A question we hear a lot from parents around Australia is, “why shouldn’t kids learn about money with good old-fashioned coins and notes?”. And it’s a good one – we all learned using piggy-banks when we were kids, and that worked for us, right?

Cash has a role to play

There’s no doubt that kids today do need to be able to recognise and use physical currency – cash – as they learn about money growing up. Touching, seeing and experiencing money being used is a great way to help cement the concepts of money management they are learning, both in the classroom and through mum and dad teaching and demonstrating how money works. Activities that have a “touch and feel” component to them, such as collecting coins in a jar or playing games like Monopoly are a great way to get kids interested in and learning money concepts.

Physical money is also, certainly, a useful tool to help teach numeracy skills, giving kids the materials to practice counting, addition and subtraction and give them an understanding of the base-ten number system (and in turn, the foundation to learn concepts such as decimals and percentages). These skills and concepts are all incredibly important for kids to learn not only in relation to money management, but for numeracy as a whole.

Digital money is the new black

It gets tricky, though, for many parents and teachers looking to educate kids about financial responsibility using cash only. These days, the reality is that cash is around less and less; nearly two-thirds of all transactions in Australia today are digitally based. ATM withdrawals are at a 15-year low, and there are significant technological advances on the horizon to continue to move towards a cashless society. Kids just aren’t seeing – and hence, learning – cash transactions that often these days.

Kids do see, however, mum and dad’s “magic cards”. You know; the ones that you tap and pay with! Those little bits of plastic that have an endless supply of money, the cards that can buy everything you want and more. They’re amazing, aren’t they?!

For children that have only ever learned about money in a physical sense, seeing their parents use ATM’s and EFTPOS terminals can be extremely confusing and often lead to a false understanding of how money works. As the Australian Securities and Investments Commission (ASIC) says, “not seeing money exchanged for purchases makes it harder for kids to get their heads around what things cost. They might see this invisible money as an abstract and unlimited resource rather than real money coming in and out of their family’s bank accounts”.

Are our kids on the right path?

Perhaps unsurprisingly – although nonetheless alarmingly – 35% of children aged 5-16 years do not know how digital purchases are paid for; 40% of five-year-olds think you can use a card to get free money from the ATM, and 61% of six-year-olds think you don’t have to pay to watch movies on your parents’ tablet or smartphone . This last statistic is particularly concerning in light of research conducted by Microsoft finding that almost 1 in 3 British children had made an unauthorised app or in-app purchases, leaving parents out of pocket by an average of £34 ($58) per month.

Uh oh.

How can we do better for our kids?

So how do we teach kids about the very real world of digital money? How do we adapt the piggy banks of our childhood to suit the needs of our children in learning about money? In turn, setting them up with skills for life that ensure that they have healthy, happy relationships with their finances?

A crucial part of teaching these lessons lays in acknowledging the idea of digital money. Children need to learn that money used and managed in the electronic context is just as ‘real’, and carries the same economic consequences, as physical money from a very early age. First, as recommended by ASIC, parents and educators must try to include young, preschool-aged children in their digital finance journeys as much as possible. This could be as simple as bringing up the balance of a bank account before and after withdrawing cash at an ATM; using an online bill to explain that ‘invisible’ amenities such as the internet and electricity cost money; or showing children a digital payslip to teach them the connection between time spent working and money earned.

We know, though, that financial lessons are best learned through experience, and many experts recommend that kids start to undertake their own digital finance journeys from primary school age. From paying pocket money electronically, to letting children manage their own funds on digital platforms, parents are encouraged to help their children earn, save and spend using the modern methods they use themselves.