than is similar greenback you may have once more, however you have been actually spot on. I believe you had an excellent grasp of it entering into, and I believe that is in all probability why you requested such an excellent query. So I’ll hand off to Johanna right here, and she or he’s going to speak just a little 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 save lots of. And I simply wished to inform you, I believe that’s such a sensible query. And the brief reply is that it is a good suggestion to spend a part of your cash and save one other half. Preserving your cash for an additional day as a substitute of spending it right now, that is saving, proper? I wager 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 known as budgeting. However I believe you and I ought to do an exercise to determine it out collectively. Are you prepared to do this with me?
Johanna Arnone: OK, thanks. I need to use our arms to assist determine budgeting. So anybody listening can observe together with us as we do that. 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 mine, and these fingers and thumbs are going to signify all the cash that we’ve 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 which you could spend now. And you could possibly spend it on the issues that you just want or the issues that you really want. All proper, now we’ll 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 which you could save for an additional day. All proper. I’ll shake out my arms and allow them to loosen up. You are able to do the identical if you’d like. Langston, I heard that you just wished to purchase a Bumblebee Transformer. Is that proper?
Johanna Arnone: Cool. Is there anything that you just’re hoping to save lots of up for and purchase?
Johanna Arnone: What’s it?
Langston: In all probability, 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. In the event you take a look at 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 may have proper now, that is a part of your spending proper now cash, proper? Or you could possibly examine, and the worth could possibly be greater than you may have proper now. And that may be OK since you may maintain saving a part of your cash till someday you’ll have sufficient.
So basically, saving is a superb behavior to follow whenever you’re a child, when your purpose is to purchase one thing tremendous enjoyable, like a Transformer or tremendous considerate, like snacks to your brother. However then whenever you develop up, you’ll have already got a plan for methods to at all times be setting apart cash for the long run, so you may cowl surprises and massive bills. So possibly the reply is, spend simply a part of your cash, and whenever you save the remaining, give your self two large thumbs up.
Andy Rosen: Effectively, what do you suppose? Do you suppose we have answered your questions? Do you suppose you can make good cash choices 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 so much simply making an attempt to reply them.
And that is all we’ve for this episode. Do you may have a cash query of your individual? Flip to the Nerds and name or textual content us along with your questions at 901-730-6373. That is 901-730-NERD. It’s also possible to electronic mail us at [email protected] Additionally, go to nerdwallet.com/podcast for extra details about this episode. And keep in mind to observe, fee and overview us wherever you are getting your podcasts.
Johanna Arnone: And here is our temporary disclaimer, thoughtfully crafted by NerdWallet’s authorized workforce. Your questions are answered by educated and proficient finance writers, however we’re not monetary or funding advisors. This Nerdy information is offered for basic academic and leisure functions, and should not apply to your particular circumstances.
Andy Rosen: Additionally, for those who’re a child, be sure to speak to your mother and father earlier than you make any choices about cash. And with that mentioned, till subsequent time, flip to the Nerds.