Many moons ago, when my son was about four years old, we were out shopping when we saw a shiny red boat on display at a nearby mall. It caught his eye and together we admired it. We imagined how fun it would be to own it, but I did eventually have to tell my son that we just couldn’t afford that cool red boat. That didn’t make my son hesitate for even a second. He excitedly piped up, “Just write a check for it!” After all, we had lots of checks in the checkbook.
This anecdote illustrates that as children observe parents transacting business and purchasing items for the family, they may come to some very inaccurate conclusions. They may assume that checks can be used for anything, and that nothing more is required. Or that Mom or Dad can punch a few buttons on a shiny machine and it spits out cash. Or that little pieces of plastic in our wallets are the key to happiness and instant gratification, or at least a quick snack at MickeyD’s.
Many families decide on an allowance for their kids as a way to teach them to manage their individual resources wisely. Kids quickly learn that if they spend their whole allowance on ice cream or a video game, they won’t be able to buy anything else until their next allowance day. In this way they learn that saying yes to one purchase means saying no to others. Personal saving, spending, and earning can all be learned through this avenue of experience.
But what about the way kids understand the family’s finances? The University of Texas and North Carolina State University recently published a revealing study about kids, parents, and money talk. The average age of the participants was 10.8 years.
The study identified a taboo around family finances: most families do not discuss parental income, debt, family investments, or budgeting with their children. According to the study, kids don’t know why their parents avoid these subjects, but “some children said they thought parents didn’t want to discuss these topics because parents were afraid of scaring their children, or of having the children brag about their family’s finances or compare their financial circumstances with other families.”
“Broadly speaking, we found that parents were most likely to talk with their kids about saving, spending and earning,” Dr. Romo of NC State says. “The children said they felt their parents talked about these subjects to prepare kids for the future.”
“The takeaway here is that even young kids are aware of financial issues, regardless of whether parents talk with them about money,” Romo says. “And if parents aren’t talking with their kids about subjects like family finances or debt, the kids are drawing their own conclusions – which may not be accurate. Even if parents don’t want to discuss family finances with their children, it may be worthwhile to explain why they don’t want to discuss that topic.”
The study also revealed a difference in what parents did communicate with children about money matters based on their children’s gender. Though overall there was little discussion of investments or debt, parents were much more likely to talk about investing and debt issues with their sons than with their daughters.
The bottom line: kids are constantly learning, observing us, and drawing conclusions. If we don’t start teaching them financial responsibility, how money works, the traps of debt, and the wisdom of delayed gratification, they can have a lot of misconceptions and even stress about family financial issues. Teaching children how family finances function can help them become responsible adults who understand money matters.