Written by Dr. Firdous Ahmad Malik
Assistant Professor of Economics,
Department of Management, University of People, Pasadena, California, United States.
Email: malikfirdouscrc@gmail.com
Contact: +91-9682382187
Owais Ismaeil
Doctoral Fellow,
Centre of Advanced Study, Department of History, University of Delhi.
Email: Oismaeil@history.du.ac.in
Contact: +91-9149564058
Abstract:
Financial literacy is a vital skill that shapes individual’s lifelong financial decision-making. This essay explores parents’ significant role in instilling financial habits in their children, examining essential practices such as saving, budgeting, goal-setting, and delayed gratification. The study emphasizes the early establishment of a solid financial foundation, showcasing the impact of parental guidance on developing financial intelligence. Insights into transitioning from basic savings methods, like piggy banks, to more complex investment portfolios are discussed. Evidence from the real world demonstrates that parents significantly impact their children’s financial behaviours, such as their ability to save money, create goals, and their level of financial literacy. It is emphasized that it is essential to have open communication regarding the family’s financial matters, view mistakes as chances for learning, and encourage financial independence. By comprehensively understanding these financial habits, parents are fundamental to empowering their children for a financially
capable and independent adulthood.
Keywords: Financial literacy, budgeting, investment portfolios, financial education, financial independence, childhood financial behaviours.
Introduction
Financial literacy is fundamental to individual competence in managing personal finances, encompassing the knowledge and skills required for informed decision-making. This essay delves into parents’ critical role in shaping their children’s financial behaviours, emphasizing the pivotal practices of saving, budgeting, goal-setting, and delayed gratification. The early establishment of a robust financial foundation is explored, showcasing the profound impact of parental guidance on children’s financial intelligence development. The narrative includes insights into the evolution of financial habits, from basic savings mechanisms like piggy banks to the intricacies of investment portfolios. Supported by empirical evidence, the study highlights the influence of parents on savings behaviour, goal-setting, and financial literacy in children. Additionally, the essay emphasizes the significance of open communication about family finances, learning from mistakes, and cultivating financial independence. A comprehensive understanding of these financial habits positions parents to empower their children for a financially capable and independent adulthood.
Discussion & Analysis:
Financial literacy is a critical skill that equips individuals for a lifetime of financial decision- making. Research shows that children acquire their financial habits and attitudes from their parents, highlighting parents’ crucial role in shaping their children’s financial futures. This essay aims to explore the various financial habits parents teach their children. By understanding these habits, we can gain insights into parents’ impact on developing financial intelligence in their children. The Importance of Teaching Financial Habits Teaching
financial habits early is crucial because it establishes a solid foundation for responsible money management skills. Parents who consciously impart financial knowledge and instill positive attitudes towards money help their children become financially capable and independent adults.
Many of us begin our financial educations as youngsters with piggy banks, which are adorable receptacles in which we store our excess change. It is a straightforward method of educating oneself about the significance of saving and reserving funds for future desires or necessities. As we mature and acquire a more profound comprehension of personal finance, it becomes indisputable that relying solely on reserve banks cannot guarantee us prosperous financial lives. The transition from charity banks to investment portfolios signifies a mental and practical shift in the way we handle our finances. In contrast to piggy banks, which emphasise short-term savings, investment portfolios prioritise the creation of long-term wealth and ensure financial security. Instead of simply amassing currency and coinage, we initiate an examination of diverse investment alternatives that have the potential to compound our funds gradually. Investment portfolios comprise an extensive array of assets, including but not limited to real estate, cryptocurrencies, equities, bonds, and mutual funds. Our objective in investing our resources across various asset classes is to yield returns that surpass the rate of inflation and furnish us with Saving and Budgeting: Parents who emphasize the importance of saving and budgeting instill valuable money management skills. Through teaching the habit of setting aside money for future goals or emergencies, parents enable their children to understand delayed gratification and prioritize their spending. Empirical evidence repeatedly demonstrates that parental instruction and conduct exert a substantial influence on the financial saving and budgeting habits of children.
Bucciol (2014) and Webley (2006) discovered that parental instruction on saving enhances the probability of saving in adulthood.
The most successful approach involves a blend of techniques, including the provision of pocket money, monitoring money usage, and offering guidance on saving and budgeting. The impact of parental conduct and orientations on children’s economic behaviour, specifically focusing on discussions about money concerns. These findings emphasize the significance of parental engagement in moulding children’s financial
behaviours. An inverse relationship exists between parents’ educational attainment and students’ ability to save money. Salikin, (2012). The impact of encouragement on saving behaviour is significant. Most families establish a model for their children based on savings and ownership. Başal, (2016). Parents’ savings for their children are substantial in both types of households. Friedline (2012). The most reliable indicators of consistent saving behaviour and the percentage of money saved were higher income levels. Furnham, A. (1999). Parents’ perspectives on money provide insight into their perspectives on children and their growth. Warton, (1995). Student savers were individuals from households that practised frugal habits and carefully strategized their financial expenditures. Pritchard (1989).
Goal Setting Parents who encourage goal-setting and help guidance on financial planning help children develop a sense of direction and purpose. These children are more likely to become proactive and purposeful in spending and saving habits. Studies on the financial behaviours parents impart to their children uncover various fundamental patterns. Jorgensen (2019) highlights the need to establish financial objectives, strategize, and comprehend the concept of the time value of money. Danes (2005) emphasizes the enduring
advantages of instructing children in sound financial practices, irrespective of their income, and offers recommendations for achieving this. Solheim (2011) examines the influence of parental modelling, direct instruction, coaching, and family regulations on the financial practices of young adults. Serido (2016) examines the impact of financial parenting on children’s financial knowledge, abilities, and self-reliance. These studies emphasize parents’ essential role in influencing their children’s financial habits and views.
Delayed Gratification: Teaching delayed gratification is an essential financial habit parents should impart to their children. This habit empowers children to resist impulse buying, prioritize needs over wants, and be patient in achieving long-term financial goals.
Tracking Expenses: Parents who teach their children to track expenses enable them to be conscious of their spending habits. By keeping a record of income and expenses, children develop fiscal responsibility and learn to make informed decisions about where their money goes. Studies have consistently demonstrated that parents are pivotal in moulding their children’s financial behaviours. In a study conducted by Jorgensen (2019), it was discovered that parents and grandparents express remorse for not imparting financial knowledge earlier. This highlights the significance of establishing objectives, strategizing, and omprehending
the concept of the time value of money. Danes (2005) emphasizes the significance of initiating financial education early, irrespective of income, and offers practical recommendations for parents. Mischel (1989) and Trzcińska (2016) emphasize the enduring advantages of instructing children in delaying gratification. Mischel’s findings indicate that children who possess this ability are more likely to achieve success in multiple domains of life. Trzcińska’s research, on the other hand, reveals that introducing the concept of money can enhance children’s inclination to opt for delayed gratification. These studies emphasize the significance of parental influence in moulding children’s financial behaviours, particularly encouraging the practice of delaying immediate satisfaction.
Teaching the Value of Money: Instilling a sense of the value of money helps children understand the effort required to earn it. Parents can engage in conversations about financial trade-offs and teach children to appreciate the worth of the items they desire, fostering responsible purchasing patterns. Consistently, research demonstrates that parental influence significantly affects their children’s financial behaviours and attitudes. LeBaron (2020) and Jorgensen (2019) concur that understanding the time value of money, setting financial objectives, and planning are crucial. Jorgensen emphasizes the need for these lessons to begin early in life. This is further supported by Schug (2005), who proposes the implementation of financial education before the elementary level. According to Norvilitis (2010), the influence of parental modelling and practical mentoring on college students can reduce credit card debt and increase adherence to responsible financial practices. These results collectively emphasize the substantial impact that parents possess in imparting to their children the importance of financial prudence.
Financial Literacy: Parents who introduce their children to financial concepts such as interest rates, loans, investments, and compound interest contribute to their financial literacy education. By equipping children with this knowledge, parents empower them to navigate complex financial situations confidently. Parental influence and financial literacy have produced contradictory findings in the scientific literature. In contrast to Calamato (2010), which discovered no significant correlation between parental involvement and students’ financial literacy, Holden (2009) underscored the criticality of integrating parents into early childhood financial literacy education. Parents should be involved in educating their adolescents about financial literacy, according to Zimmerman (2016), and Amagir (2018) emphasized the potential of school-based financial education programs, especially those that incorporate experiential learning. The aforementioned research highlights the intricate relationship between parental influence, educational initiatives, and personal experiences regarding the formation of financial literacy.
Open Communication about Finances: Parents who maintain open communication about family finances with their children create an environment where financial knowledge is openly shared. Such communication helps children develop a healthy attitude towards money and encourages them to seek guidance when needed. The investigation into open financial communication between parents and children has yielded many significant discoveries. Edwards (2007) discovered that regardless of financial dependence, women are generally more candid with their parents regarding financial matters. This is supported by Jorgensen (2019), who cites parental and grandparental teachings on the significance of goal-setting, planning, and the temporal value of money as crucial lessons. On the contrary, Romo (2011) emphasized the significance of cultural norms and privacy boundaries in shaping the financial information that guardians elect to share with their offspring. Allen (2008) proposed that further investigation is warranted into the intricacies of parent-child dialogues concerning consumer finance in light of the escalating complexities of family finances and the choices they must make.
Embracing Mistakes and Learning Opportunities Parents who encourage their children to learn from financial mistakes create a safe space for them to experiment and grow. Parents promote resilience and adaptability in their children’s financial decision- making by treating financial failures as valuable learning opportunities. Extensive research consistently underscores the criticality of parental education regarding financial habits for
their offspring. Regardless of income, Danes (2005) emphasizes the importance of early education, whereas Jorgensen (2019) stresses the significance of establishing financial objectives, strategizing, and comprehending the concept of the time value of money. Grinstein-Weiss (2011) provides additional evidence supporting this notion, demonstrating a correlation between parental instruction in money management during childhood and improved credit outcomes in maturity. Further, experiential learning, including working diligently, managing money, and spending prudently, should be a primary method of financial socialization, according to LeBaron (2018).
Encouraging Independence: Parents should strive to teach their children financial habits that foster independence. By empowering children to make sound financial choices and take ownership of their money, parents prepare them for the financial challenges they will face throughout their lives. Research on parental financial instruction underscores the significance of fostering financial independence in children (Serido, 2016). Fostering open communication regarding family finances, opportunities for accountability, the significance of diligence, and the saving process can accomplish this (LeBaron, 2018). Parents should prioritize instilling these behaviours in their children at a young age, irrespective of their financial situation (Danes, 2005). Parents’ expectations and effective parent-child communication regarding financial matters substantially impact their children’s psychological, personal, and financial development (Serido, 2010).
To summarize, Parents substantially influence their children’s financial habits and attitudes. Parents can lay the foundation for their children’s financial success by instructing them in crucial financial habits such as saving, budgeting, goal-setting, and delayed gratification. To guarantee their children acquire the skills needed to make educated financial choices and achieve financial independence as adults, parents should integrate open communication, financial literacy education, and a willingness to embrace learning opportunities.
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The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.
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