Teaching Children Under Ten About Money

Posted by John Adam on September 25

Is it possible to start teaching young kids, even before the age of 10 to be good with money? Children, especially very young children, are as anyone who spent significant time around them knows, phenomenal learners. But is good money management something that younger children can start to learn in a way that will carry over as they grow into adults? The evidence suggests it is and we’ll look at some simple tips that can be used to teach kids under 10 basic budgeting skills that will hopefully stand them in good stead years later.

My youngest sister graduated university a few years ago with a first class degree and several thousand pounds in her bank account. Two years later she’d bought her first home with her fiancé. We come from a distinctly working class background – 8 kids and one minimum wage.

So my sister not only had no leg up but also zero financial support through university. She also studied and lived away from home so had rent to pay. And she still managed to come away with a bank balance it took me well into my late twenties to reach.

But I’ve never been naturally good at holding on to money. Having spent my entire professional career in some way closely connected to investing and finance, I eventually got on top of my personal finances. But it took plenty of conscious effort and, ironically, a period over which I made considerably less money than I’d been used to, to get it together. My sister had it together from the get-go on an income of part-time student jobs and her graduate salary.

Other than there being a 14-year age gap between us both my sister and I had an identical upbringing. My parents, or at least my mother who held the purse strings, was ferociously careful with money. She had to be to make the budget work. But if anything, when I was younger money was tighter at home. There were all eight of us to feed, clothe and take on holiday – which my parents somehow managed once a year. That load gradually eased as my youngest sister grew up and we one by one flew the nest.

So why did my sister grow up so seemingly naturally good at money management and saving, while I was, if never on the extreme end of the spectrum, not inclined to either? Our other six brothers and sisters are all also different in that regard. Some natural savers, others less so. But the younger siblings were, on the whole, better savers from a younger age.

My personal experience would lead me to the conclusion that there is something innate in my youngest sister’s money management skills. Otherwise, why did 8 children from the same home fall across a spectrum of tendency to budget and save? But scientific research on the question suggests money management skills are in fact mostly learned - not innate.

And actually, as a university student I was pretty decent when it came to saving. I worked hard at part time jobs, went through periods on a super strict budget and was able to, when I put my mind to it, save several hundred pounds over a relatively short period of time.

But my motivation was different to my sister’s. I would then spend what I’d saved, and some, travelling for a couple of months each summer. That was my financial goal – to be able to go travelling in the summer. She had a different goal – she was always determined to own a house as soon as possible. That was her priority and she worked towards that. So perhaps, after all, we were not so different. As

students, we could both manage our money and save. The result just wasn’t the same because we had very different financial goals. And maybe there were also other factors at play.

Studies on the ability of young kids to ‘delay gratification’ for a bigger future reward, like the famous Stanford ‘marshmallow test,’ have given insight into why some children seem to excel in controlling their first urge but others struggle. In the marshmallow test, four-year olds are given one marshmallow and told if they wait for 15 minutes without eating it they will receive a second. They are then left alone with the marshmallow. Some immediately gobble it up, others calmly wait out the 15 minutes and the rest fall somewhere between those extremes. Scientists followed these four year olds as they grew up. They discovered that the children able to wait for 15 minutes showed the following as adults:

  • better emotional coping skills
  • higher rates of educational attainment
  • higher exam scores
  • lower BMI
  • lower divorce rates
  • lower rates of addiction

It would be easy to jump to the conclusion that this study shows some of us are naturally better at delaying gratification than others and this has an effect on the rest of our lives. But that wasn’t the study’s conclusion. Lots of extensions and variations on the marshmallow test have been carried out. They show clearly that young children can be taught strategies and techniques to help them hold out for the 15 minutes needed to get the second marshmallow. And this really worked, increasing the success rate.

That means that parents and others close to young children can help them build the skills that will set them in good stead to keep better control over their finances as adults. The first lessons can be from a very young age and not involving any money - just self-discipline. There are four main strategies that help adults and kids delay gratification.

1. Avoidance: keeping temptations out of the sight of children might seem more about making it easier for parents but it actually has deeper value. If treat snacks, screens (yours as well) and other things that are best limited are kept out of sight, the reason why can start to be explained to children as they grow up. They then learn to internalise this strategy and use it themselves.

2. De-Emphasis of Rewards: parents often naturally dangle a reward in front of children to make them do as they are told. “If you sit quietly for 30 minutes you’ll get chocolate”. But the marshmallow test showed that young kids are actually less likely to be patient when focused on a reward. They think about its desirability and then find it more difficult to contain themselves.

3. Positive Distraction: one strategy suggested to kids by the marshmallow researchers to help them wait was to ‘think fun thoughts’. This worked and so did distractions like having a toy to play with during the 15 minutes. But in a variation when it was suggested to the kids they distract themselves with negative thoughts, they got worse at waiting and wanted to console themselves by eating the marshmallow. That suggests reminding young children of negative consequences or punishment if they are not patient could have the opposite effect to what is hoped for.

4. Abstraction: looking at the marshmallow in an abstract way, like thinking of it as a cloud, also helped the children hold out. The theory is this eases impulses by substituting ‘hot’ emotion for an intellectual strategy. A way to test this out is to invite a child nagging for a screen they are fixated on to be turned on to describe what they ‘see’ in the blank screen. Or try a game of spotting similar shapes elsewhere around the home. This helps them focus on the object’s abstract properties rather than the tempting ones.

Parents can judge where a child has stronger self-control issues and focus on those. It’s perfectly possible that my youngest sister, as the last of eight, was indirectly taught more self-control as a young child than I was as the second eldest. She was lowest in the non-parentally controlled pecking order. And maybe that is also what helped her become so self-disciplined with spending in later life.

When children get a little older, for example by 7 or 8 but there are no solid rules, they can then start to be introduced to managing their own little pots of personal money. Ideas such as accumulating money by saving for bigger rewards and how to balance spending some and saving some can then be introduced. And the children nudged in the right direction. This should be particularly effective if they’ve been introduced to and started to internalise patience and delayed gratification strategies at an even earlier stage.

It’s certainly something for anyone involved in bringing up kids to think about. Good money management in later life can be seen as just one way well developed, internalised strategies to delay gratification for a greater reward reveal themselves.

Written by John Adam

John has almost 10 years of experience as a writer and editor on consumer finance and investment topics. An entrepreneur, he has one successful exit behind him and currently writes and consults freelance while enthusiastically pursuing hobbies he's not very good at such as football, squash and raising a small child.

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