Our children are now growing up in an age where the exchange of value via electronic payments makes money almost invisible. As children accompany their parents to supermarkets, petrol stations, restaurants and other places where families spend money, I believe the lack of a tangible presence of money becomes an out-of-sight out-of-mind issue with the outcome being that kids think about money a whole lot less, which is a lost opportunity of significant proportions.
Don’t get me wrong – many parents are proactive in teaching their children about the value of money and how to manage it responsibly. My point is that the task is significantly harder when the concept is more abstract. From my perspective, learning through the use of a hands-on tool – such as cash – makes the understanding of financial concepts far easier.
I’ll never forget the first time my eldest son saw me paying cash for a car I was purchasing. He was aghast at the amount of money in front of him – the visceral experience of seeing an amount of money and how that equated to a significant purchase being made gave him valuable perspective.
As the leader of a business that prints money, I have a vested interest in seeing that it is used in the most constructive way possible, and when it comes to financial literacy I think cash has an extremely important role to play.
The less prepared children are to understand issues of budgeting, saving, and distinguishing needs vs wants purchases, the harder it will be for them as adults to remain in control of their money. Laying pocket money out on a table – or when they get older, the income from a part-time job – and physically apportioning amounts to saving and spending which includes depositing money at the local bank branch is an invaluable experience because it makes money so much easier to manage and keep track of.
These financial concepts and the use of cash are just as relevant for adults as well. Research from the Dutch National Bank in 2013 revealed how different levels of ‘payment pain’ affects consumption. In short, the less pain a purchaser experiences the more they will spend. The Bank found that there was less pain associated with both settling a debt later or purchasing using a pre-paid mechanism.
Conversely, the Bank found that making purchases with cash maximised ‘payment pain’. It made the person spending the money much more aware of the actual value of the purchase and less likely to spend. It also made the purchaser far more aware of the amount they were spending based on the money they had remaining in their wallet.
Cash is an invaluable tool for learning and awareness in financial matters, and just as valuable for adults as it is for our children. I encourage you to use it!
Malcolm McDowell is a Director on the Board of the International Currency Association.