Advice on money often boils down to simplistic messages about budgeting, understanding compound interest and avoiding debt. But research suggests financial decision-making depends as much on our values, expectations, emotions and family experiences as information taught at school. In short, the way people interact with money is highly complex and so the way we teach our kids needs to catch up.
It’s time for a shift from teaching children rote-learned financial rules of thumb to instilling dispositions and a thinking process that underlies good financial decision-making. Funnily enough, the debate over “smashed avocadoes” illustrates two concepts that can make all the difference to how we approach financial decisions. The first is a future orientation and the second is self-regulation.
Thinking about the future, or a “future orientation” is incredibly important when it comes to managing money.
Self-regulation is the process by which we control our thoughts, feelings and behaviours. Being aware of our financial motivations and having the ability to critically analyse our decisions is also important.
These are the kinds of thought processes necessary for good financial decision-making.
Money is a limited resource
Research shows that both parental behaviour (like discussing financial matters with children) and dispositions (such as future orientation) have an impact on their children’s financial behaviour into adulthood. This means that simply discussing money can help children build financial independence by practising making decisions. For example, parents and children can discuss what they want to do with any money they receive, and maybe encouraging them to bank and save.
Research also shows that financial hardship — living on a limited income and going without — can be just as useful in shaping financial understandings as the experience of growing up rich. In fact, there are things that children observe and experience — like problematic gambling and the financial fallout of marriage separation — that can influence them to think and feel more conservatively about money.