Financial
Abstraction

Disneyland – where dreams come true and financial life lessons are learned.

Mickey & Minnie, princesses and rollercoasters galore. Sounds like a setting for the holiday of lifetime, or is that the financial education of a lifetime?! Because, unlikely as it seems, Disneyland provides us with a prime example as to how our relationship with money has changed in recent times – a change that has serious implications for employees, employers and the economy in general.

In a bid to make the visitor experience as ‘frictionless’ and ‘seamless’ as possible, Disneyland spent over $1 billion on a ‘magic band’[1]. With this colourful, plastic bracelet visitors can access their hotel room, the park and all its rides, purchase meals, drinks, ice-creams and all that Disney memorabilia that you never knew you, or your children, wanted! Seamlessly (or is that magically?!) your visit just cost a huge amount more than you had planned – but how?

Disney cleverly realised that by eliminating queues and ticketing issues, the visitor experience becomes easier and more enjoyable – seamless. Families can immerse themselves in all the park has

to offer and spend more time ‘making memories’ (read, ‘spending money’) as, with the magic band linked to visitors’ credit cards, all those ‘We’re just here the once, let’s make the most of it!’ purchases become frictionless, no more dealing with anything as un-magical as physical money! We all know, the easier it is to make a purchase, the easier it is to spend money and with per capita guest spending up 8% in the first quarter the bands were rolled out[2], Disney is onto a winner in terms of return on investment.

Changing financial habits

The Disney magic band and how it operates, especially psychologically, is a telling example of how increasingly disconnected from physical money we have become, and how our financial habits have changed as we move to virtual transactions.

Just like Disney visitors, the Irish nation has bought heavily into the concept of seamless purchasing, with over 3 million contactless payments being made in the Republic each week. According to Visa’s 2016 Digital Payment Study[3], an average of five contactless transactions are being made every second, a figure that is sure to rise now that Apple and Android Pay have been launched in Ireland.

In truth, we have started to view money as more of an abstract and antiquated notion, as society has shifted from using coins and notes to paying digitally using contactless, PayPal, Google Wallet, ApplePay etc. The Irish may not be early adopters but the Visa survey has shown that we have enthusiastically embraced cash-free living, with 78% of us using mobile devices to pay for items, both for high value (holidays, electronics) and regular transactions (household bills, bus tickets), and almost two thirds of the people surveyed (65%) used contactless cards in 2016. Irish Times journalist Fiona Reddan noted that ‘In a recent survey by communications group Core Media, 60 per cent of Irish people said they will become cashless in the future, with mobile wallets and peer-to-peer payment technologies due to be adopted first.’[4]

Financial Abstraction and the new currency

Today’s currency is digital, with money becoming more of an idea and less of a physical reality and the theory that our relationship with money changes depending on whether it’s real or not, is a concept known as financial abstraction.

Research has suggested that we spend more when we swipe or tap, with most studies finding we spend up to 18% more when not dealing with cash[5]. And so, at the heart of financial abstraction is this – as money becomes less tangible our spending becomes greater, we are not handing over cash and so there is less sensation of loss[6], we don’t feel the pain associated with spending. The greater the disconnect with our money, the less real our money is to us and the more we spend.

So, what’s the problem?

As we, forgive the pun, buy into financial abstraction, we spend more money and amass greater debts, technology marches on and our lives are made easier, ‘frictionless’…so what’s the problem?

The problem, according to Adam Carroll, finance expert and financial education enthusiast, is that financial abstraction has the potential to ruin future generations and even the global economy. In his Ted Talk ‘When money isn’t real: the $10,000 dollar experiment’[7], Carroll waits in Starbucks to ‘ApplePay’ for his coffee and bemoans his sons comment ‘I sure wish I had a phone, so I could buy stuff’.

He notes that today’s digital native youth rarely see people paying with cash or coins; they see payments via mobile phones (ApplePay, Google Wallet) and equate spending with credit/debit cards. They see money as an abstraction, a limitless illusion, where you can buy what you want, when you want it, in a world where ‘$100,000 isn’t that much money because we have $500,000 in our Grand Theft Auto ATM’. This world view is aided and abetted by the use of digital payments, and the fact that it is the younger generation who will drive the transition to a cashless society. In the Core survey mentioned above only 15 per cent of people surveyed say they have used mobile wallets already, in contrast to almost one in two millennials saying they have used some form of new technology.

Future generations are ill-equipped

While the youth of today may be savvy in the digital regard, few of them have had tangible experiences with money, as the Grand Theft Auto and Starbucks/mobile phone comments show. They are not being given the life lessons or the opportunities to deal with physical money, and the valuable psychological results of such lessons – ‘I do not physically have the €3 I need to purchase my coffee so therefore I can’t have it’. This lesson does not apply to them – they produce their smartphone, watch, tablet, and hey presto coffee appears! With no grip on the realities of money, the next generation are ill-prepared for the harsh economic consequences that can come with living beyond their means – debt, bankruptcy, stress. Not only is this a problem for them, but it is also a problem for their employers and the economy.

Implications for the employer and economy

Current research tells us that employees suffer from financial stress with 46% of employees distracted by their finances at work[8], which directly impacts on a company’s bottom line by 4% lost productivity[9]. If this is the case now, how much worse the stress of future employees, who have little or no grip on their finances? Indeed, how much worse the effect on the economy of failing businesses due to employee financial mismanagement?

The next generation must be brought up to realise that while their dealings and transactions with money are apparently ‘seamless’, they are anything but ‘frictionless’ in terms of the very real consequences that come from overspending and resulting debt. They need to make the connection between money as an abstract and the unpleasant reality that poor financial habits bring – I can’t have that coffee after-all! Good financial habits are 20% knowledge and 80% behaviour, so if we can provide the next generation with tangible monetary experiences and knowledge, the greater the chance they will demonstrate healthy, positive behaviours and habits around future financial decisions.

It is hugely important for employer’s to recognise their responsibility to their current employees, many of whom are the parents and future parents of the next generation, in helping to create healthy financial habits. Indeed, recent research in the U.K. cites it as a responsibility that cannot and should not be ignored[10]

What can employers do?

Financial wellbeing programmes can play a vital role in helping to instil the financial knowledge, behaviour and habits necessary in employees, and by extension in those around them. Technology is to be welcomed, as are contactless and other digital methods making our everyday purchasing lives easier. What is not to be welcomed, or encouraged, is the complete removal of the tangible monetary experience. The key lesson to be learned from financial abstraction is not to lose sight of the value of real money. This is a lesson that can benefit us all – employees, employers and the economy.

[1] https://www.wired.com/2015/03/disney-magicband/

[2] https://www.fool.com/investing/general/2014/07/15/why-disneys-magicbands-are-a-cash-cow-in-the-makin.aspx

[3] https://www.visaeurope.com/media/pdf/40172.pdf

[4] Fiona Reddan http://www.irishtimes.com/business/personal-finance/cash-free-for-a-month-an-experiment-in-new-ways-to-pay-1.2970948

[5] Journal of Experimental Psychology, Sept. 2008 issue; Dun and Bradstreet

[6] MIT study – ‘Always Leave Home Without it; A Further Investigation of the Credit-Card Effect and Willingness to Pay.’ http://web.mit.edu/simester/Public/Papers/Alwaysleavehome.pdf

[7] Adam Carroll, When money isn’t real; the $10,000 dollar experiment ^{https://www.youtube.com/watch?v=_VB39Jo8mAQ}

[8] PwC 2016 Employee Financial Wellness Survey

[9] Barclays 2014 Report on Employee Financial Wellbeing

[10] https://www.closebrothersam.com/campaigns/financial-wellbeing-CIPD/home