This article was contributed by Marsel Nikaj, Head of Savings at Revolut.
As a child growing up in Italy, I remember with much fondness the first item I bought. It was a CD player and I had saved up for it. I love music and I wanted a CD player so I could listen to my favourite music whenever I wanted. That gave me my first taste of financial independence and is something I will never forget.
For the children of today, however, money can be a confusing concept to grasp. First, there is money in a tangible form, as dollar bills and coins, and then there is money that exists in intangible forms such as credit cards, smartphones, and e-wallets. The growing adoption of digital payment methods means that children have less opportunities to observe how their parents use money in everyday activities. The COVID-19 pandemic has also accelerated the decline of cash use. According to FIS’s Global Payments Report, cash transactions at POS fell by 37% in 2020 in Asia-Pacific.
If children don’t see money changing hands, would they still recognise its use and value in the real world? Some experts, like Duke University behavioural economics professor Dan Ariely, believe that without the pain of paying — the psychological discomfort one feels when spending money — children are at the risk of chalking up online purchases without truly understanding the consequences of their actions.
So, what money lessons are our children missing out on in a cashless world?
#1 Money Is Real Even If It Exists As A Digital Number
With popular game apps expertly concealing paths of purchase in their interface, it can be a struggle for a child to understand that money doesn’t get “topped up” automatically every time they buy The Samorah Dagger of Destruction to wipe out an entire tribe of orcs. With more and more transactions taking place in the digital space, it is important children understand that online spending still uses real money.
Make it a quick study! When you order a ride via the Grab app or buy something on Amazon, it is an opportunity to talk to your children about digital transactions and how they work. With Revolut Junior, a child can use their own debit card to pay for purchases online and see for themselves how the amount in their account decreases.
#2 Money Has To Be Earned
Even as financial apps have made it possible for us to easily add and send money to and from e-wallets, the money in our accounts has to come from an income source. For most people, that would be our salaries. Working from home can be an opportunity to educate our children about our work and how money has to be earned.
Make it a quick study! So before topping up your child’s debit card or e-wallet account, explain to them that the money came from your bank account and it is where your salary is credited to every month. To put this concept to practice, establish a system where your child earns a reward by completing tasks or challenges you’ve set for them. If you are worried that they will come to expect a monetary reward for everything they do, consider setting a challenge that requires consistent work over a period of time like, “build a website by the end of the holidays.”
#3 Money Buys Things, Not Everything
Part of the thrill of having money is because it buys us things. As adults, we know we can’t have it all. Our children also need to learn this in order to develop realistic expectations of what money can do. Charging purchases to a card does not make the problem of overspending go away. In fact, according to a Bloomberg article, 27% of Singaporeans admitted to being financially worse off due to Buy Now Pay Later purchases.
Make it a quick study! Set your child on a quest this coming Christmas. First, have them ask family members what they want for presents. Then get them to compile a list of what they plan to buy. Let them know the budget they have and work with them to shortlist options. If they can’t fit everything in, explain how you cannot buy everything and trying to do that will throw your finances into a tailspin.
#4 Accountability Is Part Of The Deal
There will be occasions where your child sees that you’ve bought something on the whim. Does this mean they can do the same? Can they buy whatever they want as long as they don’t ask you for extra money? Even if they have been given some degree of independence when it comes to how they spend their pocket money, parents will still need to keep a close eye on what they are buying and decide if any intervention is required.
Make it a quick study! Revolut Junior lets parents monitor their children’s spending remotely by sending them notifications every time the Junior debit card is used. Let your child know that you can see what they’re buying and set down some ground rules together. This approach is better than ambushing them with questions or arbitrarily blocking their cards from being used online.
The shift away from physical forms of currency can warp the meaning of money for children and further remove them from a reality where financial missteps can lead to grave consequences. They may think a simple fingerprint or a wave of their watch in front of a POS machine is all that is required to pay for things. Both parents and financial institutions have a role in educating children about how money works digitally in order to prepare them for a fiscally responsible life ahead.
This article is contributed by Revolut. Check out Revolut Junior to see how you can help your child build good money habits for life. Revolut Junior is an account, card, and app for children that parents can use to inculcate good money habits and control their spending.