OpinionFeb 16 2018

Making the digital world add up

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In a world of virtual money where many of us pay for everything on contactless cards and direct debits it can be hard to remember that real cash still exists.
 

Monthly spending on contactless cards is now more than £4.3 billion with more than 110 million in use across the UK. Paying for items worth less than £30 in cash now seems a bit quaint.

Adults can remember a time before digital money when we used cash and cheques. Using cash, of course, has not necessarily made us financially capable as regular research on how well we understand debt, mortgages, pensions and savings shows.

Financial advisers at the frontline of financial education will be aware of the need to increase general financial capability.

However, it is tougher for children growing up now in a digital age struggling to understand the value of money and to become financially capable when their experience of paying in shops is seeing their parents tap a card on a machine.

Likewise online and “virtual” purchases – such as new avatars in a video game –  are made in a click of a button behind which the real money payment remains invisible to children. 

Prudential research underlines how this  can be made even harder as it found that around one in four primary school children have used parents’ cards to shop online and nearly one in five know their parents’ PINs.

We need to establish good financial habits early and financial education should be part of the primary school curriculum.

The study found 16 per cent of parents allow seven-to-11-year olds to click and go in shops with their cards.

The way children use and understand money is changing fast. Parents and teachers need to work together and be given the tools to ensure the opportunities created by digital payment technology are accompanied by an understanding of the responsibilities that come with it.

There is an emerging digital problem for children in learning how to become a financially capable adult able to make complex decisions throughout life. 

Part of the solution to the digital divide is to embrace digital learning as Prudential is discovering through its free educational resource Cha-Ching in partnership with Young Money.

Cha-Ching is available online to families to learn together at home and help them discuss finance and money as well as in schools. 

Parents can probably benefit as much as children as research we have commissioned among parents of seven to 11-year-olds, children themselves and teachers demonstrates.

Their children may already be talking about it – the free resource aimed at seven to 11-year-olds in Key Stage 2 is being used in 650 schools and the feedback from teachers who are integrating it into lessons has been impressive.

The resource, which was developed with educational psychologists and first launched in Asia in 2011, is built around animated music videos based on six characters and how they earn, save, spend and donate.

Our favourite character is, of course Prudence but Pepper, Justin, Charity, Zul and Bobby are every bit as important in helping children to learn the value of money and develop the skills to thrive in the rapidly changing digital financial world.

Allowing children free rein with cards and PINs is convenient and possibly justifiable. Parents in our study told researchers they give children their cards to use in an emergency and most say they set a limit on how much children can spend.

Children will grow up using contactless technology and will be using more sophisticated versions in the future so starting young is possibly a good idea.

But the risk is that children will just know about the technology without learning the fundamentals of earning, saving and spending. Our research shows parents acknowledge the issue.

Nearly two out of five fear contactless encourages children to believe money is always instantly accessible and 28 per cent worry contactless encourages spending.

Financial habits are learnt from an early age and children who can grasp the concept of delayed gratification as in the famous Marshmallow Test developed at Stamford University will generally do better in life. 

The test offered children a single instant reward or two rewards if they waited 15 minutes. Further research on those who waited showed they performed better at school in tests. Learning the benefits of delayed gratification is central to developing financial capability as the concept applies to pensions, savings, earning and spending.

Prudential has always been passionate about helping people to take control of their finances and has had a mission to explain personal finance dating back to the original Man from the Pru. Cha-Ching embodies our traditional values in a modern setting and links to our wider corporate purpose.

Our focus is always on taking the risk out of life’s big financial decisions to help people look forward to the future with confidence. Improving everyone’s financial capability is vital to achieve that goal.

For financial education to be successful parents and teachers need to work together and resources such as Cha-Ching’s primary schools programme are aimed squarely at supporting them.

More needs to be done which is why we are campaigning to secure statutory status for financial education in primary schools building on the success of previous campaigns to establish finance as part of the secondary school curriculum.

Financial advisers already play a vital role in delivering good financial outcomes for their clients. They will be aware that the Government is currently consulting on launching a new financial guidance group bringing together Pensions Wise, the Money Advice Service and the Pensions Advisory Service.

That will help all adults and secondary school children are already benefiting from financial education.

Financial advisers are crucial to Prudential’s business and are vital to the country’s general financial education which is why we are considering ways to partner with advisers on Cha-Ching.

But we need to establish good financial habits early and financial education should be part of the primary school curriculum. We may have to delay gratification on that but in the meantime, we will continue to expand Cha-Ching’s reach.

Financial education needs to be engaging and fun and suited to primary school children. There is no right way to do it but it is surely the right time to start offering it.

Kirsty Anderson is a retirement income expert at Prudential