A new study by Ashley LeBaron and her colleagues, published last month in the Journal of Family and Economic Issues, has convinced me that teaching children about money isn’t as different as it might seem from teaching them about sex. Let me sell you on the importance of talking about money first, and then I’ll talk about why parents struggle with these conversations.
1. Many of today’s emerging adults are financially illiterate.
My colleague Sarah Stiles teaches a course at Georgetown called “Flourishing” that includes a financial literacy component. She says students often arrive at college in desperate need of this component for much the same reason that the “Flourishing” course itself exists: the students have come of age in an era that makes academic success the paramount measure of overall success. This leads to relative neglect of other aspects of flourishing—like financial literacy and healthy relationships. Of course, Georgetown students are not unique. LeBaron and her colleagues review literature supporting the fact that the current generation is not gaining financial literacy during the transition to adulthood at the same rate that previous generations did.
2. The lack of financial capability among Millennials is a societal problem.
Just as household savings contribute to national economic growth, consumer debt constrains growth. Unethical and irresponsible individual behavior puts markets, institutions, and businesses at risk. Similarly, sex outside of marriage affects public health, social safety nets, and social mobility—not just the health, wealth, and mobility of individual decision-makers.
3. Millennials report that open communication about family income during their childhood could have prevented unnecessary stress.
Making topics taboo increases the stress associated with them. “I’m so glad” is better than “I wish.” LeBaron and her colleagues didn’t set out to investigate regrets; their interviews started with questions like, “What did your parents teach you about money?” and “How did they teach you those things?” Even with “positive” questions asked, both children and their parents expressed regret about what they did not receive or pass on. Even though there are many sources of financial information and training outside of families, the spontaneous offerings about what could have served Millennials better can guide future generations.
Apropos of the above, parents are a crucial part of children’s financial education. As much as I applaud public resources for financial education and sex education, they are not enough. Research has shown that parental modeling and teaching has more positive, impactful, and long-lasting influence on financial attitudes than academic-based programs. (One example of such research is here; three others are cited in this new study.) Therefore, children in dual-parent households with involved parents have advantages over children raised by single parents or over parents who live with their children but are not engaged in regular dialogue.
Why Parents Struggle With Talking to Children About Money
Families, of course, vary with respect to how openly they communicate about finances, but the qualitative interviews conducted by LeBaron’s team provided clues regarding the obstacles to open communication. Parents of Millennials were secretive about finances because they 1) considered them private, 2) did not want the children to share information with others, 3) did not want to reveal their own mistakes, and 4) wanted to avoid stressing out their children.
“If parents can overcome these barriers for open communication," LeBaron and her colleagues argue, "there could possibly be less financial illiteracy and more understanding of financial reality in the rising generation.”
I suggest that parents might be able to lighten up about privacy concerns by appreciating that our lives are less private than in past generations. One of LeBaron’s respondents googled the average salary of software engineers to get an idea of what his dad made; our acquaintances can learn our home values on Zillow. In short, parents should know they have little to gain by not talking openly with their children about money. Parents have learned to talk to kids more openly about sex, and conversations about money can follow suit.
With respect to parents not wanting to reveal their own mistakes, consider the low-income single fathers that Kathryn Edin and Timothy Nelson interviewed for their book, Doing the Best I Can. These single dads who lived in the Philadelphia area felt that one of the few things they had to offer their children was their own biographies—cautionary tales about the outcomes of poor decisions. I think this is a resource that those with more income undervalue. The Bible has far more bad examples than it does heroes. If we think that we are doing our kids a service by not letting them see the mistakes in our lives, we are sadly mistaken. They can certainly learn from their own failures, but we might be able to spare them some financial pain by being open about our financial failures.
Also consider that similar to conversations about sex, conversations about money cannot be a one-and-done. The study notes: “In order for children to recall financial knowledge when they need it—during their emerging adult years—they may require more regular, applicable conversations initiated by their parents throughout the years.”
We can let our children into our financial lives when we wonder out loud about whether things are tax deductible, whether they are worth the money, what we would have to do without if we bought them, or simply whether we can afford them at all. Having healthy finances requires a multitude of healthy decisions. And the processes are modeled by a multitude of conversations. Our children need to know that we aren’t perfect, but they need to see and hear multiple building blocks for financial soundness.
Finally, we don’t avoid stressing our children by shielding them from reality. Financial terrain is tough to navigate, and growing up naïve doesn’t help with that. More importantly, we should give our children the honor of being truthful with them about difficult things in life before they face them on their own.
Laurie DeRose is a Research Assistant Professor at the Maryland Population Research Center at the University of Maryland at College Park and a senior fellow with the Institute for Family Studies. She is also Director of Research for the World Family Map project.