Teaching kids money management in a cashless era

What age is appropriate for children to begin receiving pocket money? And when they do start receiving it, should it be in a digital form or traditional cash?

Parents generally provide their children with modest sums of money, which vary according to their age. This allows children to experience a sense of financial independence, albeit on a small scale. Traditionally, pocket money has been given in the form of cash. It’s a straightforward way that enables young children to physically interact with money, aiding in their understanding of its value. However, as we navigate through the digital age, there is a shifting preference among parents towards disbursing pocket money digitally. Little kids usually still get cash, but parents are starting to give digital money to slightly older kids more often. A recent report by Nibud, a Dutch institute for budgeting advice, stated that 28% of 8- and 9-year-olds receives their pocket money digitally. This change shows how technology is becoming a bigger part of our daily lives, including how kids learn about money.

But what does this transition towards digital dimes mean for children’s financial education? Before the digitalization, the lessons were simple; keep a check on how much money you have, evaluate what you want to buy, whether you actually need it, do not get influenced by what others have or are buying, and spend your limited resources wisely.

But as the young generation is given access to bank accounts, debit cards and even banking apps, the financial lessons become more complex. Proceeding with caution, giving children pocket money digitally can have many benefits:

  1. Convenience – Nowadays, no one keeps cash on them anymore. In fact, with the growing convenience of NFC transfers, even debit cards are becoming rarer. It makes sense that parents opt for the convenience of transferring their children’s pocket money digitally.
  2. 2. Tracking and management – Using their banking apps, parents can keep an eye on their kids’ accounts to see what, where and how much their kids are spending, without pestering them with inquisitive questions.
  3. Financial literacy – By engaging with digital currencies, children get an early start in learning about modern financial management, online transactions, and the use of various banking apps and platforms. This could be a valuable asset in enhancing their financial literacy and preparing them for the future.
  4. Encourage savings – It is much easier to encourage children to keep the money in their bank accounts and watch the numbers slowly grow every week. Without cash in hand, they are less tempted to spend money.

However, it can’t be all rainbow and sunshine, can it? Of course not; like any technological advance, giving children access to digital dimes is a double-edged sword.

  1. Over-reliance on technology – In the era when a 5-year-old has an iPad, 7-year-old a smartwatch and 10-year-old an iPad and a smartphone, should their dependence on technology be further encouraged by digitalizing money at young age?
  2. Loss of tangibility – Physical money provides a tangible representation of wealth, which can be essential in teaching kids about money value. The abstract nature of digital money can make it harder for children to grasp the concept of spending and saving.
  3. Risk of impulsive spending – By the age kids receive pocket money, they have access to social media, which is full of temptations to make unnecessary online purchases.
  4. Privacy and security concerns – Access to digital money and banking apps makes children vulnerable to online scams and phishing. If a child’s account is linked to parents, which it most probably is, it puts the parents’ bank accounts also in danger of being hacked. Furthermore, children who have a bank account can be approached by gangs who recruit them as ‘money mules’ for money laundering and other criminal activities.

Not to mention, whichever way you lean, it puts a huge burden of responsibility on children at a very young age, making them grow up much faster. The choice to give pocket money digitally or in cash is complex and depends on each individual family’s needs and values. Parents must weigh the benefits of familiarizing children with digital transactions and teaching financial responsibility, and judge for themselves if their children are ready to take on the responsibility. If not, it’s best to wait a few years.

Written by Priyanka Sharma