New research from BYU found that the most effective thing parents can do for their children’s 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 by a BYU professor has found that the most effective way to prepare children for financial independence is to give children hands-on experiences with money as they grow.
The study was based on data from a Qualtrics survey of nearly 4,200 adults ages 18 to 30. The survey collected data on how their parents taught them money growing up and their current living situation financially, interpersonally and health-wise.
Ashley LeBaron-Black, Professor of Family Life, was the lead researcher on the study Talking is Cheap: Financial Socialization of Parents and Financial Well-Being of Adults.
Three main categories that have helped children learn about finance effectively are: experiential learning through hands-on practice with money, parents engaging their children in financial discussions, and parents educating their children about healthy financial behaviors, the results found.
While financial discussions between children and parents are good, LeBaron-Black said the other two strategies are drastically more effective in preparing children. The study found that children whose parents were good financial role models tended to lead them to develop healthier financial behaviors and have more financial stability.
LeBaron-Black said she was surprised at how effective experiential learning is, since no previous research has widely considered this method.
“If parents get one thing from this research, I’d probably say they’re giving the kids money to practice. Give them some guidance, but also give them space to learn from experience,” she said. Children learn better how to manage money by practicing making decisions with their money, even if the outcome is negative at first and they make mistakes.
Practice is important because it builds confidence in managing money. “And if you’re comfortable with money, you’re more likely to be good at it and happy with your finances and financially independent,” LeBaron-Black said.
LeBaron-Black published two other papers using the same data. One paper focused on how financial literacy affected relationship outcomes, and the other emphasized the link between financial socialization and mental health outcomes.
Across all financial education methods, children who were well educated about money were associated with improved 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 for individuals because they give them more time to focus on building relationships and taking care of their mental health.
“We find that there are many reasons for parents to teach their children about money because it’s important later in life and not just a financial one,” she said.