By PATRICK CAIRNS
Talking about money is hard. For some people it is more taboo than talking about sex.
But parents who shy away from discussing finances are overlooking a vital part of their children’s development.
Having a healthy appreciation of money and how to manage it is a necessity in today’s world. Financial issues are a major cause of health problems and stress. Disagreements about money are also one of the main reasons why couples divorce.
Preparing children for this reality should be a priority for every parent. And there are three good reasons to do this as early as possible:
Parents have the most influence on attitudes
A number of studies have found that the skills and attitudes towards money that children take into adulthood come mostly from their parents.
While classes at school and financial literacy programmes are useful, nothing has more of an impact than what is learnt at home. For instance, a 2020 study by researchers at the Fortune Institute of International Business in India and the Burgundy School of Business in France found quite simply that: “financial discussion with parents during childhood positively influences financial well-being of young adults”.
The study also found that people’s attitudes towards money are a strong predictor of their financial wellbeing. This is becoming well understood: that there is a clear link between how we think about our finances, and the state of our finances.
Healthy attitudes are linked to lower indebtedness and better rates of saving. And those attitudes are most likely to be learnt from parents.
Children develop attitudes at a very young age
A study conducted by researchers at the University of Michigan in 2018 showed just how important early financial socialisation is.
The authors asked children questions that examined their emotional response to saving and spending. They found that kids as young as five had already established attitudes towards these two activities, and this translated into actual behaviour.
The children in the study were already showing clear predilection in one direction or the other. And these attitudes were confirmed by their parents, who were asked about their actual behaviour.
“We did not necessarily expect this in very young children, and it raises all kind of developmental questions,” said co- author, Professor Scott Rick.
Vitally, it shows the importance of engaging with your children about money early in life. The attitudes that they develop in their most formative years will likely stay with them.
Parents teach us the most about who to trust
We are all bombarded with so much information every day that discretion has become one of the most critical of life skills.
Decades of research have shown that this, again, is something that parents are in the best position to impart.
For instance, a 1999 study out of the University of Minnesota Twin Cities noted that “the family serves as an important buffer against undesirable media inﬂuences”, and that “television exposure was positively related to materialistic values except in those families with strong communication patterns”.
In other words, the better that parents are at communicating with their children about what sources of information to trust, the more discerning they are in their spending habits.
These are significant findings. Many parents under-appreciate just how significant the early lessons they teach their children can be. But instilling the right attitudes towards money even before they go to school can be a life-long gift.
One of South Africa’s most respected financial journalists, PATRICK CAIRNS is a trusted commentator on the world of investments and the quirks of behavioural finance. Over more than a decade he has built a reputation for keeping the industry honest, and putting the interests of investors first.
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