You may have heard of the Stanford Marshmallow Experiment, a psychology test developed in the 1960s to measure a child’s ability to delay gratification. When I was a kid, my mother once ran her own version of the experiment at our kitchen table: “You can eat this marshmallow now,” she told me, placing a single one in front of me, “or if you wait five minutes and don’t eat it, you can have a second marshmallow when I come back.”
Captivated by the idea of two marshmallows, I waited patiently for five minutes until she came back into the room and then devoured my reward. When my mom performed the same test on my younger sister a few years later, my sister figured out the genius hack of licking the marshmallow and placing it back down, getting a little bit of pleasure while still technically qualifying for her prize.
The marshmallow test isn’t exactly an objective barometer for willpower. In the years since the original Stanford study, other research with more diverse subject pools has found that socioeconomic background also plays a significant role in whether a child will eat that first marshmallow. Running makeshift psychological experiments on your own kids will likely provide more entertainment than actual insight.
Still, the spirit of my mother’s test was on the right track: Tolerance for delayed gratification is intricately tied to how well people manage their money, and it’s a concept that provides the groundwork for a lifetime of healthy financial behaviors. Below, experts in financial education offer some more effective techniques for raising a child to be good at money.
“When you’re giving a child money, you can’t then lament that they just spent all the money. Of course they did; they have no impulse control.”
All of them agreed unanimously on one thing: There is no “right age” to start these lessons. But the earlier you begin introducing financial concepts in a tangible, age-appropriate way, the better. Here’s how.
1. Hands-on experience is required.
“Parents are the No. 1 source of a child’s financial education,” says Ashley LeBaron, a professor of family science at the University of Arizona who studies family finance.
Recently, LeBaron co-authored a research paper titled “Practice Makes Perfect: Experiential Learning as a Method of Financial Socialization” that was published in the Journal of Family Issues. Most research on financial socialization, or the study of how we develop attitudes and practices around personal finance, has focused on two methods for teaching kids how to handle money: the example parents set and the conversations they have with their children. But in her paper, LeBaron focused on hands-on learning as a third, equally effective method.
“We realized the importance of getting money into kids’ hands early on,” LeBaron says, and “letting them practice managing their own money, make mistakes, learn from those mistakes, and form habits while they’re still at home before they’re thrust out into the world.”
2. Give your child a structured allowance.
One way to provide that hands-on experience is through an allowance, says Brad Klontz, a financial psychologist and professor at Creighton University. Go into the process with an open mind, and don’t get frustrated off the bat by what your child does with the money.
“Start with the end in mind in terms of how you want your child to operate with money as an adult,” Klontz advises. “When you’re giving a child money, you can’t then lament that they just spent all the money. Of course they did; they have no impulse control. They don’t know how to delay gratification. You need to teach them to do that.”
In creating these teachable moments, parents must first identify their own core values, says Klontz, who recommends structuring the allowance with strings attached. This doesn’t mean tying it to chores; Klontz notes that chores are an expected part of being a family member, and linking allowance to specific tasks sets parents up for failure when their children retort “Then don’t give me the money” as an excuse to shirk their responsibilities or, when they’re older, go out and secure a part-time job to underwrite their spending.
Instead, Klontz recommends splitting a weekly allowance in accordance with your family values. For example, if your child gets $3 a week, then one dollar goes to spending, one dollar to savings, and one dollar to charity. At the end of the year, you can present options for charitable giving to your child and allow them to select where the contribution will go. It also provides an opportunity to talk about how giving makes you feel and instills a sense of generosity from a young age.
3. Turn the abstract into something concrete.
Especially to young minds, money can feel like an abstract concept, and making it less so is one of the earliest struggles parents face in trying to teach a child about finance.
Susan Beacham, CEO of the financial education company Money Savvy Generation, recommends using a clear visual representation to illustrate the concepts of spending and saving. When she left her career in banking to create a financial literacy curriculum for children, Beacham says, she quickly learned that she needed to be extremely visual and hands-on to hold her young students’ attention. She ended up creating a four-chambered piggy bank to incorporate into her curriculum, with chambers representing save, spend, donate, and invest.
“It’s see-through, so you can see the visible accumulation of coins,” Beacham explains. “A kid will see that accumulation happen, and they’ll put that in a file in their head. When you talk to them about the idea of saving later on, as they begin to get older and grasp more abstract terms, they actually attach that visible lesson with the concept of saving. It makes them stronger savers because they understand it.”
One of LeBaron’s formative money memories is similarly tied to a visual representation of the family finances. She recalled that her parents sat her and her siblings down and showed them how much they made in a month in cash. Her parents then put the cash into different piles to represent family expenses, like the mortgage, utilities, car payments, and food, to demonstrate how little discretionary spending power remained after paying the bills.
“It was eye-opening to me as a kid to get a realistic idea of how much income my parents made,” LeBaron says, “but also a realistic idea of how much things cost and that there was only so much [money] for wants.”
4. Explain modern financial tools.
Unfortunately, many of our modern financial tools have made money even more abstract. Your children might observe you swiping a credit card or tapping your phone to pay for something more often than they see cash exchanging hands.
“For kids, I think it’s helpful to see the cash, but these days it isn’t practical to carry cash all the time,” says Farnoosh Torabi, author of several books on personal finance and host of the So Money podcast. To help facilitate the connection in her young son’s mind, Torabi vocalizes what’s happening when she makes purchases with her credit card in front of him.
“I say, this is a credit card. This is how I’m paying for the food,” says Torabi, “He’s young, but he’s getting that there’s a transaction.”
5. Use what they’re interested in as a teachable moment.
“I try to pick up cues from [my kids],” says Paul Golden, managing director of media and communications for the National Endowment of Financial Education. “[NEFE] has done some survey work in this area, and we find the overwhelming majority of parents say that they’ve had conversations with their child about money. But when we look at how it’s initiated, more than half the time, it comes up from the child, and that should flip.”
Golden recommends using whatever your children are engaged with to provide teachable moments. For example, he says, he used the video games his sons were playing as a lead-in for talking about finances because many of them provided some sort of in-game monetization, often in the form of needing to save up coins or tokens to later customize an avatar or unlock tools.
“That’s an opportunity to talk about, ‘Well, do you want to spend it now and have that instant gratification on something? Is there something bigger that you want that’s going to take longer to save for but you’re going to like that feature better?’” Golden says.
6. Allow your child to make a stupid purchase.
Your parental instinct may be to always protect your child from harm and failure, but LeBaron’s research suggests you should allow them to screw up while they’re young.
“[Let’s say] you see your kid about to make a stupid purchase, and you know they’ll regret it later,” says LeBaron. “Maybe they buy a toy they don’t even want that much, but later they’ll want something else. Then you can step in and say ‘Sorry, you already spent your money.’ This will help them realize once you’ve spent money, you can’t spend it on other things.”
The power of feeling buyer’s remorse at a young age can provide a powerful antidote to impulse buying as an adult.
7. Don’t go overboard.
Remember, your child is still a child. While it’s important to tee up tangible life lessons, like the consequences of impulse purchases, it’s also critical that you protect your child from absorbing the full impact of adult concerns.
“It’s really important to talk about money, but it can be destructive to pass on your anxiety or conflicts around money to your children,” says Klontz. “Oversharing around your financial situation with your kids can be a destructive behavior.” It’s a practice known as financial enmeshment.
“You can’t use your kids as a therapist.”
It’s okay to be honest, like telling a child when you’ve lost your job. But instead of creating fear around the problem, Klontz recommends coming up with ways they can be part of the solution, like always turning the lights off when they leave a room to save on the electric bill.
On the other hand, it’s not okay to cry in front of your child saying there isn’t enough money to pay the mortgage or ask children to answer the phone when creditors call.
“You can’t use your kids as a therapist,” Klontz says. What you can do is be age-appropriately forthcoming, matter-of-fact, and proactive in exposing them to personal finance from an early age. Then watch as your efforts pay off.