Buying a car or a home for the first time can bring a lot of excitement—but also a lot of angst, especially for young adults.
Many young adults do not consider themselves to be financially prepared for such important decisions as buying a car or a house because they were taught financial skills only “adequately” while growing up.[1] This lack of quality financial education may stem from parents’ attitudes that money is taboo, a source of stress, or a private matter.[2] That is, parents may not have had “the talk” about money, or better yet “talks” about money, which seems to be leading to their young adults having a surface level understanding of finances.[3]
Many parents might justify avoiding the taboo topic of money because their kids will get the financial knowledge they need from other sources. Surprisingly, however, financial education outside of the home (e.g., finance literacy courses) does not impact financial knowledge as much as parents might hope for. In an analysis of 201 studies that estimated the effectiveness of institutional financial education in improving financial knowledge and behaviors, institutional education interventions could only explain 0.1% of the variance in financial behaviors.[4] That means that financial education courses are doing almost nothing for financial knowledge and later financial behaviors.
Research consistently shows that parents have a more significant influence as financial educators than financial resources from school, media, and peers.[5] In other words, young adults may be better prepared to make informed financial decisions, like buying a car or a home, if they have consistent money discussions with their parents.[6]
When parents equip their children with financial knowledge and skills through conversations about financial principles, kids can develop better financial attitudes,[7] which can continue throughout their life.[8] While research indicates that family financial discussions are important for children’s financial attitudes, knowledge, and behaviors,[9] research does not adequately unpack how parents successfully have these money discussions.
To fill this gap in the research, Dr. Ashley LeBaron-Black and her colleagues performed a study specifically about how parents successfully have money discussions with their children.[10] They answered questions such as, “Who initiates the conversation?”, “When?”, “Where?”, and “What are these conversations about?”.
LeBaron-Black’s study included a diverse sample of young adults, some of their parents, and some of their grandparents. They interviewed young adults, their parents, and their grandparents to learn how financial principles were successfully taught. The interviews suggested the person who initiates the discussion tends to influence the topic and flow of the conversation, so researchers grouped participant responses into two themes: parent-initiated conversations and child-initiated conversations.
During parent-initiated conversations, parents began talking to their children, often about parents’ financial mistakes and experiences. Child-initiated conversations occurred when children went to their parents with questions based on their understanding of money, curiosity, or needs. Within this lens of who initiates the conversation, these scholars also identified four salient sub-themes:
Age-appropriate financial conversations. A common theme was parents teaching children at “eye-level” and adapting the principles to the child’s developmental needs. The children’s questions and developmental level allowed parents to teach principles on a need or situational basis, appropriate to the child’s understanding. For example, parents taught children to save money when they wanted a new toy or taught teenagers about student loans before they went to college.
Financial experiences and stories. One participant learned to be careful with her own money as a result of a father sharing his bankruptcy experiences with her. Participants expressed that stories about their parents’ wise financial behaviors also taught them to be financially prepared and independent. Essentially, parents can teach children how to be smart with money and avoid financial mistakes by sharing both their good and bad financial experiences.
Involving children in financial decisions. Participants shared experiences of their parents initiating family meetings to discuss family finances. Some parents would consult their children about the budget and other important financial decisions, helping the children know what was happening with the family financially. As children contribute to family decisions, children can learn financial principles through experience and witness the outcome of the decision they contributed to.
Asking financial questions. The most common child-initiated conversation involved children asking their parents questions about money. LeBaron-Black’s findings suggest that these child-centered, child-initiated conversations may be more impactful than parent-initiated conversations because children can find relevant answers to questions, rather than be lectured to by their parents. The key to these conversations happening, though, is that parents need to create a comfortable family environment in which questions about money are encouraged and answered.
In sum, LeBaron-Black’s study confirms prior research that children develop better financial attitudes and later financial well-being when their parents intentionally and regularly discuss finances in the home.[11]
Takeaways
1. Share financial experiences and mistakes. Parents may lecture too much. Instead, they should try to share personal financial experiences and mistakes and let their experiences do the talking. Children can learn lessons about their parents’ financial examples, whether good or bad.[12] For example, parents can share regrets about past spending habits or their satisfaction about something they were able to buy with cash due to consistently saving money.
2. Teach financial principles appropriate for the age and development of the child. Parents should teach to the child’s understanding of money by adapting to their developmental stage based on what they can reasonably understand. Everyday activities and life milestones can provide opportunities to teach financial principles. For example, parents can model budgeting and saving while at the grocery store or when kids get a paycheck. Parents could also naturally provide instruction about car insurance or saving for a car when children get their driver’s license.
3. Develop a climate of trust and listen. Developing a climate of trust with children can establish and strengthen a secure parent-child attachment and encourage children to ask their financial questions.[13] When children come to parents with financial questions, parents should listen and clarify to understand the questions before trying to answer them. Parents can seize the opportunity as a teaching moment after actively listening to the child’s perspective. If parents first seek to understand their child, they might have more luck in being understood.
Summary
LeBaron-Black’s research illuminates important principles about having parent-child money discussions. Whether inadvertently or not, parents can have positive or negative roles in their children’s future money attitudes and behaviors. More than simply a one-time money talk, consistent financial guidance and money “talks” from their parents can help children implement healthy money behaviors throughout their lives, starting in their childhood homes.
[1]Clarke, M. G., Heaton, M. B., Isrelsen, C. L., & Eggett, D. L. (2005). The acquisition of family financial roles and responsibilities. Family and Consumer Sciences Research Journal, 33(4), 321-340. https://doi.org/10.1177/1077727X04274117
[2]Solheim, S.A., Zuiker, V.S., & Levchenko, P. (2011). Financial socialization family pathways: Reflections from college students’ narratives. Family Science Review, 16, 97-112.
[4]LeBaron, A. B., & Kelley, H. H. (2021). Financial socialization: A decade in review. Journal of Family & Economic Issues, 42(1), 195–206. https://dx.doi.org/10.1007/s10834-020-09736-2
[5]Grohman, A. Kouwenburg, R. & Menkhoff, L. (2015). Childhood roots of financial literacy. Journal of Economic Psychology, 52, 114-133. https://doi.org/10.1016/j.joep.2015.09.002
Pinto, M. B., Parente, D. H., & Mansfield, P. M. (2005). Information learned from socialization agents: Its relationship to credit card use. Family and Consumer Sciences Research Journal, 33(4), 357-367. https://doi.org/10.1177/1077727X04274113
Shim, S., Barber, B. L., Card, N. A., Xiao, J. J., & Serido, J. (2010). 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
[6]Serido, J., & Deenanath, V. (2016). Financial parenting: Promoting financial self-reliance of young consumers. In J. J. Xiao (Ed.), Handbook of consumer finance research (2nd ed., pp. 291–300). Springer.
[7]Serido, J., & Deenanath, V. (2016). Financial parenting: Promoting financial self-reliance of young consumers. In J. J. Xiao (Ed.), Handbook of consumer finance research (2nd ed., pp. 291–300). Springer.
[8]Grinstein-Weiss, M., Spader, J., Yeo, Y. H., Taylor, A., & Freeze, E. B. (2011). Parental
transfer of financial knowledge and later credit outcomes among low- and moderate-income homeowners. Children and Youth Services Review, 33(1), 78-85. https://doi.org/10.1016/j.childyouth.2010.08.015
Shim, S., Barber, B. L., Card, N. A., Xiao, J. J., & Serido, J. (2010). 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
[9]Gudmunson, C. G., & Danes, S. M. (2011). Family financial socialization: Theory and critical review. Journal of Family Economic Issues, 32(4), 644-667. https://doi.org/10.1007/s10834-011-9275-y
[10]LeBaron, A. B., Marks, L. D., Rosa, C. M., & Hill, E. J. (2020). Can we talk about money? Financial socialization through parent-child financial discussion. Emerging Adulthood, 8(6), 453-463. https://doi.org/10.1177/2167696820902673
[11]Serido, J., & Deenanath, V. (2016). Financial parenting: Promoting financial self-reliance of young consumers. In J. J. Xiao (Ed.), Handbook of consumer finance research (2nd ed., pp. 291–300). Springer.
[12]Rosa, C. M., Marks, L. D., LeBaron, A. B., & Hill, E. J. (2018). Multigenerational modeling of money management. Journal of Financial Therapy, 9(2), 54-74. https://doi.org/10.4148/1944-9771.1164
[13]Dollahite, D. C., & Thatcher, J. Y. (2008). Talking about religion: How highly religious youth and parents discuss their faith. Journal of Adolescent Research, 23(5), 611-641. https://doi.org/10.1177/0743558408322141