Currency for kids: How to explain currency & exchange rates

Currency for kids: How to explain currency & exchange rates

Learning about foreign currency and exchange rates is an important part of your kids’ financial education. If you’re heading off on a family vacation overseas or saving up for one, it’s the perfect time to explain this to them. 

 

Even if you’re not planning on going abroad anytime soon, teaching your children how currency and exchange rates work can be a fun lesson. And not just about money, but geography and math too. 

Currency for kids

How to explain what currency is and how it works

Start by explaining what currency is. It may help to show and tell your children. You could print out images of other currencies and lay them alongside dollar bills so you can refer to them as you talk.

 

A simple way to explain currency is like this:

 

Currency is another word for money. In America, our money is called the US Dollar. 

 

In other countries, money looks different and often has a different name. But whatever a country calls its currency, it works the same way. You swap it for things you want or need. 

Common questions kids may ask around currencies

Next, be ready to answer questions your kids might have about currency. To help you, here are some answers to the most common ones:

 

 

Q: Does every country have its own currency? 

Every country has a currency, but not all of them have currencies of their own. 

 

Ecuador, El Salvador, and the British Virgin Islands, for example, use the US dollar. And some countries in Europe—including France, Belgium, Greece, Finland, 

 

Germany, Austria, Spain, Portugal, and the Netherlands—use the same currency too. It’s called the Euro.  

 

Here’s a list of well-known countries and the name of the currency they use. 

 

Country

Currency

Argentina

Argentine peso

Australia

Australian dollar

Brazil

Real

Cuba

Cuban peso

Ecuador

US dollar

El Salvador

US dollar

France

Euro

Germany

Euro

Greece

Euro

Hungary

Forint

Iceland

Krona

India

Rupee

Iran

Rial

Iraq

Dinar

Ireland

Euro

Israel

Shekel

Jamaica

Jamaican dollar

Japan

Yen

Mexico

Mexican peso

Morocco

Dirham

Netherlands

Euro

New Zealand

New Zealand dollar

Peru

Sol

Russia

Ruble

Saudi Arabia

Saudi riyal

South Africa

Rand

Spain

Euro

Thailand

Baht

Turkey

Lira

United Kingdom

Pound sterling

United States

US dollar

Venezuela

Bolivar

Zimbabwe

US dollar

 

Q: How do you get another currency when you go to another country?

 

When you visit another country you need to use their currency to buy things. For example, US dollars won’t work in a country where they use euros. 

 

You can swap your US dollars for another currency in several different ways:

 

  • Your local bank or credit union

Before you leave the US for your trip, head to your bank. Depending on which country (or countries) you plan on visiting, most major US banks will sell you foreign currency without charging a fee. Explain to your kids how this works. In simple terms, you swap dollars for the currency you need.

 

  • At airport exchange kiosks

If you don’t have time to get to the bank before you leave the US, you can exchange US dollars for foreign currency at the airport. You may pay a bit more for it though.

 

  • Withdraw currency from an ATM abroad

You can withdraw currency from an ATM in the country you’re visiting. (Just be aware your US bank may charge you a fee for doing this.)

 

  • Pay by card in the country you’re visiting

You can also pay for things by debit or credit card in stores or restaurants, just as you do in the states. Some US banks charge you a fee for foreign transactions though, on every purchase. So it can be expensive.

 

Q: Can the value of currencies go up and down?

 

In some countries, the government decides the value of its currency and when it will change. But in most cases, currency values go up and down, depending on political and economic factors, such as how stable the country is, and how fast its economy is growing. 

 

The value of a currency can also be affected by how much of it is flowing in and out of the country and how much demand for it there is. If a country’s currency is in demand, its value will go up and vice versa.

 

Exchange rates for kids

How to explain what exchange rates are 

Banks use an exchange rate to work out how much foreign currency you get in return for your dollars. The exchange rate depends on how much each currency is worth on the day you swap one for another.

 

For example, today 1 US dollar is worth 60 Rubles. Now that sounds like a lot of Rubles, right? But swap those Rubles back into US currency again and you’d get the same amount you started with: 1 US dollar. 

 

To explain what exchange rates are to your kids, try showing them using play money. A quick google of today’s exchange rates first will help you calculate the rates. It doesn’t have to be exact, just round them up. It’s the theory you want your kids to grasp.

 

Start by exchanging  1 US dollar for various different currencies. Remember to change each currency back into dollars to underline that it’s the same amount. 

 

Then, when you see your kids understand this, move on to exchanging other currencies. Convert euros to rubles, and rands to yen, for example. 

 

Common questions kids may ask about exchange rates

When you’re talking about exchange rates to your kids, they’re bound to have questions. Here are some answers to the most common ones.

 

 

Q: How is an exchange rate decided?

 

As we said earlier, in some countries, their government fixes the exchange rate and decides when it changes. But in most, a currency’s value is affected by economic factors within that country, such as interest rates. It’s also affected by supply and demand. 

 

Countries whose governments don’t decide on their exchange rates trade their currency in the worldwide market. Just like they do other goods—like grain, oil, and stocks. The currency marketplace is known as the foreign exchange market, or Forex, for short.

 

Currencies traded in the forex market go up and down in value every day. Just like stock prices. Whatever the value is of a currency on a given day determines what its exchange rate is. 

 

Let’s go back to our original exchange rate example to see this in action.

 

At today’s exchange rate 1 US dollar = 60 rubles

 

Last Monday

1 US dollar = 59 rubles

A month ago

1 US dollar = 76 rubles

 

Tomorrow, the exchange rate might change because the value of either currency could go up or down again. 

 

 

Q: How do you work out exchange rates?

 

Most of the time, an exchange rate is calculated for you by your bank or card provider. To work it out yourself involves some simple math. 

Divide the amount of currency you start with by the amount of foreign currency you get back. 

Say you exchange $100 for euros and you get 96 euros back. 

 

100 divided by 96 = 1.04. 

 

So your exchange rate is 1.04 euros per dollar. 

Let’s try it the other way around.

Say you exchange 96 euros for $100

 

 96 divided by 100 = 0.96. 

 

 So your exchange rate is 0.96 dollars per euro. 

When you’re in another country, it’s probably going to be more useful for you to know how much foreign currency you’ll get for your US dollars. 

 

First, find out what the exchange rate is (foreign exchange kiosks and banks advertise them). Next, divide your starting amount by the exchange rate to see how much foreign currency you’ll get in return. 

Say you want to exchange 100 US dollars for euros at a rate of 1.04.

 

100 divided by 1.04 = 96.

 

So you’ll get 96 euros for 100 US dollars.

 

Q: What causes exchange rates to change?

 

Changes in exchange rates are caused by various factors

  • Inflation
  • Interest rates
  • An increase in a country’s money supply
  • The flow of currency in and out of a country
  • Demand for a country’s currency.

Activities to help your child understand currencies and exchange rates

Think of some age-appropriate activities you can do with your kids to help them grasp currencies and exchange rates. Try to set aside time each day instead of doing them all at once. It’ll be easier for your children to absorb all the information that way.

 

Here are some ideas to get you started.

 

     1. Create play money

 

Get your kids to choose a few different countries they’d like to visit. Use a world map and talk about the things each country is known for. Then explain how to look up each country’s currency online and print out play money.

 

Try converting dollars into each of the currencies and then back again. Get your child to work out how many sodas or ice creams they could buy for the equivalent of $10 in each country’s currency.

 

For younger kids, you could print out the relevant flags as well as the banknotes and have them color in the pictures too. 

 

     2. Travel online

 

You may not be planning a family vacation this year, but you can still travel online. Buy products from websites offering payment in different currencies. Get your kids to convert the prices into dollar amounts.

 

     3. Take your kids along when you exchange currency

 

If you are heading overseas anytime soon, take your kids along when you exchange currency. Get them to do the math using the exchange rate advertised to see what amount they’ll get. 

 

     4. Let your kids purchase items when you’re on vacation

 

If you’re using cash instead of a card to pay for items when you’re on vacation overseas, have your kids do it. Practice first. Say an amount, let them count out the money, and work out if they’ll want change. 

How GoHenry can help kids understand currency and exchange rates

Available for children aged 6-18, a GoHenry prepaid debit card is free to use overseas. Your children can use it exactly the same way they do in the US without worrying about extra charges. We don’t charge commission or ATM withdrawal fees.  (Although some ATMs may charge their own fees, so watch out for that.)

 

What’s more, GoHenry can teach your kids about currency and exchange rates in Money Missions, our fun, in-app educational tool. Designed to accelerate your child’s financial literacy your kids learn to be money smart through interactive games and quizzes. In money basics, for example, they’ll find out all about the invention of money and currency. 

 

But foreign currency is just one of the Money Missions topics covered. Your children also learn other core money management skills too. There are missions on spending, saving, budgeting, borrowing, banking basics, investment, and more. 

 

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Written by Charlotte Peacock Published Dec 21, 2022 ● 9 min. read