Of all the skills and values parents hope to pass down to their children, we hope that financial knowledge is one of them. Children absorb financial information both from what their parents say—but also what is left unsaid. Indeed, parents can teach their children about finances explicitly, but sometimes, financial actions speak louder than words.
While scholars have established that parents use both implicit and explicit methods of teaching children about finances, there might also be another primary method of teaching children and teenagers about money. This third main method of teaching children about money, according to a recent study, is called experiential learning. [1]
In a recently published study in the Journal of Family Issues, lead researcher Ashley LeBaron-Black and her colleagues examined what children and teenagers learned about finances through experiences provided by their parents and why their parents used this method of furthering their children’s financial literacy.
In essence, the study showed that 90% of interviewees had learned about finances and money through their experiences. The results also suggested three core themes related to why parents used experiential learning as a method of teaching their children about money: to help their children (1) learn financial skills, (2) develop financial values, and (3) become independent. In addition, the study identified three core themes related to what youth learned about finances: how to (1) work hard, (2) manage money, and (3) spend wisely.
The results also showed that these themes are essential for expanding children’s financial capability and helping them gradually become independent. Experiential learning really is “hands-on learning”, where parents provide kids with opportunities like working in the home, managing an allowance, and opening their own bank account, with the freedom to spend, save, budget, and make their own decisions with money.
In short, children tend to adopt the financial skills and values of their parents, and eventually, their children often repeat those patterns for themselves. This research supports that not only are implicit and explicit teaching great methods to teach children and teenagers about money, helping children learn how to manage their own money prepares them to succeed in young adulthood.[2]
Takeaways
- Teach Your Children about Finances Through Experiences
Providing your children with hands-on experiences might not only allow them to grasp the value of money, but it also might provide an opportunity for parents to reflect on their own financial perspectives and practices. Dr. LeBaron-Black suggests giving children opportunities to work for their money such as chores, engaging in entrepreneurial activities, and striving in academic and extracurricular pursuits.[3]
- Don’t Just Talk About Money—Practice What You Preach
As parents continue to learn how to best implement financial practices like budgeting, saving, avoiding debt, and investing, they can feel more confident in then teaching their children about finances through conversations. Let children share the financial knowledge they might be learning at school to create more moments at home to discuss finances. Modeling good financial behavior—practicing what you preach—is also hard work. It would be wise, and in your children’s best interest, for you to manage your finances in the same way you hope they manage theirs. Connecting experiential learning of finances and your example to your children might look like giving them a piggy bank to expand their understanding of the skills you model for them.
- Be Open to Children’s Mistakes
Let children practice financial autonomy by giving them a chance to spend their money—and even make mistakes in doing so. Giving your child the chance to spend money can help them understand that if they want something, it will cost something. Through financial mistakes made at a younger age, children can learn to make wiser decisions when they are older. Indeed, $5 mistakes for a 5-year-old might be better than $25,000 mistakes for a 25-year-old.
References:
[1] Fernandes, D., Lynch, J. G., & Netemeyer, R. G. (2014). Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), 1861–1883. https://doi.org/10.1287/mnsc.2013.1849
[2] Shim, S., Barber, B. L., Card, N. A., Xiao, J. J., & Serido, J. (2009). Financial socialization of first-year college students: The roles of parents, work, and education. Journal of Youth and Adolescence, 39(12), 1457–1470. https://doi.org/10.1007/s10964-009-9432-x
[3] LeBaron, A. B., Runyan, S. D., Jorgensen, B. L., Marks, L. D., Li, X., & Hill, E. J. (2019). Practice makes perfect: Experiential learning as a method for financial socialization. Journal of Family Issues, 40(4), 435–463. https://doi.org/10.1177/0192513X18812917