One morning in my neighborhood, I woke up to an altercation between Kelvin and his mother, Nelly, (not their real names) over money. Kelvin attends college 100 kilometres away. Yet he was at home on this occasion for apparent lack of money for his upkeep. From Nelly’s voice, she appeared visibly angry and frustrated at her son’s incorrigible habit of misusing the upkeep money. “Kelvin is ever broke and performs poorly in his studies”, she lamented, “and cannot stay at his place of residence to concentrate on his studies and keeps coming home for more money. I wonder when he will man up and assume financial responsibility for his own good!” She pondered. Standing a few yards away from the scene, I also wondered how despicable Kelvin could be in terms of money management and whether such wasteful behaviors could have been avoided.

As the scene continued to unfold, a neighbor who had known Kelvin since his early teenage told me that the “boy’s financial misdemeanors are irredeemable and that has sunk her mother into perpetual debt to fund his extravagant lifestyle”. Such an indictment on Kelvin’s character made me wonder how he got here in the first place. At the same time, as a parent of a three-year-old son, I got concerned about the potential of facing the same situation in two or so decades once he assumes early adulthood.

As I reflected on the events of the day on my couch later that evening, I could not figure out how Kelvin turned out to be a horrible child in respect to money management. Is it because of the environment? Did such behavior result from poor schooling or the parents’ failure to teach their children about money early in life? Or was Kelvin simply born a careless spender?

saving, good money habits in children

But the story of Kelvin is not an isolated incident. I have witnessed children hacking their parents to death because they cannot give them the money they want. I have seen reports of sons killing their parents to inherit their property. I have encountered depressed parents who cannot afford the lavish lifestyle of their children who no longer understand that financial statuses of change. These experiences have made me ask myself critical questions whether there is something that can be done to bring up children who are responsible in managing their finances.

The Role of Parents in Children’s Development

Still the role of Nelly (and indeed all the parents) cannot be ignored in Kelvin’s adult behaviors. According to the social learning theory, we learn and acquire behaviors based on the people around us. Proposed and developed by pioneering Canadian-American Psychologist, Albert Bandura, the theory holds that people learn through observing, imitating and modeling the behaviors of others in the society in which they live. In other words, children can learn good or bad money habits from friends, family and peers which they can advance to their adult life.

In this respect, the family as a composition of the social setting is an important platform for children to learn about good ways of using their money. If this is done early in life, it may have a positive impact on how they manage their money when they grow into adults.  As the old adage goes, “teach a child the right path, and when they become adults, they will not depart from it”. Therefore, I feel that, as parents, we must teach our children sound ways of using money to avoid carefree lifestyles like that of Kelvin when they become adults. 

Perhaps the most compelling evidence that parents can influence how our children spend money when they become adults lie in the way we view our environment of money. Growing up in a particular environment can make us poor spenders as adults or frugal managers of our own financial resources. The role of the environment in influencing our perceptions and behaviors may be well-explained by the Stanford Experiment. Popularly known as the Zimbardo Experiment and carried in August 1971, at Stanford University, Philip Zimbardo and colleagues sought to find how we interpret certain situations in respect to our personal desires. Zimbardo and colleagues simply wanted to know whether a good person can become evil if they are exposed to an evil environment.

Despite the various weakness of the design of this study, it revealed a major clue about human beings; that the environment has a powerful influence on how we interpret things in life. In this respect, an environment that educates children about prudent financial management can promote perceptions and behaviors that regard money as a resource that makes our lives comfortable. On the other hand, poor education of children about money can promote habits and behaviors that exploit money for self-gratification. Given these findings, parents can play a vital role in a child’s money spending habits by exposing them to environments that emphasize money as a resource and not a tool for self-gratification.

However, some may argue that Kelvin’s poor money habits cannot be blamed on parents. Kelvin was just born a poor money manager hence his situation cannot be used as lesson to teach children about sound money habits at an early age. It follows then that genetics make some of us careless spenders while others are as born frugal individuals. There is good evidence supporting this line of thought. Stephan Siegel, a Professor of Finance and Business Economics at the University of Washington offers us some insights.

After studying the money spending behaviors of thousands of Swedish identical twins for years, Siegel reports that our financial habits are shaped by our DNA. As such, how we spend or save money depends on the way we have been wired genetically. If we refer to the above scenario, there little that could be done to save Kelvin and his mother should not be blamed in any way for failing to teach him sound financial management when he was young.

While Siegel’s findings are quite informative, they do not tell the whole story about how children develop money habits and carry them throughout their lives. In his studies, Siegel himself finds that parenting has a huge impact on spending and saving habits of young people. Even though the scholar finds that learned money habits disappear after passing the age of 40, he emphasizes that learning sound money habits is a valuable resource for children and young people.

Most importantly, the influence of the environment on the habits and values we form across life trump genetics. If Albert Einstein was not exposed to a learning environment, we would not have known about the genius he was. Therefore, even if your child has been dealt a bad genetic deck in regards to money spending, parental influence on money management can alter their lives for good. 

How can we Develop Prudent Spending Habits in Our Children?

As parents, we can adopt multiple ways to help our children develop sound money habits as they transition into adults. It is essential for a parent to model good spending habits or good money habits to the children so that they can learn their value. Children learn a lot of from the habits and behaviors of their parents which they carry along as they grow into adulthood. The parent must lead by example by using money wisely and should talk about savings and spending as well as showing the value of budgeting. When they learn about budgets, involve them in the budgeting process and allow them plan spending activities like shopping for grocery so that they can understand that money is limited hence should be used prudently.

It is also important for parents to allow their children to engage in money-generating activities and reward them for their effort. For instance, a parent may consider giving allowance to children for doing certain chores. I understand that some of us have employees who do chores within our homes or businesses, but this should not prevent us from engaging our children so that they can learn the trade of generating money early in their lives.

For older children, the parent may consider encouraging them to assist in your business or a friend’s business. Provision of these opportunities allows children to develop strong values about the relationship between work and money. Such a position will in turn help them understand that it requires effort to earn so money must be used wisely.

Lastly, share with them your financial journey. Parents need to learn to share with their children about the high and low moments in their financial journey. This way, they will understand that money is an irregular resource in our lives. When you lack, share with them your struggles so that they can understand that money is scarce. When I lack, I often inform my six-year old daughter that I would buy her what they request once I get the money. She understands me a great deal and displays incredible patience. Thus, sharing our financial situations will help children understand that money is a resource that must guarded and not a tool for self-gratification.

Overly, parents can influence the money habits of their children in significant ways. The family setting provides a perfect environment for children to learn about prudent money habits. The environment helps us to conceptualize the value of money. Even though some evidence suggests that our spending is genetic, parenting upbringing can mitigate our tendency to waste financial resources. Hence parents should embrace new ways of developing responsible adults in respect to money management. Kelvin’s spending habits may appear irredeemable, but we have an opportunity to avoid similar scenarios as young parents.