We're Teaching Children About Money the Wrong Way

Updated: Feb 4, 2019

We're taking the wrong approach when it comes to teaching children about money! As part of April is Financial Literacy Month, we look at surprising -- and widely unrecognized -- research regarding the biggest contributor to successful money management and financial responsibility in adult life.


Researchers—from psychologists to economists to communications experts—have started wondering why most children still grow up into adults who can’t properly save, spend and budget, despite the effort parents put into helping their children understand the value of dollars and cents, and despite formal lessons in personal finance.

Focus on Teaching Math — Not Money

Research has shown that classroom education in finance often doesn’t have any bearing on real-life results. The one school subject that does have an impact on students’ financial outcomes: math. Teaching math is much more effective at helping children manage money, especially when it came to home equity and investments.


Shawn Cole, a professor of finance at Harvard Business School, along with a group of researchers studied this issue. “A lot of decisions in finance are just easier if you’re more comfortable with numbers and making numeric comparisons,” says Mr. Cole.

Without strong math skills, he says, people tend to use more emotional ways to invest, spend or save their money. What’s more, people with less math experience make worse financial mistakes with issues like compounding or underestimating how quickly interest accumulates.

He says the math courses don’t need to be complicated, but should teach about concepts, such as exponential growth, which come in handy when thinking about compounding.


A parent of two, Mr. Cole says he will be making sure his children take as much math as they can. He recommends other parents do the same. To help children build strong math skills, month by month, year by year, see our engaging SmartBeans worksheets, designed for children ages 0-6.


Other advice from studies

Talk About Money

  • Parents often think that talking about money will cause their children anxiety, especially sensitive issues such as their own household income or family debt. The opposite, however, is true: keeping secrets often caused more anxiety than telling the truth, the negative effects of which can last into adulthood.

  • Over time, children who don’t get straight answers tend to think about money in purely symbolic terms, giving it more emotional weight than it deserves. Children are quick to pick up on the symbolic value of money, not only the emotions it can stir, but also the associations it carries, even if they don’t understand how cash works. If parents don’t speak frankly about money, researchers say, those associations pile up and lead children to act selfishly in the short term, and in the long term leave them with illusions about the power of money. Further, if children continuously come to associate money with power, they might begin to see it as a solution to many problems, he says. They might come to see it as a way to cope with fears, attract new friends or increase their well being. This can limit the ability to develop close relationships that would help people cope with problems in a way money cannot.

  • Subjects who report limited communication with their parents about money later in life feel “clueless,” as if they don’t truly understand how credit cards or money management works.

Continue to Talk About Money Throughout Their Childhood

  • Another mistake parents make with financial education is trying to get it done in one go, and assume the lesson will stick with them into adulthood. They enroll children in a summer class that aims to cover everything from running cup-cake stands to house mortgages. The problem with this approach is that financial knowledge decays over time, says John Lynch, director of the Center for Research on Consumer Financial Decision Making at the University of Colorado, Boulder. In a meta-analysis of over 200 studies that was published in Management Science last year, Mr. Lynch and two other professors found how swiftly the effects of one-time financial instruction wear off; the impact of one hour of financial instruction wore off after about five months. Eighteen hours wore off after around 17 months. And 24 hours disappeared after about 20 months.

Talk About Money At the Right Time

  • There is an increasingly popular strategy among financial educators and policy makers called “just in time” education. Instead of teaching all elements of personal finance at once, “just in time” education gives consumers the knowledge they need just as they are about to engage in a transaction. So, instead of giving information about car loans to students in a textbook, consumers would get the information as they started shopping for cars.

  • Parents can adopt this technique, too. “Let’s say you want to teach your child about budgeting, and you know that every year, Aunt Ethel writes your child a $50 check for Christmas,” says Mr. Lynch. “The moment to talk about budgeting is just before that happens. If you have that conversation a few months before or a few months after, it’s not going to have an effect.”

This article has been distilled from a Washington Street Journal article and can be found in full here.

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