What tap-and-go means for young people

Money and Life
(Financial Planning Association of Australia)

A survey of 1100 high school students suggests many are confused about how credit cards work. Are new technologies making it harder for young people to understand what money management is all about? And what can we do about it?

Understanding what happens when you spend money on your credit card seems to be something of a blind spot for young people living in the 21stcentury. When asked how long it would take to pay off a $2,000 credit card debt, making minimum repayments only, more than half of 1100 high school students surveyed believed the debt would be settled within 3 years. Assuming an interest rate of 18%, it would actually take more than 15 years to clear the balance[1].

In today's world where tap-and-go technology and online shopping are the norm, the choice of ways to spend our money keep growing. So just how serious an issue is financial literacy for our kids and teens? We spoke to Kendall Flutey, co-founder of Banqer financial education software to get her take on the importance of financial education and what we can all be doing to help kids understand their responsibilities around money.

What are some of the new challenges young people are facing when it comes to taking control of their finances?

The way we're managing our finances in the 21st century is evolving, and fast. At the heart of these changes is the increasing intangibility of money as we move towards a cashless society. Although this is a really exciting innovation that can make it easier to keep track of money, it causes some issues for our youth. Spending digital currency just doesn't have the same psychological trigger that handing over a ten dollar note does it's a softer loss. It's that much harder to put the value of what you're buying in context a bottle of Moet seems equivalent to a bottle of milk when it's just the tap of a card away. So when young people are out in the world spending their money, we often see a big disconnect between actions and their financial consequences.

What signs are we seeing that young Aussies lack awareness of key financial concepts?

The issues we're seeing with financial literacy aren't new, but they're more widespread. From the early interactions we're having with 5,000 Aussie kids using our platform we're certainly seeing kids who don't comprehend the responsibilities that come with servicing debt. And we're seeing many children in our learning environment struggling to maintain positive cash flow. This kind of activity in kids (and adults too!) often comes with other negative financial behaviours, such as a lack of regular savings and/or a disregard for the future.

Thankfully, at a young age these behaviours can be changed more easily! By making kids aware of the consequences of their assumptions and actions, we can help them become more financial literate and responsible.

What do you think are some of things causing this lack of awareness? What can be done to change it?

It's important to remember that no real ownership is granted over the life skills that support good money management. Australia hasn't mandated these lessons in schools, so the burden mostly falls on parents. I think it's true to say that the majority of us earn our financial stripes by seeing what our parents do, and through our own trial and error.

For a busy parent, making time to talk about money may be something that's less important than other types of guidance and education. And for others, their own lack of financial capability can be detrimental as it gets passed along to the next generation. Financial illiteracy is shown to be a cyclical problem, entrenching inequality and often leading kids to adopt negative financial behaviours from a young age. Parents in this situation may not intend to model poor money management but when you're having a hard time keeping financially afloat yourself, teaching your kids to do the opposite is an unlikely outcome!

In order to change this and ensure equal access to a standard level of financial literacy for every child in Australia, we need to find a new way to deliver a robust financial education, at least from an academic perspective. I believe the place for financial lessons to be learnt is in our schools. Parents still play a valuable role but just as with other educational subjects, school makes the most sense as the place to be taught this important life skill.

What are the real world risks for young people with limited exposure to the basics of personal finance?

Personal finances are often a balancing act. Education plays a crucial role in getting the balance right between income and expenses in order to achieve a surplus. In the last decade or so we're seeing a powerful force tipping the scales: hyper-consumerism. This has a profound impact on our kids and teens who are being targeted by increasingly sophisticated marketing tools and techniques, to the point where it's hard to tell the difference between online advertising and an authentic content post.

At the same time, we've seen financial education standards falling amongst our youth, which only makes things worse. This corresponds to a higher risk of our next generation living with debt, permanently. If you're determined to keep buying and don't have the financial savvy to understand the consequences of these decisions it can shape your entire financial future.

What can parents and schools do to support kids towards a more responsible approach to managing their money?

I believe parents and schools both have a role to play here. Parents are better positioned to speak candidly about past and present monetary experiences, oversee engagement with real financial products and services, and foster a safe environment for kids to experience their 'financial firsts'. Schools, on the other hand, can really reinforce the fact that financially focused conversations are an acceptable and normal part of life and education.

School should also act as the sandbox environment, a place where kids can make monetary mistakes, understand the consequences and learn from their experience. Regardless of the tool, resource, or online platform they choose for these activities, I feel all schools should incorporate practice of these vital life skills into their curriculum.

The FPA and Banqer are working in partnership to boost financial literacy in our schools. Looking for ways to help kids learn some positive financial habits? Find out more about money lessons new and old for your children.

[1] ABC News, Cashless kids: Is tap-and-go technology promoting financial illiteracy? Kathy McLeish, 17 August 2017. http://www.abc.net.au/news/2017-08-17/cashless-kids-what-is-tap-and-go-doing-to-the-younger-generation/8812168