Do piggy bank apps help or hurt U.K. financial literacy?

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As the U.K. rapidly transitions toward a cashless society — with U.K. Finance predicting that by 2028, just 9% of payments will be in cash — even pocket money is going digital. And the disappearance of tactile interaction with cash changes how kids learn about budgeting.

Over the past eight years, pocket money apps have formed a niche yet rapidly growing market, with a series of U.K. fintechs — ranging from the original app goHenry, which launched in 2011, to newer rivals nimbl and Rooster — launching products which allow parents to introduce children as young as four to the concepts of cashless spending and saving in a controlled and safe environment.

The apps are digital wallets linked to prepaid debit cards with a variety of controls, which allow parents to set transaction and weekly spending limits, as well as the option to restrict usage to just digital or high street stores. To monetize the service, each app operates a monthly subscription model with charges typically ranging from £2-3.

“In the U.K., there is a very big challenge to justify the cost,” said Louise Hill, co-founder and COO of goHenry. “But from our end, every single transaction incurs a fee, whether that’s a parent loading money or the child spending it, so we have to cover that. But one of the difficulties is that the U.K. public perceive current account banking as being free of charge.”

The apps’ founders explain that they are trying to fill a gap in the market left by high street banks, with U.K. children having to wait until 14 before they become eligible for digital banking.

“It is difficult for children to access a debit card as banks simply don’t see the returns generated as being worth the investment,” said nimbl founder Clint Wilson. “There is a need to provide children with a payment product, and with banks overlooking these future savers, pocket money apps are filling the void.”

For those who get it right, it can certainly be a lucrative market. In particular, goHenry has posted significant revenue growth — in 2018 it upped its top line to £8.1 million — as well as raising £6.2 million in crowdfunding last year to support its recent launch in the U.S.

“On average we’re seeing 1000 new accounts opened a day at the moment,” said Hill. “Between the U.K. and U.S., we’ve now got over 700,000 active customers.”

But not everyone is completely convinced of the benefits of pocket money apps. In particular, Jennie Golding, a researcher at UCL’s Institute of Education, has found evidence that the rise of digital money is contributing to falling levels of financial literacy in 5- to 18-year-olds.

“One of the issues is the nature of understanding money when it’s abstract and just a number on a screen,” said Golding. “It’s very abstract compared with physically handling money, and getting to see the expense. And this is contributing to some children struggling to grasp the concept of money as an exchange, and ideas behind saving and budgeting.”

However, the founders of pocket money apps point out that one of the built-in features of their products are tools which encourage children to save up for purchases, from a young age.

“Nimbl includes a neat micro-savings function, which allows children to set aside a certain amount of money, be it 5p, 10p or a £1, for instance, each time the card is used,” said Wilson. “This allows children to quickly develop the healthy habit of saving regularly.”

Hill argues that given the trend toward a completely cashless society is inevitable, it is all the more important for the current generation of children to grow up learning about and dealing with digital money from as young an age as possible.

“I’m not suggesting to do away with physical money, but right now they need to learn about both physical and digital money in a safe environment with parental limits,” she said. “This last generation are the first truly digital generation. They’re taught at school using online tools, they spend their leisure time online, so it’s only logical to me that they learn about money through an online tool. And it’s far better that they make a £20 mistake at age 9 than a £2,000 mistake when they’re 19 and have access to credit cards and student loans.”

Golding says pocket money apps have some ability to help with financial literacy, but only if they are used in conjunction with adult support and guidance.

“They have the potential to support understanding of budgeting,” she said. “A lot of people benefit from learning from working with cash. During the week you have those notes which shrink and you become very aware of the need to hold something back, if you want to buy something. That’s much harder to do digitally, so it requires adult support both at home and at school.”

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