Nearly $2,000—that's the individual price of financial illiteracy, according to the US National Financial Educators Council's 2022 survey of US residents. The situation in other parts of the world is no better. Can this be acceptable in a society where money is called the lifeblood of economies? Hardly so, and that is why scholars and educators around the world are raising alarm about financial literacy levels. One solution they propose is to use cash as a vehicle for learning—let's see if it really helps.

The soaring levels of government debt are popping up in headlines here and there, raising concerns about the economic stability of nations. However, the pervasiveness of household and individual debt, although less covered in the media, is equally concerning: for instance, Canadian households now owe more than Canada's entire GDP, while South Korea's central bank is flagging negative long-term implications of rising household debts on overall economic growth. These and other similar reports present a valid cause for concern: record levels of household debt accumulated in the decades partially contributed to the American subprime mortgage crisis in 2007-2010, as pointed out in a detailed and documented Wikipedia article, and the World Bank draws a direct connection between a rapid buildup of private debt to the likelihood of a financial crisis.

All this, not to mention the individual consequences, highlights the crucial role of personal financial literacy. People with limited financial knowledge are more susceptible to falling in the red, which places a significant strain on their personal finances and may potentially hinder overall economic well-being. The predicament is further exacerbated by the digital economy and the pervasive pressure to consume, fueled by the ease and convenience of click-and-buy transactions. The disembodied nature of virtual commercial relations fosters impulsive purchases and a disconnect from the true value of goods, further blurring the lines between needs and wants: "Digital transformation affects consumers' everyday financial actions as digital money substitutes cash payments, and personal services are replaced by online services and chatbots," reads a recent study on financial behavior in the digital society by a group of researchers from the Academy of Finland.

The same paper highlights the importance of collaboration between the public and private sectors in financial literacy education to grow a fairer and more inclusive economic landscape. There has been significant progress in this area lately: governments, private players, and academics have joined forces to create programs to help students and young people who are particularly vulnerable to the virtual world, as well as social initiatives to educate households. They employ a variety of approaches, one of which is the use of cash to provide a tangible and relatable medium for understanding the fundamental concepts of money management, budgeting, and saving.

From Coins Counting to Higher Maths

We've already seen how the largely disembodied nature of the modern financial world makes it harder for particular social groups to develop a sense of the value of money. This is particularly true for young learners, who are not yet able to grasp the abstract nature of bank account numbers fully. To address this obstacle, financial learning frameworks employ coins and banknotes. We find this component in programs all around the world: for example, teachers in Northern Ireland bring coins in various contexts and role-play activities, primary school classes in the Netherlands use cash to explain the function of money and what it is for, and Japanese kids handle the physical currency in real-life-scenario activities such as auctions or exchanges, cultivation and sales of vegetables, setting up and running a company.

A particularly interesting example here is a Western Sydney University pilot study, initially aimed to tackle one of the most common complaints about maths classes: that they lack relevance outside school. "Students expect to be taught information that is meaningful and makes sense to them. This can present a problem when teaching mathematics because some content and approaches in school are often radically different to everyday maths students use in real life," explains the project leader, Associate Professor Catherine Attard. To achieve the goal, educators have incorporated a financial literacy component into the program and used the simplest, most natural, and easy-to-count learning vehicle—cash. Some of the activities used coin counting games such as Wipe-Out, while others involved organizing market stalls, establishing small businesses, and fundraising activities to promote and sell products. The project brought a big change in the learners' attitudes. At the outset, students held a very narrow view of finance, simply knowing basic concepts such as the difference between rich and poor and the importance of money for food, water, and shelter. In the end, however, their knowledge and involvement substantially increased: "By the end, most of the students were very interested in the topic of money, and were able to link their discussions to their own lives, and understand complex concepts such as value for money, lending, interest rates, and mortgages," said Prof. Attard.

Cash, the Natural Learning Catalyst

It is not only primary school educators who understand the importance of using cash in teaching financial literacy. The concept of physical money becomes particularly important in cash-dependent emerging nations, where limited access to the internet, technology, and banking services makes it difficult to explain basic financial literacy principles to young people and even adults. There, cash becomes a literal lifeline for educators and allows them to show a clear connection between coins and banknotes and the impersonal concepts of today's digital world.

One of the most recent examples here is the 2023 international Utrecht conference organized by Aflatoun International, a social and educational organization helping organize financial literacy programs and events worldwide. There, one of Aflatoun's partners, security printing solutions provider Koenig & Bauer Banknote Solutions (KBBS), presented a hybrid platform that uses banknotes as a natural learning catalyst and utilizes existing mobile money agent networks to reach even unschooled teenagers and young adults: "We will demonstrate that banknotes can serve as more than just a payment tool; they can become a powerful conduit for fostering financial literacy in cash-dependent societies," said Roeland Monasch, Aflatoun International CEO. Once again, the familiar and understandable concept of cash was used as a key link for connecting the physical to the digital world, adds Eric Boissonnas, KBBS's CEO: "Societal development depends not only upon technological developments but upon the ability of people to understand and use such innovation to enjoy better and more stable lives."

The results of cash handling training are seen in adults around the world. Japanese households with better financial knowledge tend to use cash as a savings means, considering it as a part of the family's asset. US researchers find that financial literacy is strongly predictive of having three months of liquid cash savings, and the total cash holdings of the financially literate respondents in Turkey are higher than the other groups. These tendencies have a clear explanation: financially literate people regard cash as a means of storing value, enabling greater freedom, autonomy, and privacy at hand whenever required. Not only does this fall in line with fundamental aspects of financial literacy, such as privacy or liquid emergency savings, but the above notions, and the fact that people prefer to use banknotes for their spending, anonymity, and quickness, emphasize the social nature of money, cash in particular: "Cash usage is emblematic of self-sustaining habits and social norms," says Ana Laura Martínez, Public Policy Professor at Mexican social improvement non-profit Centro de Estudios Espinosa Yglesias. Incorporating this concept into a financial literacy course helps teachers explain the embedded social norms, values, and power dynamics that shape our financial interactions and influence our economic and social well-being.

Despite the evolution of the digital world, cash is still an important part of the global economic system. Including it in financial literacy education programs effectively prepares learners for responsible financial decision-making in the digital age, ensures a stable foundation for economies of tomorrow, and empowers students to engage in responsible financial citizenship, contributing to a more just and equitable society. Serving as a reliable and universally available alternative to digital payments, coins and banknotes still remain popular across the world, be it as a daily life payment asset, as in Japan, with the share of cash standing at a surprising 51% or as a value reserve. This ubiquity only proves that we still need physical money, be it for the purpose of learning or as a store of social and personal value.