The importance of financial literacy

It is undeniable that there is a relationship between financial literacy and the ability people have to navigate the impacts of unforeseeable financial events, whether this be unexpected losses in investments or the financial fallout out of a global pandemic or a recession. A lack of financial literacy directly results in inequality – people who are financially literate are able to make informed financial choices when it comes to saving, borrowing and investing, which translates to higher standards of living and a lack of financial anxiety down the line.

Recent surveys show a consistent worrying trend globally, such as 44% of adults in the UK believing that they would be in a better state financially if they had been taught money management skills, or 17% of Australians reporting not being confident at all about meeting their financial goals.

As the cost of living continues to increase globally, financial literacy becomes an ever more important skill to nurture. The ability to navigate fluctuations in household expenditure, repayments and to have intentional responses to global economic events and trends needs to be a priority for financial institutions and their customers.

The cost of financial ignorance is high and growing continuously. It is crucial to bolster financial literacy for the younger generation and provide them with a sound understanding of the fundamentals of financial management from a young age. In recent years, there has been a steadily increasing demand for family banking solutions, as consumers look for options to empower their children with financial literacy and independence.

What is family banking?

Receiving “pocket money” or “allowance” is considered a rite of passage for many children , but rather than the traditional cash-in-hand options, parents are looking for digital alternatives to support their children’s personal financial management (PFM).

Pocket money is going digital, and it is important to re-imagine and re-develop the manner in which money, budgeting and family-friendly PFM are discussed to ensure that children are adequately prepared to take on the responsibility of having a payment instrument like a card or mobile wallet and can feel empowered by the ability to spend and save money digitally.

Shared view with parents to allow for control

A youth bank account will generally be a joint account co-controlled with a parent or guardian, with a connected debit or prepaid card (physical and/or virtual). There are several app-based services already available in market that are popular with users because of how easily they allow parents to access and monitor their children’s expenditure and savings. Such products may also incorporate interactive content to allow children to be educated in their own time and help them build confidence with managing their own expenses whilst building a solid foundation in financial literacy and financial wellbeing.

The shared view element is also essential as it allows the main account holder full access to view the expenses on the joint account and top it up manually or automatically to emulate the traditional pocket money allowances. To alleviate security concerns, it also allows the parent to set limits, disable spend in specific categories or even freeze the payment instrument in case it has been misplaced or misused.

Having a separate kids account which funds are segregated to, rather than being able to access funds from the main account directly also ensures that there are no risks of children overspending, and with no possibility of acquiring debt or an overdraft.

Some may consider that the pre-teen years are too early to engage with digital banking solutions, but with parents able to monitor their activities, a shared digital banking experience is a safe option where the risk is minimised, conversations can be opened between parent and child and the inevitable budgeting or spending blunders can occur in a safe and understood environment.

Piggy bank and savings goals

Saving is an essential habit we all have to learn, and a main aspect of any financial discovery journey. Piggy banks (even digital ones) are therefore a great way to get kids started on saving. Older children might have aspirations and wish lists, and encouraging them to set savings goals in order to save for the items they want is a great way to cultivate a saving habit. Visuals of their savings progress and in-app nudges help them stay focused and are a great way for their progress to be visibly measurable.

For younger users who might not have wish lists or items they want to save for and buy, getting them to meet a target and filling up their piggy bank is an fun way to teach them how to save money for the future. Within a kids banking app, parents can also get involved by setting different goals for their children based on their ages, understanding, willingness and ability, and help them along the way by encouraging them on their savings journey.

Chores and tasks

Keeping track of assigned chores and pocket money to be given out as a result of completing them, especially if there is more than one child in a household can be arduous. Modern consumers prefer modern solutions, and physical chore charts and the accompanying handovers of cash are no longer a convenient option for many in this digital age. Digital banking solutions can allow parents peace of mind by asynchronously managing chores and allowances for everyone in the family through the same app.

The chores function not only helps parents stay organised by giving them an overview of what chores have been assigned when, it also allows them to monitor progress without micro-managing their children.

In-app personal financial management tools

With family banking solutions offering adult-child bank accounts, it is important to have a robust library of personal financial management (PFM) features and content targeted towards helping them understand their finances and the basics of saving, budgeting and spending.

As children start to manage their own finances with their own payment means such as cards and e-wallets, apps with PFM capabilities are able to provide them with easily digestible bite-sized money management content to develop confidence in their understanding of their personal finances and, in the long term, support their financial wellbeing.

Gamification in educational programmes

Gamification techniques can be used to make personal financial management features and financial wellbeing content fun and engaging to motivate children and create an opportunity to cultivate good financial habits in the long run.

Embedding contextual and personalised gamified money experiences with quests, challenges and avatars, while also allowing users to earn points and level up in their digital banking app is a great way to deliver personalised content in a rewarding and thrilling way.

Gamification techniques offer users the chance to learn in a fun way. This in turn incentivises users to stay the path and keep learning in order to see what else they can achieve as they progress through their journey.

Long term acquisition plan

Family banking allows banks to harness deeper, long term relationships with customers, especially the younger demographic. As children and teenagers start utilising the services of a bank, they develop a relationship with it, and the familiarity with their bank and its products reduces the need for them to look elsewhere for financial services as they grow older. Brand loyalty and continued customer support as a result of family and teen banking solutions is a great way for financial institutions, both incumbents and new digital banks, to contribute to their long term profitability.

Premium account features

Another way banks can make their digital banking services profitable is by launching premium, subscription-based features for their users. Charging for premium accounts is justifiable with the subscription of advanced features unlocking capabilities that basic accounts are unable to access.

While perks such as increased limits or no fee for cash withdrawals, lower exchange rates for international payments and higher levels of customer support (and yes, sometimes also metal cards with exclusive designs) have been traditional benefits of premium accounts, family banking features are an interesting add-on used by banks to justify the extra fees of their premium offerings. When enabled, a customer may typically onboard a given number of children or dependants seamlessly and at no additional cost, each of them with their own payment card and a personalised access to money management features in the app.

Family banking is more than just youth banking

While the focus of many family banking solutions tend to skew towards options for younger users, it should not leave out another key demographic: the elderly. The digitisation of financial services has left many in this group of senior customers behind in the development of digital banking skills and awareness of online financial products and some of the risks associated with them.

The COVID-19 pandemic accelerated the decline in face to face banking and a significant increase in the adoption of digital services across the board. However, this coincided with a growth in online financial crime and banking scams. In December 2021 alone, a regional bank in Singapore reported losses due to scams amounting to about S$8.5 million, with many of these crimes targeting the more vulnerable demographics of online banking users.

Financial institutions should recognise the need to support the elderly with financial literacy and competence in digital banking. Fraud prevention is simply a lot cheaper in the long term than reimbursing customers or trying to recuperate the losses of those victims of banking scams.

Offering support and educational content tailored to the ageing population is an effective way to prevent this vulnerable demographic from falling prey to online fraud. However, a more promising way to manage this issue is to offer services conceptually similar to youth banking solutions where accounts can be co-managed for the elderly banking customers, with the supervision of a trustee or family member who is able to have access to a digital overview of balances and transactions. With that dedicated view, caregivers can be alerted when abnormal transactions happen on the older adults’ accounts and act upon them, or pay a bill which may have been forgotten. This added layer of management and vigilance helps to quickly detect any unusual financial activity such as fraud, scams or even earnest banking mistakes to be spotted and rectified quickly.

Conclusion

Financial literacy is more necessary than ever across all age groups, particularly as increasingly sophisticated and tailored financial products become available to customers. As the digitisation of financial services continue globally, modern PFM features should be made readily available for all users, and personalised to fit the needs of all family members.

Cohesive family banking solutions do not just focus on the youth banking aspect, but should also include older adults as such groups come to terms with the digitisation of banking and navigate the risks and opportunities it offers.

How can Moneythor help?

The Moneythor solution is an orchestration engine deployed between a financial institution’s systems of record and its digital channels to power engaging and tailored experiences for its customers.

With Moneythor, banks and FinTech firms can enhance the digital experiences they offer and power comprehensive family banking features, catering for both young and senior customers and enhanced with personalised insights, actionable recommendations and contextual nudges designed to deepen the relationship they have with their users.

In the deployment of family banking offerings, the Moneythor solution can help with:

• The in-app display of shared account views across all users (parents, guardians, caregivers and their children or dependants) with flexible integration to any core banking systems holding the associated joint accounts.
• The implementation of family-friendly personal financial management (PFM) features with automated transaction enrichment, categorisation, budgeting and more.
• The end-to-end management of savings goal-based piggy banks.
• The development of “chores” features enabling the main users to assign tasks to their dependants in-app with configurable frequency and rewards.
• The deployment of interactive financial literacy programmes with gamification techniques such as quests, challenges, points and rewards.
• And more!