I love writing about a variety of things - but I do like to write whilst having done the research! One topic I find immensely fascinating is teaching personal finance and behavioural finance to youngsters, rather than waiting after things might have already catastrophically gone wrong. I am a massive proponent of teaching financial education at a young age, as this article clearly indicates. However, I am by no means an expert in what this should look like. I'm not 100% in the know about what works, what doesn't and what the latest research dictates. Thankfully, I do know someone who is, and her name is Margaret Echelbarger. Margaret is a postdoctoral researcher at the Center for Decision Research at the University of Chicago Booth School of Business. She joined the CDR after completing her PhD in developmental psychology at the University of Michigan. Key questions guiding her research include: 1) How do we break into the economic market as children? 2) How do we develop and change as consumers as we age? 3) How do social norms guide our economic decision making? To answer these questions, she marries methods and findings from two disciplines often working in parallel--behavioral marketing and developmental psychology. Her ultimate goal is to identify opportunities to promote (financial and interpersonal) well-being across the lifespan, among children and adults alike. I asked Margaret several questions about how children handle and perceive money, and this article is the result of that!
How do children relate to money? If at all?
At age 5, most children lack formal education related to money, yet my colleagues and I have found that children of this age have already developed feelings about spending (and saving) money. That is, when we ask children to report on how spending (and saving) money makes them feel, these reports are (psychometrically) internally consistent, correlate with parent reports, and predict whether children will spend or save in a lab task. More specifically, we adapted the Tightwad-Spendthrift scale developed and validated by Scott Rick and colleagues for children (and note Scott Rick is also involved with this child work). How to go about adapting these types of adult scales and surveys for use with young children is for another day (but a very important discussion to have given the need for more work on financial decision making in childhood)!
Now, how young children come to develop these feelings is an open question--one we’re exploring in our ongoing work. Reflecting on conversations I’ve had with many parents who have helped us with our research, and reflecting on my own experiences, I imagine children are quick to pick up on how the adults in their lives talk (or don’t) about money, how they react (or don’t) to prices in stores when shopping, and just the central role (or not) that money plays in their lives (e.g., money is a stressor for many families).
What would you say are the major differences between how children make financial decisions and how adults make decisions?
I think the first step in answering this question is recognizing that young children (so I’m not talking teens or young adults) are spending quite a bit of their own pocket money--money acquired via an allowance or gift, for example. The extent to which children have autonomy over how they spend their pocket money likely varies based on age, parenting style, and the source of the money (e.g., gift card vs. cash), among other things. Additionally, what children think about buying likely differs as well. Whereas adults are tasked with addressing children’s needs, children are often in a position to use their money to make more hedonic purchases (e.g., toys, games, treats). So, before even thinking through the processes involved in financial decision making and how they might differ between children and adults, we have to first think through the ways the contexts and motivations for spending are different.
Although there is relevant work in this area, I would like to see more comparative and longitudinal work examining the strategies children and adults use to save and spend money. Across a host of domains, we see that early socialization experiences are associated with later outcomes and behaviors in adulthood. Money-related practices are no different. That is, early economic socialization (e.g., receiving an allowance, having a bank account) influences financial health in young adulthood. So, when studying financial decision making among children, it will be important for researchers to also consider children’s environments and how the adults in their lives engage in money-related practices.
There is evidence indicating that financial education (predominantly for adults) does not work. Would it work for children? Would this be because rather than just teaching, it is also reshaping the perception of money?
First, good question. Second, in the process of answering this question, I happened upon this recent paper by Aisa Amagir and colleagues highlighting much of what I planned to say! In short, some child financial literacy programs have yielded positive outcomes, but the long-term effects are weak, if present at all. There’s a lot more work we need to do in this area to understand what works, why, and how learning can be supported across childhood and adolescence. I think we also need to do a better job creating opportunities for children to use the knowledge they’ve gained. This can be hard to do if systems aren’t in place to support financial inclusion.
Is it becoming more and more difficult for children to learn how to handle money well, as money itself is becoming more and more abstract?
I would say we don’t know. On the one hand, children seem to have more money available to them now than ever. On the other, what that money looks like is changing. I’m very interested in studying how children’s perceptions of money change over time and the extent to which that relates to the types of money children use (e.g., cash, gift card).
Importantly, I would say there’s room for us all to learn more and one way we can help the children in our lives is by having more explicit conversations about money. If unsure where to start, I highly recommend the new Marketplace podcast Million Bazillion. There are also some great children’s books that can facilitate good discussions. Some of my favorites include “A Chair for My Mother” by Vera B. Williams, “Alexander, Who Used to Be Rich Last Sunday” by Judith Viorst, and “Tía Isa Wants a Car” by Meg Medina.
With mixed-to-weak results for financial education and the abstractisation of money (e.g. “game money”), what can parents/care-givers do to help children become good at personal finance management?
One step many parents can take is just simply talking to their young children about money--so shifting from treating money as a taboo topic to one that is openly discussed in the home. This could take the form of reading books like those I suggested above or involving children in some household decision making like grocery shopping. Of course, how money is discussed and the types of decisions children are involved in will differ with age. But, I think simply modeling that money is something to be discussed is powerful.
With older children, I recommend that parents be honest about their comfort with discussions around money and/or financial literacy. Because money is often treated as a taboo topic and because we receive so little formal education regarding what to do with it (and perhaps even less practice), I suggest acknowledging that the topic is difficult, that there’s a lot children and parents can learn together, and that parents may want “more” for their children (where more reflects things like greater financial competency, stability, etc.).
At the same time, it’s important to acknowledge that being financially literate is not enough. From a policy perspective, we need to ensure that systems are in place for families to access and benefit from financial services. I highly recommend interviewing Dr. Terri Friedline (if you haven’t already) to discuss financial inclusion.
How can financial decision researchers go about studying children?
Anecdotally, I hear that many researchers are wary of IRB issues around working with children. Although I could be suffering from the curse of knowledge, the process is rather straightforward. The IRBs I have worked with include sample documents, protocols, etc.--everything you would need to logistically get child work off the ground from the IRB’s perspective. I also recommend reaching out to colleagues who do work with children to obtain sample documents. And if you don’t have colleagues who work with children, reach out to me! I’m more than happy to share sample IRB applications.
There’s also a need to get acquainted with relevant child literature. This takes a bit more time. I recently published a bibliography on children and money and you’ll see that there’s relevant work across several disciplines, including marketing, psychology, sociology, and social work.
Once you have a sense of what you’d like to do, I recommend workshopping your study questions and scripts, as you would normally. I’ve seen studies where the questions were not child friendly (and certainly concerns about question development are not unique to working with children). When working with young children, we have to be concerned with things like whether or not dependent clauses are going to be too cognitively taxing! We also have to develop appropriate scales to measure responses. For example, I use a lot of circle and face scales to measure my items of interest.
Lastly, I’ve also heard concerns about difficulties with recruitment. Yes, child research is usually slower. But, there’s a growing number of resources available to expedite recruitment and data collection. And because we were required to move data collection online in response to the pandemic, there are several papers and sites now dedicated to helping child researchers move their projects forward.
In short, there’s a lot to be gained by working with children. If logistics are holding you back, let’s set up a time to talk.
I hope this article was a fun and educational read for those who are interested in behavioural science and personal finance at a much younger age. Make sure to check out Margaret on Twitter and LinkedIn, to continue being updated on her amazing work!