Does allowance help kids learn about money?

A new research paper from BYU found that the most effective thing a parent can do for their kids’ financial education is to provide experiential learning opportunities to practice making financial decisions. (Nate Edwards, BYU Photo)

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PROVO – A new study from a BYU professor discovered that the most effective way to prepare children for financial independence is to give kids hands-on experience with money while they are growing.

The research was based on data from a Qualtrics survey that surveyed almost 4,200 adults aged 18-30. The survey gathered data on how their parents taught them about money growing up, and how their current life situation is financially, relationally and with health.

Family life professor Ashley LeBaron-Black was the lead researcher on the study “Talk is cheap: Parent financial socialization and emerging adult financial well-being.”

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

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

LeBaron-Black said she was surprised at how effective experiential learning was because that method largely hadn’t been noticed in any previous research.

“If parents take one thing from this research, I’d probably say to get money into the kids’ hands to practice with. Give some guidance, but also give them space to learn from experience,” she said. Children will learn better how to manage money by practicing making decisions with their money even if the outcome at first is negative and they make mistakes.

Hands-on practice is important because it builds self-confidence in money management. “And if you are confident with money, you are more likely to handle it well and to be satisfied with your finances and be financially independent,” LeBaron-Black said.

LeBaron-Black published two other papers with the same data. One paper focused on how financial education affected relationship outcomes, and the other highlighted the connection between financial socialization and mental health outcomes.

Across all methods of financial education, children who had been taught well about money were linked to increased relationship quality and lower rates of anxiety and depression.

“People who are more responsible with money have better relationships,” LeBaron-Black said. Good money habits cause less stress on individuals by giving them more time to focus on building relationships and taking care of their mental health.

“We are finding there are lots of reasons for parents to prioritize teaching their kids about money because it matters later in life, and doesn’t just matter financially,” she said.


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