Instead of forcing boring information about economy into our children’s minds, we should focus on what researchers call “experiential learning”, or in layman's terms “learning by doing”.
Young people today are getting worse at handling money - they simply don’t know how¹. Expensive short term loans are at an all time high. More people are seeking help for their money issue and when they do it is at a younger and younger age². Classic school based financial education interventions don’t seem to be helping the problem³. Something has to be done or our children will be unable to take care of their own personal finances.
New research suggests a solution.
Instead of forcing boring information about economy into our children’s minds, we should focus on what researchers call “experiential learning”, or in layman's terms “learning by doing”. One does not learn how to play football by reading about it, forcing a child to read about economy might even kill their motivation to give money management a try. We should instead allow the child to practice handling money and through this build experiences. As some researchers put it, learning by doing is “a principal method of financial socialization”⁵ - in other words, one of the most important ways for parents to teach their children about money.
Another group of researchers tell us that experience and practice allow young people to develop knowledge, skills and habits that form how they behave financially in the future, especially when it comes to using their own money⁵. Learning how to responsibly handle money at a young age will therefore lead to smarter decisions about money throughout the child’s adult life.
We need to be more conscious about how we provide for our children and how we can give them hands on experiences.
The question is; How do we give our children the opportunity to learn from their economical actions? There are some obstacles: Fewer parents carry and give out pocket money in cash these days, instead they keep a mental tally of how much the child has “saved”⁶. Worse still, a lot of parents today forget about pocket money entirely or simply buy their children whatever they want. Stores are going cashless, only accepting digital payments through cards or services like Apple Pay. For children, this means that it is often impossible to access or use their own pocket money.
One way to give them access is by providing them with their own card, and by doing so we open up a world of experiential learning for them to take part of. This allows them to actively make the choice between buying a bag of crisps in a shop today or saving their money for a trip next summer.
A 2010 study⁷ about how young people learn financial knowledge showed results that children with their own card learn and remember financial knowledge at a higher rate than their peers without cards. Providing a child with their own card gives them opportunities to learn and remember their learnings better. Take purchasing limits as an example. A child will connect the learning that debit cards cannot be overdrawn with the memory of being unable to purchase a chocolate bar in a shop. The sooner we give our children opportunities for money learning experiences the better.
At what age are children ready to handle their own cards? To promote responsible and safe card usage, Gimi answered this question through a knowledge test developed in collaboration with researchers from the Swedish House of Finance at the Stockholm School of Economics. The results from more than 1,000 children give us some insights. Children know how to handle a card at quite young ages. To summarize what we can see in the graph below, over 70% of all children pass the test and more than ¾ of all 12 year olds pass the test and therefore show a strong understanding of how to use a card responsibly.
To summarize, children learn a great deal about money management by taking part in everyday financial activities. As grown-ups we can, and should, encourage more opportunities for children to gain practical experiences to learn from. In a cashless society this means giving our children the chance to use their own money, with their own card, when they are ready.
To see if your child is ready for his or her own card, take our Card Test in the app.
Gimi Research Center
Since 2017, Gimi has conducted research promoting the subject of children and financial literacy, through standalone projects as well as collaborations with world leading researchers.
We are currently working together with researchers from Babson College, Stockholm School of Economics and Dartmouth College and we are actively searching for further collaborations. Do you want to learn more about – or become a part of – the research network? Contact us at email@example.com
Head of Research
PISA, published 2017.
Office for National Statistics (ONS), published 2018.
Daniel Fernandes, John G. Lynch Jr och Richard G. Netemeyer, publicerad 2014.
Ashley LeBaron, Samuel Runyan, Bryce Jorgensen, Loren Marks, Xiaohui Li och professor E. Jeffrey Hill, published 2018.
Anita Drever, Elizabeth Odders-White, Charles Kalish, Nicole Else-Quest, Emily Hoagland och Emory Nelms, published 2015.
6. Rapport om vecko- och månadspeng i Sverige - 2017
Gimi and YouGov, available at request.
William B. Walstad, Ken Rebeck and Richard A. MacDonald, publicerad 2010.