Technology is changing personal finance–and the way we teach it–in profound ways. It’s not all good. But if we can master the gadgets in our hands the payoff will be enormous.
Not long ago, I gave my twentysomething daughter $50 as a birthday present only to have her hand right back. She preferred that I Venmo the money to her instead. But why? Millennials view cash as a nuisance. That’s a huge tech-driven cultural shift.
Already, swiping a card for purchases under $5 is routine. Within 20 years there will be no more ATMs, one expert predicts. Years of research shows that those who spend cash feel the sting of spending more acutely. The latest in this string comes from researchers led by Avni M. Shah, an assistant marketing professor at University of Toronto. He concluded that people assign greater value to things they purchase with cash. He showed that those who donated to a charity by check, not credit card, were more likely to donate again, and those that bought a $2 mug with cash demanded 75% more than those who paid with plastic, if they were to resell the mug.
Many young people, like my daughter, say cash burns a hole in their pocket; they spend it recklessly. They prefer digital accounts, where they can track (and feel) where their money goes. The shift is leaving giant gaps in knowledge and behavior. On the one hand, an app like Acorns funnels spare change into a mutual fund and boosts retirement savings painlessly. That’s good. But as the financial behaviorist Shlomo Benartzi points out: we can now sell stocks, borrow money from a friend and cash out our 401(k) without so much as speaking to another human. That’s bad if you are vulnerable to impulse spending.
The good and the bad of technology are all over the financial landscape. Mobile banking with real-time account updates can help people cut their spending by 16%, one study found. Yet mobile technologies also make it easy to carelessly tap or swipe for a purchase or send money to a friend or cause half way around the world.
In financial education circles, tech is top of mind as educators wrestle with how to teach young people to manage their money in a world full of financial products and emerging rules of thumb that teachers are only vaguely familiar with—and which are changing almost overnight.
There is no question that answers must be found. “The payoff will be huge,” says Gil Beltran, undersecretary and chief economist of the Philippines Department of Finance. In his homeland, a more financially literate and money-tech savvy next generation would add 4 percentage points to GDP, Beltran says.
In the states, Fed researchers have concluded that mobile banking is becoming such a force—for good and bad behavior—that educators must look for ways to teach students how to use these new tools at an early age.