Cashless society and changing savings habits for kids

Is society going cashless?

The UK is increasingly moving towards a cash-free society. Recent research has shown that cards are set to overtake cash as the most frequently-used payment method – even for small purchases, such as snacks or coffees.

This shift over the last ten years is due in part to contactless payments – it’s now easier than ever to quickly and easily pay by card. In 2006, 62% of all payments were made with cash. By 2016, this figure had fallen to 40%.

It’s predicted that by 2026, cash will be used for just 21% of payments as consumers turn to alternative payment methods, most notably debit cards. As confidence in cards grows, consumers are using cash less and less – Equifax research reveals over a third (37%) of Brits believe the UK could be a cashless society within the next 10 years.

Cash withdrawals are also falling – in 2016, there were 2.7bn withdrawals from the UK’s cash machines – and people withdrew £6bn less than they did in 2015.

Why is the UK going cash free?

There are several reasons the UK might be going cash free:

• Carrying a card can be less hassle than carrying cash – and it’s much easier to cancel a card and protect your money if you lose your wallet or purse.
• Contactless cards can be used for several daily payments, including travel costs and buying small items on the go.
• Major expenditures such as rent, mortgage payments and bills are increasingly being paid online, or with direct debits.
• As people embrace technology and mobile banking, paying by card is the easiest and fastest way to keep on top of spending and saving.

How has going cashless affected savings habits for children?

Budgeting and children seem to go hand in hand. Prospective parents start off by budgeting for a baby, and when their child is older, they then begin teaching them about the value of money.

However, growing up in a cashless society without physical money means it can be more difficult to show children the value of money and build good savings habits.

If you can, give pocket money in cash and encourage your kids to start saving in a piggy bank. If your children are old enough, they can open a children’s savings account and start saving money online.

Starter bank accounts for kids

If you’d like to open a bank account for your child, many banks and building societies will let children open current accounts from the age of 11. Some restrict opening accounts to children aged 16 and over, so check with your bank first.

Children’s bank accounts don’t have overdraft facilities, so they can’t get into debt and they can only spend the money they invest. It can be a safe way to learn the basics of money management before opening an adult account.

Your child can set up direct debits – for example, for a mobile phone bill - and standing orders. Your child’s bank will ask for your permission before they give your child a debit card, as these can be used in shops, online and to withdraw cash. If you think your child isn’t ready for this, you can ask for a cash card, as your child can only withdraw cash with these and they’re not accepted as a payment method.

The benefits of children’s accounts vary – many will offer freebies, but it’s a good idea to find an account which pays good interest rates.

Opening a bank account can give your children a sense of responsibility and could help them to understand the difference between piggy banks and real banks.

A simple explanation is: ‘Your money in your piggy bank just sits there. However, when you save with a bank, you’re lending them your money – so they need to pay you for it. The amount you’re paid is called interest.’

Teaching children to save money and value money

There are many ways to try to teach children how to save money – here are some ideas for parents who want to help their child develop good savings habits.

• Start with a piggy bank and where possible, encourage children to use physical money to learn its worth.
• Once the piggy bank is full, take your child to the bank to open an account. This will help them have a physical understanding of how much money they have. This can be a great source of motivation if you can help your children understand that their money will grow over time as long if they don’t touch it.
• Create a timeline for savings goals. For example, if your children want to save £50 in three months, help them draw up a plan so they can visualise their goal and plan how they’re going to get there.
• Lead by example and show your child good financial habits. Explain your own savings habits after you get paid, and show them simple budgeting. For example, when you’re shopping, show your children how to differentiate between prices and how to pick items which represent good value for money.
• Talk about your family’s attitudes to money and try to make sure it’s not a subject children feel uncomfortable about. For example, a question about the family’s income can be used to start a discussion on family values, such as hard work, saving, and responsible spending. Let your children ask questions and encourage them to think long-term about their relationship with money.