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The days of the piggy bank could be numbered. Instead of saving their pennies, children as young as four can now learn to manage their pocket money on digital budgeting apps. From age six, there are contactless cards which parents can load and monitor via their smartphones.
Some adults might shudder at the thought of such innovations, but in our increasingly cashless society, many believe they are a better way of teaching young children about money.
Parents are the single biggest influence in shaping children’s attitudes towards money from a young age, but more than half say they lack the confidence or knowledge to teach their children to manage money according to Experian research.
Unlike a conventional bank account, these app-based services appeal to parents who are keen to educate their children about the value of money, but want to retain a margin of control over what their children do with their cash.
For example, they might want to monitor their child’s purchases, or restrict what they can spend on in-app purchases or digital downloads. It is also possible to set tasks — such as completing chores — for your child to complete to earn their pocket money.
So how are parents using the new technology, and how much does it cost? Here, FT Money presents the options and asks why the main high street banks are not doing more to help parents and younger children engage with their finances.
“I used to think my dad was just being a pain when he made me contribute to the household finances out of earnings from my part-time job,” says Lara Romanelli, a freelance TV producer living in London.
“Now I realise it was just his way of teaching me how to be financially independent from a young age. I’m grateful for this education and I’m doing my best to teach my son how to manage his money too.”
Ms Romanelli and Teo, her eight-year-old son, have been using Rooster Money for the past six months. She likes the fact that the virtual budgeting app allows Teo to have two separate accounts — savings and wallet — which she says educates him about the importance of having money in a savings account as well as some accessible cash. It also allows her to set up an automatic weekly allowance, taking away the hassle of having to remember to have change in the house for pocket money. Suitable for children aged four and up, this is a virtual app with no payment card attached.
“I thought in today’s cashless society it might be easier for him to grasp the concept of saving via an app,” Ms Romanelli says. “The fact that the app allows us to set savings goals has encouraged him to save his money rather than spend it.”
This is exactly what Will Carmichael, co-founder of Rooster Money, hoped would happen when he set up the app in January 2016.
“Getting into a pocket money routine early can transform a child’s understanding of money,” he says. “Whether it’s 50p or £5 a week, empowering your kids to start making decisions about what they do with their money can help give them good money habits for life.”
This thinking is backed by research. James Jones of credit reference agency Experian says learning about money early can help children to save and spend responsibly as adults.
“We know from a recent study by the University of Cambridge that children’s money habits are set from as early as age seven. Leave it any later and children could struggle to pick up good habits as adults,” he says.
“Many children are missing out on money lessons at school, making it even more important to start the conversation at home. Encouraging children to discuss money matters from as young as four years old can help them develop positive attitudes, values and behaviours, giving them the best chance of being financially secure in later life.”
When it comes to apps with a contactless card attached, Osper, goHenry and Nimbl all allow parents to open online accounts which are controlled via smartphones.
Unlike conventional bank accounts which reward children's savings with a small amount of interest, these are fully functional digital current accounts designed for everyday use, which parents must pay to subscribe to (see below for full details).
Pre-paid debit cards allow parents to view a child’s latest spending at any moment online, while setting savings goals. They also require less identification to set up than a high street bank account. There are other advantages — for example, you can “lock” the card if it has been lost or stolen, top it up from your own phone, and set spending limits.
While young children will love the novelty of having their own contactless card, some parents might worry that spending, rather than saving, could become the priority.
“As society becomes cashless, making payments becomes as easy as tapping a card or pressing a button,” says Clint Wilson, founder of the Nimbl app. “This can be convenient, but it can also be a problem. In the past, children would be able to tell how much they’d spent by how much their pocket jangled. Nowadays, it is easy to forget that each tap and press costs real money and can add up.”
Nimbl has instant notifications that allow children to keep track of exactly when and where they spend, while parents are able to monitor their child’s spending through real time notifications. It also includes a micro-savings tool to encourage children to save. This allows children to transfer a set amount to a linked savings account each time the card is used, allowing them quickly to grow a little nest egg.
Going digital — what the apps offer
This pocket money tracking app is aimed at children aged four and above. Parents sign up to a digital tracker which allows their children to keep track of their money, save towards goals and earn rewards, while parents oversee it. Children learn to manage their money between “pots” labelled spend, save, give and goals. It also gives children the chance to earn extra cash for reaching certain “achievements” and completing chores. The cost is free for the basic package, or £1.99 a month for RoosterPlus.
This app for young people aged between six and 18 allows parents to give their children digital pocket money. Children are given a pre-paid Visa contactless debit card with parental controls through a linked online account. Parents can set up tasks for their children to complete in return for pocket money. It is possible to choose whether the cards are used online, in store or everywhere. Parents can block and unblock the card instantly on their phone. It costs £2.99 per month, per child.
“Across the country, businesses and individuals are benefiting from the power of fintech, and it is really important that children experience this too,” says Mr Wilson.
Other apps allow young people to earn extra money by doing simple tasks set by a parent, such as finishing their homework or tidying their bedroom. Some recommend setting a base rate and then operating a “pay by chore” model.
“My children get 25p for setting the table, and 25p for feeding their pets,” says Sue Noffke, a UK equities fund manager with Schroders, who uses the goHenry app. She views the cost of the app (£2.99 per month, per child) as being “a worthwhile investment in their financial education”.
With goHenry, parents get a notification on their phone whenever their child uses the card. Children can do jobs around the house to earn extra money, and the app helps them save by automatically putting some of their pocket money towards a savings goal.
Holly Mackay, founder of consumer website Boring Money, uses the Osper app with her children. “I load their pocket money on to the app every week, and it tots it up and tracks it. They love their cards and it’s a much easier way to manage it than handing out a few coins every week. Transactions are categorised so they can see what they are spending it all on.”
She also considered Rooster Money, adding that the budgeting app was “really visual and you can make it clear that they need to do the hoovering, rake up leaves and clean the car to get their weekly cash”. However, she decided to go with Osper because she wanted the ability to bank.
Greg Davies, head of behavioural science at Oxford Risk, a consultancy, says although financial apps are useful as a tool to get families talking about money it is also important for children to learn by doing.
“It’s worth allowing kids to handle money from an early age. Let your children see you pay for dinner with cash rather than a contactless card, also try letting them count out the change,” he says.
He suggests involving youngsters with the weekly shop and getting them to choose the best-value items you need. You could give them any money saved as a reward.
He says it is also important to get children to understand the concept of a trade off. “You need to get children into the mindset of thinking that ‘if I spend money on this I won’t be able to buy that’,” he advises.
Other experts say that a useful way to teach children about money is to pretend the pocket money is their salary. You can always charge them a small amount of interest if they borrow more so they realise it costs money to borrow money. Then perhaps you could suggest they “earn” more money by helping around the house.
However, others believe the move towards a cashless culture is exacerbating the problem of saving.
Going digital — what the apps offer
Designed for children aged between 8-18 years old and backed by MasterCard, parents can use this pre-paid debit card to monitor children’s spending. Parents can set up an allowance to be paid to the child directly from the app. Children can also tag spending under different categories and learn how to improve their budgeting habits. The cards cannot be used for anything involving gaming, alcohol or other age-inappropriate activities. It costs from £2.50 per month.
Is a prepaid MasterCard debit card for 8-18-year-olds. Parents can top-up, monitor and control their children’s spending via the app. The card is contactless and can be used in-store, online or at cash machines. A savings function can round up spending to transfer a set amount of money from the child’s prepaid debit card into their savings account. Parents are able to disable cash withdrawals or spending online, and to lock and unlock the card via the app. The card costs £15 a year.
“When I was a child, I had a piggy bank where I saved coins and sometimes the odd five pound note,” says Paul Davies, a behavioural psychologist. “I could feel my store getting heavier, and I could judge when it was getting full. My particular piggy also had no stopper, meaning I needed to smash it to get at my money. Children today have access to technologies which step away from the physicality of money, and also the emotional connection.”
Like the infamous Stanford marshmallow test, if children cannot feel the benefit of delaying their gratification, “they will willingly spend their money today as easily as popping the marshmallow in their mouth”.
Paul Davies believes that app developers should consider using psychology in their digital services, and could encourage saving by asking adolescent users to set up their own “commitment contracts”.
“If they willingly commit to lock a little money away for a period of time, they will see the reward and will be more likely to repeat this behaviour in later life,” he explains.
Harnessing social influence in teenage years is another opportunity. Sharing commitments to save for short-term goals with peer groups via built-in social networks could encourage the individual teen to avoid temptation as well as be part of the group hierarchy.
“Finally, mental accounting has a large influence on all our financial behaviour. We should also be encouraging our children to put money into separate mental “pots” — such as going out, holiday, new bike, driving lessons — and we can do this by building these directly into new digital financial services,” he says.