Focus on Teaching Math—Not Money

It appears that classroom education in finance often doesn’t translate into real-world results.

For decades, studies have extolled the benefits of financial education, pointing out that students who take finance classes score well on tests of financial knowledge—and higher financial literacy leads to better financial behavior.  Conclusions like these have led to a growing consensus that schools should teach children about managing their finances, with 43 states now mandating some kind of training.

So, if widespread financial education were really effective, why are so many young people struggling with debt, foreclosure and low asset accumulation? A group of researchers set out to find an answer. They looked at the states that mandated personal-finance curriculum in high school, and compared the financial health of students who graduated before the mandates to those who graduated after. Their hypothesis: If personal-finance education worked, the students who graduated after the programs were implemented would be better off financially.

They weren’t. After controlling for state, age, race, time and sex, and analyzing a huge pool of historical financial data, the group found that there was no statistically significant difference between people who graduated within a 15-year span either before or after the personal-finance programs were implemented. Graduates’ asset accumulation and credit management were the same, with or without mandated financial education.

But the study, currently under revision for publication, did find one school subject that does have an impact on students’ financial outcomes: math. Students required by states to take additional math courses practiced better credit management than other students, had a greater percentage of investment income as part of their total income, reported $3,000 higher home equity and were better able to avoid both home foreclosure and credit-card delinquency.

Without strong math skills, 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.

A as parent, perhaps encouraging your kids to take as much math as they can will be the best tool for helping them be more successful at managing their money over time.

Tell the Whole Story

There’s a consensus that financial education should begin at home. But the way many parents cover the topic at the kitchen table needs a serious upgrade. Even now, parents talk more about sex with their children than they do about money.

In a 2014 study of 136 children aged 8 to 17, researchers found that while children reported their parents shared information on general topics like saving, spending and earning, children said their parents tended to stay quiet on sensitive topics like the family’s specific income and family debt. Often, parents fear causing their children anxiety or think talking about money is impolite. The problem is, keeping these secrets often caused more anxiety than telling the truth.

Children with wealthy parents, for instance, sometimes assumed their parents didn’t talk about how much money they made because they were poor—but the real reason was that the parents didn’t want the children to brag.

And the negative effects of that childhood anxiety can last into adulthood.  found that 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.

Instead of concealing sensitive topics, you need to use financial discussions, no matter how sensitive, as “teachable moments.”

Trips to the store are good moments to have these conversations. Parents might explain why buying one item makes more sense from an economic perspective than another, comparing quality, price, benefits and the family’s general budget.

Don’t Make Money Scary

A group of Polish researchers came to similar conclusions about why people should speak frankly about money. Children, the researchers say, are quick to pick up on the symbolic value of money—all of the emotions it can stir and the associations it carries—even if they don’t understand how cash works. If parents don’t speak frankly about money, the 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.

In their study, published in the Journal of Economic Psychology, the academics found that children who were focusing on money acted much more selfishly toward their peers. The researchers randomly divided 120 children aged between five and six into four groups. One group counted coins, one counted notes and the others various other objects. After doing so, the children were asked to help pick purple crayons out of a box of mixed-color crayons. The children who counted coins and notes were less willing to help with the task than those that had counted paper and buttons.

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, he says. They may end up looking at the world through costs and benefits, rather than social rules of reciprocity. This can limit the ability to develop close relationships that would help people cope with problems in a way money cannot.

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.

When should you begin training your kids about money?

Training, in our view, should start when kids are young — by early elementary school age when money habits are already being formed. 

We encourage parents to think of their kids childhood years as a money apprenticeship. From pre-school until high school graduation, with parental guidance, children have a chance to practice using money with little risk. 

And with responsibility for making independent money decisions (with plenty of room for making mistakes), children can learn that money is just a tool — something to be understood, continually learned about and used wisely.

You do not have to be an expert to teach kids money skills and habits. Just start the dialog now! Making money visible in the household will go a long way to helping your kids build foundational skills and knowledge to be independent adults (someday)

Why do parents hesitate to teach their kids money skills?

Parents tell us they want their children to grow up with the skills to handle money wisely — yet they often do not feel comfortable teaching children to manage money. 

Some parents feel they are not qualified, or that money is just not supposed to be discussed with kids. Other parents believe schools should be responsible for teaching kids about money. Others still tell us since they never had training and seem to be doing ok, so there is no need to teach their kids. 

We recommend parents take the time to teach children about money regardless of their income, their current knowledge level or how they were raised in order to fulfill on their wishes to see their children build money skills that can serve them throughout life.

Where do young kids learn about money anyway?

Pretty much everywhere — and especially at home! Young children learn about money by what they see, hear and experience in the world around them. They primarily learn about money by watching their parents use and talk about it. They are also keenly aware of how their parents feel about money by watching facial expressions, listening to word choices and tone of voice.

If you think about it, money is part of most of our daily conversations. We consider what we need (or want), if we need (or want) it now, go through the process of buying it or deciding to do it another day, embrace or bemoan a prior choice, plan for tomorrow, etc. As a consequence of the ever-present money conversations happening at home, kids are exposed to the ongoing successes, struggles and the unending money decisions of every day life.

How Much Money Do You Make?

Love this question!

So for those who have not yet gotten this question, some things to ponder:

• Younger kids probably don’t know the difference between $1,000 and $100,000, so you may be able to settle the issue by letting them know that you make enough for them not to need to worry about running out of money.
• For older kids, try explaining what it costs to keep the household up and running, which will at least give them a baseline number (you can explain taxes later). That begins to teach them about budgeting.
• The old-fashioned among you will tell kids that it’s none of their business. I don’t buy that. Kids worry about money, and shooing them away and telling them not to worry about it probably won’t put them at ease.
• And you should be aware that a wily teenager may be able to look up your salary online if you work for the government, a labor union or a nonprofit group. Kids can also dig up mortgage information or estimates on what your house is worth.

How have you handled this question with your kids?