Financial Parenting: How Parents Influence Their Children’s Financial Behavior

Action-guiding values and norms, protective factors such as self-confidence and self-restraint, and the basic premise of being able to exert agency over personal finances have a preventive effect. So, empowering children takes priority. If financial education builds on this foundation, it’s a good precondition for a self-determined financial life to succeed in the long run.

I’ll give you an example. Let’s say a child wishes to get a Lego set that costs 200 francs. And then what happens? Do the parents feel that it’s their responsibility to fulfill the child’s wish right away, or do they leave that responsibility up to the child? And how can they bring about a successful outcome? Parents can encourage their children to think about ways to achieve their goal because children usually come up with their own ideas such as, for instance, saving up part of the purchase price themselves, earning some extra money on top of that by doing odd jobs around the neighborhood or by setting up a vending stand together with other children, or asking their grandparents, godparents, and parents for a birthday gift of cash to cover the rest of the purchase price. In the process of doing this, children not only practice doing arithmetic, but also have to plan, get creative, or engage in conversation with relatives. Experiencing in this way that they can make a difference through their own agency empowers children tremendously.

Children thus acquire financial literacy by us trusting them to take on age-appropriate challenges and by us reinforcing their skills while taking their individual personalities into account. Not every child has the same mindset or abilities. One child in a family may already handle his or her allowance in a goal-oriented manner at a very early age and comes up with the idea him or herself to save the money or to spend it on giving someone else pleasure, whereas another child in the same family hastily spends the allowance on him or herself and then has no money left.

All children develop differently and thus show an interest in acquiring financial literacy at different points in time. Just simply catch the balls that your child throws at you in everyday life and run with them. Some four-year-olds, for example, are already interested in finding out how money gets inside automated teller machines or how to pay with a card. Why not craft an ATM at home out of a cardboard box and make a game out of it? A three-step exercise illustrates how parents gain more clarity about what’s important to them and how they would like to integrate that into their everyday parenting. Think about what values, norms, priorities, and financial knowledge you learned in your own childhood home and ask yourself what elements of that still serve you well today. Then ask yourself what was missing, what you learned afterwards, and what else you would still like to learn. And lastly, ask yourself what conclusions you draw from that for your children. What do you want to teach your children in this regard by the time they reach adulthood?

Absolutely, and it’s really no different for us adults. The difficulty here arguably lies more in the fact that not just children, but also parents have to endure unpleasant moments. One such moment, for example, could be when parents are unable or unwilling to buy a child something. Many parents cave in when a child is sad or disappointed or even throws a tantrum. But parents do their children a disservice by capitulating, in my opinion, and such incidents usually turn out harmless anyway in hindsight. When parents do not always rush to make everything right again, that too is a way of respecting a child’s decisions. Have faith that the child will draw the right conclusions from this experience. If children are already a little older, questions like “How will you solve that now?” can inspire teenagers to come up with their own solutions. 

Asking children open-ended questions that get a learning process going is an art. Like with adults, they are usually “wh” and “how” questions: Do you already know where you can get the Lego set? How much does it cost? What do you like so much about it? Does it cost the same everywhere? What do you think, is that a lot of money or a little? How long would you have to save if you paid it all yourself? “Wh” and “how” questions give parents a lot of maneuvering room to activate thinking, learning, and decision processes. But parents must be capable of letting go while setting guardrails at the same time.

Many parents only talk to their children about money when it has to do with their allowance, often saying, “Do whatever you want with it.” When these elementary school children later turn into demanding teenagers, it doesn’t surprise me. That’s why I advise parents to teach their children from the start that there are always multiple things to do with money simultaneously: the concepts of saving, sharing, and spending are a triad that every child from the age of four to six upward understands. For young children of four years and upward, I’m still of the opinion that cash serves everybody well because children learn through hands-on activities. They, for instance, can allot money to three different little boxes – one for saving, one for sharing, and one for spending.

They belong in both places, but if I had to choose one or the other, it would definitely be the kitchen table. Parents shouldn’t underestimate their influence on the subject of money. Parents shape and affect their children’s financial behavior into young adulthood, for better or for worse.