I recently tuned in to a podcast which included a discussion on teaching children about money. It suggested that to do this successfully, you need to use physical cash.

For me, this line of thinking feels too restrictive and a little old fashion as it ignores the way in which most of us pay, electronically.

If we limit financial education at a young age to physical money, children will grow up without a real understanding of the true value of digital money – whether it be debit cards, virtual wallets or online payments.

I work at a bank and I spend a lot of my time thinking about money and how we can improve how we use it, therefore teaching my children (age nine and six) how to use and manage money from an early age is a priority for me.

Much of the research in this area also points to the importance of starting early when it comes to financial education. According to research from the Money Advice Service, by the age of three, children can understand that money is a form of exchange. By five, they’ve begun to build their own attitudes around money, and by the time they turn seven these views are well-developed.

Given the complex relationship that many adults can have with money, teaching kids about money is often shuffled to the back of the to do list. Added to this, money management has changed drastically since many of us were young so we don’t have a benchmark for how to do it with digital payments.

But if we are to fully equip the next generation with good financial skills and knowledge, we need to make sure our children know the value of money.

Without this grounding, many are at greater risk of spending what they don’t have, relying on overdrafts and spiralling into debt when they start to gain financial independence.

Last year, a Know Your Money survey found that 62% of people across the UK have some form of debt, with 35% stating this was credit card debt. A third (33%) also said they buy items on their credit card without thinking about how they will pay them off later.

Digital money lesson

I recently put digital money lessons to the test with my own children using Starling’s Kite card – a debit card for children that is specifically designed to help them manage their own money.

I did this by loading their cards with £5 each week, and then visiting shops to give them the opportunity to buy an item they wanted. The results were fascinating.

Each week our trip to the shops would initiate important conversations about money, and over time I noticed a real difference in their understanding of what it meant to have their own money on their card – it gave them responsibility.

First of all, I quickly realised that the mental maths skills my six-year-old was developing at school were enough for them to appreciate that if an item was £10 and they had £15 on their card, they could afford it. They didn’t need physical money in their hands to understand this process.

Interestingly, my children also developed an important awareness of financial decision making. For example, if they couldn’t afford something one week, when we went back the next week, they often weren’t interested in the same toy, teaching them that it’s worth taking the time to think about how and when you spend your money because once it’s gone, it’s gone!

Perhaps most importantly, after a few weeks, it was clear that the way we used the Starling Kite card had taught my kids the true value of money. When one of them wanted to buy two things one week, I explained that they could only afford one of the items and would need to save more for the more expensive item.

When I added that if they didn’t buy the item they could afford, they’d be able to purchase the more expensive item quicker, my child responded: “I’m really thinking about what I want and why.” Even though they couldn’t physically see the money, they knew that if they wanted to purchase more expensive items, they needed to save up.

From debit cards to credit cards to virtual wallets, this experiment has proven to me that it’s no longer engaging enough to teach our kids about the value of money using cash. Money lessons need to reflect changes in our society, which continues to move towards digital payments.

In 2018, debit card payments overtook cash for the first time and the Covid-19 pandemic is likely to have accelerated this trend even further.

Digital money is the future and as parents we have a brilliant opportunity to teach them about how to manage it alongside the digital tools which can help them be savvy.

Helen Bierton is chief banking officer at Starling Bank