A new study published in the Journal of Family Issues asserts that when it comes to teaching your children about money, hands-on experience is key — even if those hands end up empty. In fact, one of the best things you can give your kids is the opportunity to screw up.
“It’s important for parents to give kids age-appropriate financial experiences,” the study’s author, University of Arizona doctoral student Ashley LeBaron, told the UA News. “Let them make mistakes so you can help them learn from them, and help them develop habits before they’re on their own, when the consequences are a lot bigger and they’re dealing with larger amounts of money.”
The study, entitled “Practice Makes Perfect: Experiential Learning as a Method of Financial Socialization,” says that it’s not enough to explain good financial management to your children and set a good example, they need to get their hands dirty.
“We should be teaching our kids about money,” Miata Edoga, Founder and President of the Los Angeles-based financial education company Abundance Bound, tells Parentology. “But the answer isn’t simply adding a few hours of a class in school. The answer is actual practice.”
What that practice would look like depends on the age of the child and the family’s financial situation, but some possibilities include giving them a regular allowance, rewarding achievements like good grades or paying them for certain chores over and above their regular responsibilities. What’s important is that there’s a plan in place that both parent and child are clear about.
“I think it’s essential that kids have an agreement with their parents about what they are required to pay for from their own money,” says Edoga, who also recommends that children have a bank account and an ATM card by high school. “With my teenage daughter, she knows what the things are that she’s expected to pay for from money that she has earned so if she runs out and there’s something that she wants, then we discuss ways that she can earn the money that she needs. But to simply give it to her is creating that illusion that there will always be a safety net.”
Because in the real world, of course, there isn’t.
LeBaron says she was inspired to study the topic of “Financial Socialization” because she wanted to take on the perception that millennials are bad with money. Her theory is if that’s true, then perhaps parents aren’t giving their kids enough real-world experience with it. “It’s tempting to just shield kids from everything related to money,” she told the UA News, “but it’s really important for parents to get money into kids’ hands early on so they can practice working for it, managing it and learning how to spend it wisely.”
In her experience working with the creative community in Los Angeles, Edoga has observed that millennials are often better savers than Gen-Xers and Boomers because they know that they are entering a work force that is much more transient and uncertain than the one their parents experienced. “Millennials are not likely to finish school and then step into a 40-year job with security and a pension, no matter what field they choose,” she says. “So, because our children are likely going to have to piece together their careers, our responsibility as parents is even greater to help them develop into powerful financial thinkers.”
Without freaking them out, of course. “We don’t want our kids to be afraid of spending, be afraid of managing credit,” she cautions. “We want them to feel confidant in their ability to negotiate successful financial lives, to come at money from a place of power, rather than fear.”
And like most things that are worthwhile in life, that comes down to one simple thing: practice practice practice. “We wouldn’t just give our kids a book and a lecture on driving a car and then expect them to get behind the wheel and actually be safe and know what they’re doing,” Edoga reasons. “It’s the same thing with money.”