In the last chapter of the book currently known as Plenty, I'm writing a small section on teaching kids about money. I've realized from a quick look around that people have very definite opinions on this… and very little of it is backed up by research.
It's a microcosm of many of our broader debates on behavior and economics. Giving kids a regular allowance sounds like a good thing, so they can start to learn to manage their own money. Teaching high schoolers financial literacy sounds like a good thing. Isn't more education always better?
But when you actually test these things, and look at people's later financial behavior, the situation becomes more muddled. This article from a 2006 issue of Money explains the problems nicely. Large scale studies of high schoolers who have taken financial literacy classes do not find that these kids score better on financial literacy tests. They were just as likely to carry a credit card balance and bounce checks. Kids given an allowance were less likely to describe themselves as good savers later on than kids who hadn't gotten an allowance. Instead of teaching kids to be good stewards of money, perhaps an allowance teaches kids that there will always be another paycheck coming…so why save?
Obviously, people are way too complicated to have any one parental input lead to any given outcome. We also have different personalities. I know perfectly well how the stock market works but I just don't find it very interesting. Some kids who grow up in limited circumstances and later have higher incomes squirrel it all away. Others believe life is not worth living without 10 Jaguars in the garage. But hunting through the literature, I think there are a few things that may matter.
First, children watch their parents from a very early age and pick up habits this way. If you always pay your bills on time, spend less than you make and save regularly, these become established as cultural norms. Second, it is also very hard to break habits. If you start your kids saving early on by setting up an account where they are expected to put some of the birthday and Christmas money that comes in, this will become a norm as well.
How are you teaching your kids about money? Do you give an allowance? For those with grown up children, do you think anything you did had a particular impact?