Does the allowance help children learn about money?

Does the allowance help children learn about money?


A new research paper from BYU has found that the most effective thing parents can do for their children’s financial education is to provide experiential learning opportunities to practice financial decision-making. (Nate Edwards, BYU Photo)

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PROVO – A new study by a BYU professor has discovered that the most effective way to prepare kids for financial independence is to give kids hands-on experience with money as they grow.

The research was based on data from a Qualtrics survey of nearly 4,200 adults between the ages of 18 and 30. The survey collected data on how their parents taught them how to grow up with money, and how their current life situation is financial, relational and healthy.

Family Life Professor Ashley LeBaron-Black was the study’s principal investigator.Talking is cheap: Parents’ financial socialization and the emerging financial well-being of adults.

Three main categories that helped children learn about finances effectively include: experiential learning through hands-on money, parents involving their children in financial discussions, and parents modeling healthy financial behaviors for their children, according to the findings.

While parent-child financial discussions are good, LeBaron-Black said the other two strategies are significantly more effective in preparing children. The study found that children who had parents who modeled good financial examples typically led them to develop healthier financial behaviors and greater financial stability.

LeBaron-Black said she was surprised at how effective experiential learning was because this method has largely not been observed in any previous research.

“If parents took one thing away from this research, I would probably say I would put money in the hands of children to practice it,” she said. “Give them some guidance, but also give them space to learn from the experience.” Children will learn better how to manage money by practicing making decisions with their money even if the outcome is initially negative and they make mistakes.

Practice is important because it builds self-confidence in money management. “If you are confident with the money, you are more likely to handle it well, be satisfied with your money and be financially independent,” said LeBaron Black.

LeBaron-Black published two other papers with the same data. One paper focused on how to do it The impact of financial education on relationship outcomesand the other highlighted the relationship between financial socialization and mental health outcomes.

Across all methods of financial education, children who learned well about money were associated with increased relationship quality and lower rates of anxiety and depression.

“People who are more responsible about money have better relationships,” said LeBaron Black. Good financial habits put less stress on people by giving them more time to focus on building relationships and looking after their mental health.

“We’ve found that there are plenty of reasons for parents to prioritize teaching their kids money because it’s important later in life, and it doesn’t just matter financially,” she said.

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