I am often asked about my views on the impact on kids as we move further into a cashless world. In truth, I believe that whilst there are some positives of a cashless world (e.g. harder to lose or steal money, less money laundering, convenience), there are also a lot of dangers. These could lead to our kids overspending as they miss out on the lessons we naturally pick up by using cash.
In this blog, I go through 3 areas which we, as parents, need to be mindful of when it comes to our kids and money in a cashless world.
ONE : Cashless is designed to make us spend more
Company director 🧛♂️ : “How can we get people to spend more money?”
Company worker 🙋♂️: “Let’s make purchasing contactless, so people spend money before they have time to think about what they really want or need.”
Company director 🧛♂️: “Great idea!! People will spend more and thank us for making their lives more convenient!”
* In addition, research by MIT has also shown that using a card, rather than cash, produces a brain reaction which increases our desire to spend and this of course leads people to actually spending more.
In a world where people are overspending, we need to make sure our kids build up a resistance to spending all their money from a young age. We need them to be aware of the things that are likely to lead them to spend their money. As the mock conversations above highlights, companies want cashless spending as we will spend more. The easier something is to do, the more likely we are to do it.
If you can resist, I’d recommend that you avoid giving your kids a debit card when they are young. Focus on them forming a saving habit using cash from a young age and only introduce these debit cards once they are saving. (if you don't have cash around the house, no worries, I've added a solution at the end of this blog).
I strongly recommend you read ‘The Trip To The Village’ story to your kids to help them see how companies find ways to get us to spend.
Tip for you: Don’t store your credit card details on your computer. If you don’t have the energy to enter your credit cards to buy something then it means you don’t really want or need it.
TWO : Replacing the cash lessons
When our kids use cash they naturally learn a few different money lessons. These lessons will have to be proactively replaced by parents as we move into a cashless world. Let’s go through some of these key lessons:
A. Once spent, money is gone.
When kids hand over cash to buy something in a shop, they physically see their money going. With digital money, this isn’t always the case. They think that your ‘card’ has limitless money on it as they never see anything leave. There are many stories of parents who discovered their kids had spent thousands of pounds on in-app purchases as they didn’t realise money was real or limited.
On a side note for this point, when we hand over cash and see it disappear, we suffer a small ‘pain of loss’. Companies realise that we feel this pain and hence by moving to a cashless world it means they take away that pain so we spend more.
B. Seeing a transaction taking place.
The use of cash means kids get to see a clear transaction taking place as they give over the cash and then receive something in return. When people tap a card, it is less clear that a transaction involving money has taken place, I.e. can be seen as ‘tap here to get your free prize’.
In addition, with cash, kids will also get to see where the money is going. This is important as when they spend they get a sense that they are getting a little bit poorer and the company they are paying is getting a little bit richer. As you’ll know from other blogs I’ve written, this is a key lesson when teaching your kids how money can grow by investing.
A quick recap: when money is spent, it goes to companies which are owned by people (investors), so if they invest their money (second rule of wealth), they will be investors so their money will grow too.
You can read more about teaching your kids about investing here.
C. Money is real.
When we give our kids money they can see and feel that money is real. In a cashless world, they have to imagine money is real. This means we have to work harder to explain where money comes from and how much money is worth.
“She thought she was playing with Monopoly money ..”
This Is a quote from a father whose 11-year-old daughter had just spent £4,642 on the game Roblox. There are an increasing number of similar stories to this as kids often don’t appreciate that real money transaction taking place.
D. Know how much things cost.
When using cash, we look at how much things cost and work out what money to hand over. The more we do this, the better our understanding becomes of how much different things cost.
This is not the same in a cashless world. I’ve no doubt we’ve all tapped our cards to pay for something and not really known how much it cost. We just guessed based on our past experience. Our kids won’t have this past experience and therefore might not fully appreciate how much things cost.
THREE : Pocket money apps are a tool, not a teacher
Apps linked to prepaid debit cards for kids and pocket money apps are great but they have their limitations.
Think of these apps like a standard calculator. If you give your kids a calculator, they don’t suddenly become good at maths. The same is true with these money apps. The apps are a tool to help your kids become good with money once they have been taught about saving and the three rules of wealth.. Without your guidance, these apps could lead your kids to spending more than they would have otherwise (if I was given a card as a kid, I’d want to use it).
Therefore, make sure you have helped your kids learn about money and the importance of saving before they spend (first rule of wealth) before you sign up to these apps.
No cash around the house to give to your kids?
If you want to give your kids money but don’t have cash in the house, then spend a bit of time creating some tokens of different values out of paper or card. You can then give them the tokens as pocket money. When they want to spend or put money into their savings / investment account, they hand over the tokens and you pay / transfer the money. This helps make money feel more real and they also get to see a transaction.
We are moving to a cashless world, we can’t avoid it.
We need to make sure we take extra time teaching our kids about money to make it feel more real and ensure they pick up the lessons we would have naturally picked up from using cash.
Recap of the 3 points:
Cashless is designed to make us spend more - It's more important than ever that our kids form the habit of saving before they spend
Replacing the cash lessons - We, as parents, have to replace the money lessons naturally learn when using cash
Pocket money apps are a tool, not a teacher - Without guidance, these tools can lead to kids spending more.
I’m not saying you shouldn’t give your kids debit cards, the key is to make sure they have developed a savings habit and that you appreciate your kids are likely to spend more with a card than with cash.
Thanks for reading!
Here are the links mentioned in this weeks' blog:
The Three Rules of Wealth
P.S. Don't forget to get your copy of Grandpa's Fortune Fables!