Give a man a fish and he’ll eat for a day, give a child a user-friendly-savings-encouraging-card-app-account-overseen-by-parents and they will bank well for life. 

Equipping children and young adults with the tools and education to develop skills in their formative years means they will be positioned to reap the benefits of financial literacy once the clock ticks over on their 18th birthday.

Covid-19 has undoubtedly served as an unexpected catalyst for interest and uptake of child-centric technology, and the fintech sector has stepped up. Despite the challenges of the period, Q1 and Q2 of 2020 have seen a host of incumbent and challenger banks zero-in on this market and release a raft of products catering to children and teens.

Account and card combinations with carefully designed applications have been launched by Revolut Junior and Nordic challenger bank Lunar, and Venmo has been seen prototyping a debit card for teens across the pond.

Incumbent HSBC launched a PayMe e-wallet for teens aged 16 and above allowing users in Hong Kong to make P2P payments and utilise expense management tools supervised by parents and comes with a supplementary credit card. A Children’s Savings Account is also available for customers 11 years and above. The bank recently published findings that most young people (18-24 years) are more aware of their bank balance than any other demographic and are the biggest users of mobile banking apps to stay on top of their finances.

NatWest recently released ‘Island Saver’, a video game designed to help children develop money management skills with ‘work to earn’ style tasks alongside more advanced elements of money management such as paying tax, borrowing money and certain elements of foreign exchange.

These offerings join an already established market for children’s pocket money savings apps such as gohenry, Rooster Money, Proper, nimbl or Pixpay. While these apps differ case by case on specific tools, debit card provisions and application interfaces, they all aim to streamline the digital banking experience for those under 18.

Louise Hill, COO and co-founder of the children’s prepaid Visa debit card and app, gohenry, references a Cambridge University study which found that children’s financial habits are formed by the age of seven, with most young people forming core behaviours which they will take into adulthood and which will affect financial decisions they make during the rest of their lives.

“This is why our service is available to children aged six to 18 years-old - like most life skills good money management is best learned young. We also know that debt is a huge problem for our society as a whole and problems with money start early and spiral.

“Access to apps like gohenry from a young age enable kids to learn by doing and encourage them to really think about their spending decisions, which is more important than ever as people use the tangible resource of cash less and less. Our customers tell us that there aren’t the practical resources out there to empower children with these digital life skills - schools simply aren’t able to provide the hands-on experience that financial apps can.”

Delayed gratification and other life lessons

Catherine Winter, managing director of financial capability and community outreach, London Institute of Banking and Finance (LIBF) says a key lesson that children must learn around money management is delayed gratification.

“It’s a skill that touches on every aspect of a person’s life. Having to wait and save money in order to purchase something is not a necessity for adults given the availability of credit, and if children don’t understand the connection between how the numbers on the screen impact their ability to spend, they risk living a lifestyle they can’t technically afford.”

Hill notes that children using gohenry are grasping the power of learning particularly since the closure of schools due to Covid-19, using the app’s reward tools to build their savings: “With fewer rewards up for grabs for getting ready for school or completing homework, parents are instead keeping their kids busy and getting help around the house with children earning more for gardening (up 493%), washing the car (up 198%) and washing the dishes (up 68%) during lockdown.

“Since gohenry was started in 2012, children across the UK have earned more than £1m from tidying their bedrooms alone.”

As most children’s digital financial products operate as sub-accounts of their parents’ accounts, or require a parent or guardian to consent in order to open and operate an account, they have clear visibility and control over purchases being made.

With a Revolut Junior account, guardians are told explicitly that “you are responsible for everything a Junior does using it as if you had done it yourself” and are able to freeze, withdraw or cancel the card and app through their personal account.

Aurelien Guichard, lead product owner, Revolut Junior, also touches on the importance of involving parents or guardians as key facilitators in children’s digital banking, beyond the requirement to provide pocket money or consent. He explains that the reality is that children already have access to funds in the form of cash money, but cash is not very convenient for parents, it’s difficult to monitor how cash is spent, and vitally, cash isn’t the reality of adult financial management.

“The digital application experience means children have access to a payment instrument that they will use as adults. It’s important that they have access to a card to understand how to manage and spend money that they cannot touch and cannot see. Otherwise it’s just a number on the screen.”

He argues that the risk of access to digital funds is relative compared with what could happen to a child’s future income if it is mismanaged: “By spending the way an adult spends you’re learning an experience and making mistakes which can then be avoided as you reach adulthood and financial independence.

“Children might make an error and blow £10 on their card which is an amount that can be managed by parents, but it would be a much bigger problem for the child to receive their first salary, spend £400 at once or find themselves in overdraft. It’s a safe environment where children can start experimenting with using a card and spending, knowing that mistakes aren’t going to significantly impact a life.”

Winter argues that financial applications can be a fantastic tool in accessing and providing real-time experience with money early on, “but it isn’t the be all and end all for financial education.”

“Technology has a really important part to play and I think that its role will increase, but it will never really fully replace the advice received from parents or carers. We believe that financial education should be taught at home and it should be taught at school.”

Helping kids navigate digital risks in an adults’ playground

As banking moves online, cyber-crime is becoming more advanced as it targets and exploits weaknesses in new technologies. This is particularly concerning at present, with the ECB recently reminding banks of their increased vulnerability to cyber-risks as Covid-19 pressures have forced them to become exceptionally reliant on IT systems.

Against this backdrop of increasing digital risk, should parents feel confident about adding to their children’s exposure to potential criminality?

“With gohenry," Hill explains, "parents have their own app where they can monitor their children’s spending, earning, saving, and giving habits and jump in to help where necessary. The child and parent can instantly block their gohenry account via the app or website if they lose their card and there is no danger of going overdrawn as the card is prepaid.”

Beyond these control tools and ability to block unusual payments from a distance, these apps are also well positioned to educate users about the dangers and red flags they should be looking out for.

Hill explains: “In terms of phishing and scams, we regularly write blogs and send out communications to parents (and opted-in over 13 year olds) around how to keep their accounts safe and things to watch out for online as part of our learning model. Our aim is to empower young people with all the tools they’ll need to transition to the adult world of fast-cash and lots of temptations safely and responsibly.”

Will ‘gamification’ undermine the good intent?

Commentary on the topic also underscores the risk of children misconstruing the purpose of digital banking, particularly given the often child-friendly aesthetics and features which can give the impression of a game-style environment.

Winter comments that while these tools are “in a format that children understand really well, the difference between seeing the account balance on a screen and actually handling physical money may not be grasped by all children.”

She comments that the work being carried out by the LIBF, building and delivering resources to be used to improve financial education within schools is fundamental to broaching this potential comprehension gap. The institute delivers specially crafted financial curricula to around 800 schools across the UK as an e-learning digital program called Lessons in Financial Education (LiFE), and uptake has only increased with the Covid-19 crisis.

Hill doesn’t see a ‘gamification’ of these apps as a negative, rather, that features such as personalisation of debit card designs or setting savings goals so they can buy the latest must-have only serves to increase appeal and exposure to the financial world.

Hill adds that at gohenry “we’re firm believers that learning by doing is the best way to teach life skills such as money management. You can’t just teach the theory of swimming, you need to get into the water and do it for yourself. It’s the same with money management. But, financial education isn’t as exciting to a child as swimming, so you need to find a way to make them want to get in the pool - to continue my analogy. This is where we come in.”

Banking can’t ignore the challenge of data protection and marketing to children

Shiny new cards and slick applications don’t remove the real-world challenge of data-protection, made all the more complex when managing the personal information of a child.

The issue has been seen recently in the US, when children’s mobile games developer HyperBeard was charged by the Federal Trade Commission for violations of US Children’s Online Privacy Protection Action Rule (COPPA Rule).

It was alleged that HyperBeard had allowed third-party ad networks to collect personal information in the form of persistent identifiers to track the users of the company’s child-directed apps, without notifying parents or obtaining their verifiable consent. Using this data the advertising networks then targeted ads towards children using HyperBeard’s games.

Marketing of financial products in the UK is supervised by both the Advertising Standards Authority (ASA) and the FCA, the latter overseeing technical aspects of financial product offerings.

A spokesperson from the ASA explains “our rules do not prohibit advertisers from promoting financial services to people under 18 years of age. However, like all ads, they should not mislead, they should be age appropriate, i.e. not contain anything that is likely to harm or offend, and they must be responsible. They would need to comply with section 5 (Children) of both codes if relevant and importantly, heed regulations governing data collection and protection for those under the age of 18.” 

This issue lies in consent and is regulated by the GDPR.

Viewing children’s apps as a masterclass in meaningful consent

The question of meaningful consent is a challenge yet to be resolved across the digital banking landscape and is inherently tied to data usage. What may seem a simple task at face value – reading terms and conditions for use of personal data and clicking ‘I consent’ – may not be as straightforward in practice.

Though banks, payment providers or any firm bound by GDPR regulations, bear the responsibility to gain the user’s consent, they cannot ensure that the individual consenting truly understands the meaning of this.

How then is a firm with products and services targeted at children expected to present concepts which are challenging to many adults able to make those same concepts digestible to a child?

Article 8 of the GDPR allows Member States to decide the age at which children can consent to the processing of their personal data in the context of an information society service (ISS) at national level.

Most online services are ISSs, for example an online gaming app or search engine that is provided free to the end user but funded via advertising still comes within the definition of an ISS. It generally includes websites, apps, search engines or online marketplaces.

In the UK:

• Only children aged 13 years and over may lawfully provide their own consent for the processing of their personal data;
• An adult with parental responsibility must provide consent for processing if the child is under 13; and
• In such cases you must make reasonable efforts, taking into consideration available technology, to verify that the person providing parental consent does, in face, hold parental responsibility for the child.

Children also have the right to be informed about what is being done with their personal data, in the same way adults would be informed. The Information Commissioner’s Office (ICO) notes that “it is also good practice, to explain the risks involved in the processing, and any safeguards you have put in place. This is will help children (and their parents) understand the implications of sharing their data with you and others, so they can take informed and appropriate actions to protect themselves.”

The ICO states that firms “should make [their] privacy notice clear and accessible and aim to educate the child about the need to protect their personal data.”

There is (reassuringly) a significant body of guidance with which firms are instructed to approach the collection, storage and use of children’s data when interacting with them on these applications. And while the parent or carer is often the person providing consent in these situations, it is heartening to see institutions diligently and proactively tailor their products and statements to cater to children. 

While noting that children aren’t always the parties providing consent, given the different age requirements across Member States, Revolut Junior makes a point of providing a child-friendly privacy statement which outlines in simple language the nature of their data collection processes.

Guichard explains: “We were very conscious of the way we designed the app for children. One thing we are quite conscious of is that there is a great difference between 7 year olds and 17 year olds. In terms of trying to address this in our services we see the importance of having multiple ways to explain difficult concepts – even going down to our privacy statements. It’s one of our biggest achievements and we’re quite proud of it.

“We crafted it so that children would understand what their parents have done when it comes to their data – what’s going to happen as they use Revolut Junior and more importantly what their rights are as they are data subjects under GDPR.”

“Taking the time to write this and test even with children as young as seven to understand all those sentences, we were able to highlight the words and ideas that children didn’t fully comprehend and were therefore guessing the meaning, so we corrected the document based on this feedback.”

In their child-friendly privacy statement, Revolut Junior explains legal implications of signing up to the service in simple language, providing examples throughout. When explaining their data protection policy, the statement reads:

“Think about something that means a lot to you – maybe it’s your favourite toy or your mobile phone. You wouldn’t want someone to use it if you didn’t say they could. If you let someone use it, you’d want to know what they are using it for, that they are looking after it, and that they’ll tell you if something happens to it. You’d also want them to ask you before they let someone else use it, and to give it back to you if you ask for it. We treat your data as being that important to you.”

The situation becomes more complex on the topic of marketing. As the GDPR states children’s personal data merits specific protection, if a child provides their personal data they may not realise that it will be used for marketing purposes. If they aren’t able to critically assess the content of this marketing then their lack of awareness of the consequences of providing their personal data may make them vulnerable in significant ways.

Hill elaborates that when parents sign up to the service, gohenry obtains consent to store their child’s data for the purposes of operating their service: “The child’s data we have is never sold or shared with any other companies for marketing purposes. It’s also never used unless a child over the age of 13 consents themselves to receive blogs, newsletters and other information from us.”

Gohenry does not market to children, only parents. The app also provides a page explaining their data privacy statement to children, using a long-form analogy in which ‘Henry’ seeks or refuses to seek permission for borrowing your bike. Quite impressively, this manages to extend all the way to automated decision making.

 ‘A cynic knows the price of everything, and the value of nothing’

While the idea of trusting a bank or third party with a child’s personal information may not sit comfortably at first glance, we can look at the approach taken by Revolut Junior, gohenry and other proactive firms either cynically or constructively.

Of all the fantastic savings features, tools and skills that digital money management services for children boast, it is by helping children to grapple with the increasingly digital nature of their financial situation and the ramifications of their interaction with data that may be the most valuable lesson of all.