As of 2022, only eight states require high school students to enroll in a personal finance course prior to graduation.1
The lack of exposure to direct financial education in the American public schooling system means that the responsibility of facilitating kids’ financial understanding rests largely on the shoulders of their parents.
To any parent, this responsibility will seem more than a little daunting. Considering the timing and facilitation of allowance, high school jobs, savings accounts, credit cards, and the pressure of setting a good example financially, it’s easy to see why. So, how can families begin to tackle such a monumental task?
In seeking to address this conundrum, Dr. Ashley LeBaron-Black and her team of researchers at Brigham Young University found that one way parents can help instill financial values in their children is through teaching them how to work.2 This finding is supported by Gudmunson and Danes’ family financial socialization theory, which states that the foundation of our financial attitudes, behavior, and well-being is primarily formed during our childhood and teenage years.3
In the study, the team of BYU researchers interviewed over 100 parents, grandparents, and young adults, asking variations of two open-ended questions: “What did your parents teach you about money?” and “How did they teach you those things?” Parents and grandparents were also asked what and how they taught their children about money. From the participants’ responses, three themes emerged related to work, which were analyzed in a paper led by Christoffer Loderup: (1) household chores and allowances, (2) paid employment, and (3) entrepreneurship.4
Household Chores
Many parents utilize allowance systems to motivate their children to complete household chores or reinforce the value of hard work, among other core financial principles. There is much to be learned from each allowance system, but here is a brief synopsis of the reported effects each system had on young adults:
For purposes of this study, allowance systems were categorized as either free allowance—a regular stipend without any requirements for work—or wage allowance, paid only if chores are completed. Some children reported receiving no allowance at all, and they attributed their work ethic to their belief that unpaid work is a normal part of life and their sense of heightened family contribution. Many who grew up under a free allowance system explained that they felt the expectation to complete chores and felt motivated to work out of obligation and gratitude. In contrast, parents often establish a wage allowance system with the intent of teaching their children that if they want money, they must work for it. Although in this study Loderup, LeBaron-Black, and colleagues did not determine whether one allowance system is better than another, there did seem to be unique benefits of each approach.
Paid Employment
Some of us look back on our teenage jobs with feelings of fondness, while memories of some first jobs leave nothing but a bad aftertaste. With that said, there are many advantages to working outside the home, according to feedback from the study’s sample of young adults. Nearly every participant made mention of paid employment outside the home.
Whether young adults were expected to work in high school, chose to work of their own volition, or worked to support their families, they learned valuable lessons and lifelong skills that have strongly influenced their present financial attitudes and behaviors. Participants specifically cited lessons learned including “finding joy in work,” “good work ethic,” “responsibility,” “life skills,” and the knowledge that “nothing comes easy and if you want something, you work for it.” One woman expressed gratitude for the perspective she gained early on, which differed from that of her peers whose “job was their education.” She began to think of money in terms of hours worked. She noted that a $20 bill was no longer a $20 bill to her; instead, it represented two and a half hours of work.
Providing paid employment opportunities to children and teenagers helped them internalize financial values far more than a lecture about financial values did. Parental enthusiasm and encouragement for their children’s employment also appeared to have made a lasting impact on their children’s own enthusiasm for work throughout their lives. Children had better experiences when their parents encouraged their efforts in seeking paid employment, instead of being forced to do so.
Entrepreneurship Experiences
Experience creating one’s own entrepreneurial business marked a path of significant financial learning for those who were granted the opportunity and who took advantage of it. For today’s youth and young adults, common entrepreneurial experiences include lawn care, babysitting, and piano lessons. The independence, money management skills, and work ethic gained from these experiences often lead to future academic and financial success, particularly because entrepreneurial pursuits are often tied to a specific goal. Therefore, helping children and teenagers engage with entrepreneurial experiences can help them absorb financial principles along the way.
Takeaways
It goes without saying: every child is different. Even children within the same family have different needs, personalities, and learning styles. As illustrated in the study, there is no one prescribed way to instill work ethic in children. There is no perfect allowance system or one-size-fits-all parental financial model, but there are important financial principles to implement to help children develop financial knowledge and skills. Accordingly, parents must adapt their teaching styles to fit their children’s needs while keeping these principles in mind. Here are four main action items related to this research that parents can consider in child-specific financial instruction:
- Talk about money!
Begin by assessing your child’s understanding of basic financial concepts. Your conversations may begin with questions such as “What’s something you’ve always wondered about money?”, “Why do we need to make money?”, “How much do you think a new car costs?”, or “What is a budget?” There are many helpful online resources with answers to frequently asked questions from kids, such as Investopedia’s 10 Questions Kids Ask About Money. - Improve your current allowance system.
Pick a free or wage-based allowance system that you believe will best fit your family’s needs. Set a regular time to review, as a family, how it’s going (e.g., every three months). After a trial run, discuss what went well and make small adjustments along the way. Talk to other families about the successes and failures they’ve had. - Create entrepreneurship experiences.
Help your child make a list of their skills and interests. Create a business plan together, and brainstorm how to translate their list of skills into entrepreneurship experiences. It’s never too early or too late to start!
Conclusion
Parents teaching children about finances is reciprocal in nature: children are directly influenced by their family financial atmosphere, and a heightened awareness of how a parent’s behavior influences their child inspires greater financial wisdom on the part of a parent. As we do this, we can encourage greater financial wellbeing in the rising generations, as well as our own.
[1]Next Gen Personal Finance. (2022). NGPF’s 2022 State of Financial Education Report [Data set]. https://d3f7q2msm2165u.cloudfront.net/aaa-content/user/files/Files/NGPFAnnualReport_2022.pdf
[2]LeBaron, A. B., Hill, E. J., Rosa, C. M., & Marks, L. D. (2018). Whats and hows of family financial socialization: Retrospective reports of Millennials and their parents and grandparents. Family Relations, 67(4), 497-509. https://doi.org/10.1111/fare.12335
[3]Gudmunson, C. G., & Danes, S. M. (2011). Family financial socialization: Theory and critical review. Journal of Family and Economic Issues, 32(4), 644–667. https://doi.org/10.1007/s1083 4-011-9275-y
[4]Loderup, C. L., Timmons, J. E., Kimball, E. R., Hill, E. J., Marks, L. D., & LeBaron, A. B. (2021). How do parents teach their children about work? A qualitative exploration of household chores, employment, and entrepreneurial experiences. Journal of Family and Economic Issues, 42(1), 73–89. https://doi.org/10.1007/s10834-020-09709-5