Primary Cause of Financial Problems: Research Shows Problems Stem from Childhood
From the moment of birth, a child starts developing behavioral habits. Think of all the messages kids receive related to money: parental modeling, advertisements, peer and societal pressures to spend. Building solid financial literacy for children involves taking proactive steps to mold positive behaviors around money handling that can counteract marketing and social influences.
Financial habits form young. Youth who are not taught how to manage, value, and work for money lack the skills they need to be self-sufficient. This situation has impact not only on the parents’ future finances, but also the adult child’s self-esteem, relationships, and overall enjoyment of life.
This page covers the problems and presents the solution for helping the next generation avoid financial problems as they transition into adulthood.
Financial Problems Adults Face
Today, financial problems have reached epidemic proportions, with most people suffering from the effects of long-term financial problems. As over 85% of the country’s population reports not being financially secure, consider these data:
50%
of parents financially help their adult children. – Bankrate
66%
of Americans report that they would have trouble coming up with $1,000 for an emergency. AP News
70%
of American workers say financial worry is their most common cause of stress. Consumer Financial Protection Bureau
78%
of people live paycheck-to-paycheck. Forbes
52%
of adults resided with one or both of their parents. Pew Research
Adult Financial Problems Stems Directly from Childhood: Data & Root Causes
The cause of financial problems that occur in adulthood is rooted in a child’s upbringing. Youth who are not taught how to manage, value, and work for money lack the skills they need to be self-sufficient. This situation has impact not only on the parents’ future finances, but also on the adult child’s self-esteem, relationships, and overall enjoyment of life. Recent research indicates that American youth are well aware that they lack financial knowledge, and are calling for more education to help bridge economic gaps Teens need more finance education to bridge economic gap in America (cnbc.com).
this next section, we explore how people’s upbringing affects their financial situations and the challenges they face as adults to overcome these problems. Personal finance programs for kids should take these influences into consideration. Here are research and data that connect adult financial problems with a person’s childhood:
68 percent of parents don’t explain this key money concept to their kids. Kathleen Elkins, CNBC
Only five U.S. states require a one-semester stand-alone personal finance class. Although these efforts are commendable, a one-semester course is far less than what is required to make a meaningful difference. Another 12 states claim they have personal finance classes; however, all are under one semester, they are not stand-alone classes, and most have no testing requirements. The remaining states completely fail our students in terms of helping them gain personal finance skills. Teach Financial Literacy
Most adult children report neither their mother nor father taught them about money. National Financial Educators Council.
56 percent of parents are talking to their kids about money, but most parents are missing important parts of the conversation with only 32 percent of parents explaining what a credit score is and 38 percent encouraging them to get their first credit card. Chase Bank
Advertisers spend more than $12 billion per year to reach the youth market and children view more than 40,000 commercials each year. American Psychological Association
Food industry advertising that targets children and youth has been linked to the increase of childhood obesity. American Psychological Association
A research study analyzing the effects of parents’ values on children found a statistically significant positive association between parents’ savings rates and children’s savings rates. Journal of Economic Psychology
Consumer purchasing decisions are affected by online influences of people that the individuals know and trust, including friends (Kim & Srivastava 2007). This implies that at some level, people either are considering social norms, trust others to evaluate goods, or will purchase goods for the social benefit. World Bank Study as reported by Duke University
Financial habits form early. A PBS story reports that kids’ financial habits form by age 7; while a Brown University study on chores points to habits forming by age 9.
Money scripts – typically unconscious, trans-generational beliefs about money – are developed in childhood and drive adult financial behaviors. Journal of Financial Planning
We develop our attitudes and beliefs about money in childhood. By talking often about money, and modeling good money management habits, you’ll set your children up for a future of financial success. American Psychological Association
Three Champions that Can Make a Difference
Parents & Caregivers: Start Early, Practice Often, Progress Kids
Parents: it’s up to you to teach your children about money before they move out on their own. This simple step can save them years, decades, or even a lifetime of financial struggle and make their lives more rewarding.
It’s important to note that your children will not receive comprehensive financial education in school that will help them build the habits, behaviors, knowledge, and confidence to make qualified financial decisions. It is up to you to work with your child from a young age (we suggest 3 years old) and progress them forward toward self-sufficiency.
Teachers & Schools: Mandate, Empower Educators, Test, Address in All Grade Levels
Few students ever receive financial education in public schools. Money management education for teens is scarce, and the programs that are available focus on low-level learning (recall and reproduction), require no testing, fail to address the behavioral aspects of money, and do little to prepare young people for early financial decisions and self-sufficiency in the real world.
Another troubling fact is that no states require teachers to be trained to deliver financial education – so many educators are teaching a subject they are neither qualified nor confident to teach. Given that teachers are the single most important factor in students’ learning, lacking competency to teach personal finance produces poor results.
Third-party Providers: Scale Programs, Connect Stakeholders, Build Community
There has been a large increase in third-party groups that have answered the call to teach kids about money. These various stakeholders (nonprofits, financial institutions, community groups, entrepreneurs, faith-based groups, government programs) have filled in areas that most parents and schools have failed to address.
These providers are largely community-focused, and many do deliver high-quality programming. But unfortunately their impact can be limited due to lack of participation from parents and schools.
Best Results: Collaboration of Parents, Schools, & Third-party Providers
Parents, schools, and third-party providers represent the front line to ensure that our kids receive the financial education they need. And the financial education students receive must drive youth to use higher-level thinking skills and focus on helping them develop systems and behaviors that build a foundation for managing their money wisely.
To support the efforts of parents, financial education should be mandated in schools and give teachers the training, resources, and support they need to make a real difference in students’ lives.
Teaching students financial literacy skills should be on the radar of everyone who cares about the future of our young people. Together, we can help the next generation of youth gain the skills, behaviors, and confidence to make qualified financial decisions that help them work toward greater financial health.
