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Managing money in a digital world

As Parent Zone launches our film, The Changing Face of Money, we look at how parents can teach their children that virtual financial transactions have real life costs.

You can watch the film, made in conjunction with VISA, here

 

Digital Finance

It’s never been simple to teach your children about financial responsibility, but as cash becomes less common and new technologies become more prevalent, it can be a daunting prospect. Alongside the convenience of contactless payments comes the challenge of teaching children the basics of money management when they don’t even need to encounter or handle cash to make a purchase.  In today’s digital world there are more ways than ever before to spend money.

Fear not: it might sound complicated but it’s not as daunting as you might think.

This article gives you the inside track on some of the most common ways for young people to make what are becoming known as ‘frictionless’ purchases, together with some tips to help you to teach them the value of money and how to manage it in a digital world.

What are frictionless payments?

Sounds a bit technical? Not really. You’ve probably already made frictionless payments without even thinking about it. A coffee paid for with your contactless card, a one-click online purchase, or maybe even paying for your share of dinner with friends using your mobile phone.

In essence, frictionless payments are those that are made without a shopper needing to hand over cash or, in some instances, use their payment card number.

This might still feel relatively new to us, but the younger generation is growing up with it and for them, it’s accepted and normal. Indeed, not having a pocket full of change or an old-fashioned chequebook means having less to worry about. Research from Visa Europe shows that young people like the convenience and simplicity offered by new payment methods but that many see passwords and other security measures as an inconvenience. Indeed the research also shows that over half of UK 16-24 year-olds believe that passwords and PINs will be obsolete within the decade.

So, giving them the skills to manage their money well and in new ways becomes an ever more important job.

The most common types of frictionless transactions include:

Contactless card and wearable payments

A contactless payment device uses existing chip technology with the addition of radio-frequency identification to make secure payments. The payment device - which can be a credit or debit card, or even a wearable device such as wristwatch - is waved over a reader at the point of sale. Currently, payments can be made by a card under £30 in the UK and do not require the user to enter a PIN or sign a receipt. After a set amount of transactions, an issuing bank will request that the card be inserted and verified by PIN for security verification.  If you’re not sure whether you have a contactless card you can look for the contactless logo.

Contactless payments aren’t fundamentally different from any other type of credit or debit card transaction. However, as the cardholder does not need to enter a pin for some low value transactions under £30, it is important that children are aware about what’s OK and what isn’t. You may not be able to claim the loss back from your bank if the card has been used by a family member.

Mobile phone payments

Contactless payments are also going mobile. Using the same technology as contactless cards, some banks and mobile phone service providers allow you to touch or wave your smartphone over a reader at the point of sale to make payments. These transactions can be for any amount; however transactions over £30 will require the cardholder to authenticate themselves on the device. This can be done via a passcode (mobile PIN), or a fingerprint scanner. Young people today are used to having phones that can effortlessly function as entertainment centres, sources of information and more – so it’s easy to see how a phone might become a preferred spending method for them in the future.  

Mobile personal payments

It’s now possible to give money directly to another person quickly and securely using only your mobile phone.

There are a variety of app-based solutions where you either need to know the other person’s mobile phone number or be friends with them on social media. The money could go either to their nominated bank account or even onto a credit card, for example.  In short, you don’t need to share account information.

Banks may offer the service either as a standalone app for your mobile or integrated into their existing mobile products. 

Once enabled, you can choose to send a payment to someone simply by selecting their mobile phone number from within the app.

Digital Wallets

Technology now allows you to store multiple payment cards in a single digital wallet, so you can make simple online payments without the need to type in your card details every time you pay. Any of these cards can then be used to pay online from a PC, a tablet or a smartphone. Your card data is securely stored so even if you lose your phone or tablet your card details can’t be accessed, making it much less risky than if you lose a physical wallet or purse containing cash.

So, we know what they are - but where might your children encounter frictionless payments?

Where might your child come across these common types of frictionless payment? Here are a few examples of situations in which your child might be able to spend money without using cash or entering a card number:

iTunes and the App Store

iTunes is Apple’s media management software. You can use it to download, purchase, view and store media including movies, music and books. The App Store is Apple’s distribution platform for iOS apps. You can use the App Store to download apps onto an iOS device, or iTunes to download them on your computer.

Google Play

Google Play is Google’s distribution platform for Android apps. Users can also download music, books and movies and even purchase devices. The issues for parents are similar to the App Store – Google Play offers a mix of free and paid downloads, and lots of apps that are free to download also offer spending opportunities.

In app purchases

An in app purchase (or IAP) is any purchase you make in an app you’ve already downloaded – on a phone, tablet or other device. Many apps that are free to download still allow (or encourage) you to buy further functions once they’re installed, so letting your children only download free apps only won’t necessarily prevent IAPs.

In app purchases vary in price and there are lots of different kinds. Some games encourage you to spend money to progress more quickly, while some apps require payment to unlock additional features or content. In many apps, it’s possible to make a purchase (or several!) without even realising it – children may think they’re spending imaginary currency in a game, for instance, when they’re actually making real purchases. Over time, these can add up to a costly surprise. They need to be explained and managed, in the same way you would your child’s cash pocket money.

Mobile phone purchases

Many parents can tell at least one story of bill shock as a result of their child using their phone. In the age of smartphones, there are more opportunities for this to happen than ever.

In app purchases (see above) are a major source of spending on smartphones. Children buying something in a game, for example, might not realise their purchases are being added to their monthly phone bill (or yours!)

Online retailers

It’s not just young people who shop online – today you can order everything from groceries to a new washer-dryer without having to leave your house. Different online retailers have different rules about children shopping, but usually they require the shopper to be over 18 or to have parental consent. For the many parents who have decided to store a payment card to make the shopping process quicker and easier it’s particularly important to make sure that passwords are kept private and that you log out of your account when you have finished your transaction.

Premium rate services

Premium rate services have been in the news a lot and can be a common source of bill shock. They are added onto your phone bill and generally cost more than a typical call or text. The services and products that make these charges include games, chat services and information lines. Often premium rate services use a number beginning with 09, 0871/2/3 or 118, or ask you to text a five/six digit number.

Gaming

Lots of young people play games and spend money on apps on their phone but other gaming systems like Xbox Live and Playstation also offer opportunities for frictionless spending. Users can purchase new games or spend money in the one they’re currently playing – purchases will be charged to the credit card linked with their account.

Managing frictionless payment

This may all seem daunting but there’s a lot you can do to help your children manage frictionless payments. Some strategies are general – like keeping your passwords to yourself and sticking to a budget – but many services also have specific tools in place to help parents stay in control of their children’s spending.

iTunes and the App Store

If you’re using a device with an iOS operating system, you can require a password for all purchases or disable in app purchases entirely (under Settings -> General -> Restrictions) – but make sure that if you turn off in app purchases on your child’s phone, you use a passcode that only you know. You can request a refund from Apple for unauthorised in app purchases made by minors – you’ll just need to look up the order ID number and fill out an online form.

You can also disable app downloads entirely, or set your device to require a password for all purchases. If you do this, make sure you set it to ask immediately for every purchase – otherwise your child may be able to make additional purchases for 15 minutes before having to enter the password again.

Apple now offers a feature called Family Sharing which lets up to six family members share purchases from iTunes, the App Store and iBooks, even if they have separate accounts and multiple devices. One adult will pay for all purchases and you can turn on an ‘ask to buy’ feature that requests parental approval before a child makes a purchase.  With the introduction of iOS 8, children under 13 can have their own Apple ID with parental consent, so you can now use Family Sharing with kids of all ages.

Google Play

There’s no way to disable in app purchases on an Android device altogether, but you can set the device to require a PIN before a purchase is made. (Open Google Play and go to User Controls -> Add and Confirm PIN -> Use PIN for Purchases.) Again, if you do this on a device your child uses, make sure only you know the PIN. Google also offers refunds for in app purchases made by minors – you will need to flag the unauthorised purchase(s) in your Google Play account and request a refund.

On many Android devices, you can set multiple user profiles with different settings and permissions. Phones can have up to four users and tablets can have up to eight. So if you have a shared family tablet, you, as the device owner, can create separate user profiles for your children and customise their settings. You can restrict access to apps and content by maturity level; you can disable certain apps; or you can require a password to make purchases – choose the ‘for all purchases’ option to prevent additional purchases after a password is entered.

Mobile phones and premium rate services

When you and your child set up their phone, you should discuss what types of services they’ll be using – texting, calls, data – and decide what sort of tariff makes sense. Once they have this in place you should discuss monthly spending limits to avoid any surprise bills. Make sure you switch off IAPs, set up a PIN or talk to your child about managing in app spending before handing over a new phone.

Some premium rate services can be useful but they can also run up quite a bill. You may want to talk to your child about what they are, so they don’t end up calling, clicking or texting by mistake. You can also:

  • Warn them about giving out their phone number. It’s not a great idea for young people to give their number to people you don’t know anyway, but they should be especially careful before entering their mobile number into any online forms – and shouldn’t do it at all if they’re not totally sure how the information will be used.
  • Have a look at their phone bill together to see if there are any unusual numbers or charges. If you’re not sure about a number you can check it using this tool from PhonepayPlus.
  • Caution them to click carefully when browsing the web on their phone. Some promos and advertisements are misleading and the link they click might not be what they expected.

Gaming

Gaming systems like Xbox and Playstation normally allow you to create profiles for multiple users within a family and apply restrictions to child accounts. Children and teens will be able to see the restrictions you have applied but won’t be able to change them.

For more information see our top tips on digital finance. 

Parent Zone acknowledges Visa Europe's support in enabling us to deliver these resources.