Why teen savers have more financial success later in life

U.S. News & World Report

When is the right time to start educating your kids about money? While some say it’s never too early, this article from Kimberly Palmer of U.S. News highlights new research indicating that financial lessons can really start clicking in a child’s mind during their teenage years.

Teenage money experiences, both good and bad, can influence spending habits in adulthood. Indeed, a paper by Annette Otto and Paul Webley published in June in the Journal of Consumer Affairs found that after age 15, saving money becomes more important to teenagers than borrowing money or negotiating over it with their parents. The authors suggest that teenagers might be especially motivated to learn how to be financially independent, so it’s a good time to broach the topic with them. The findings also underscore previous research that suggests saving at age 16 is closely linked to saving at age 34.

“It confirms the findings of other work that money habits are really formed early in life. That’s why it’s important to have financial literacy in school,” says Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at the George Washington University School of Business. She adds that the paper shows parents help shape the future financial behavior of their children. “It starts at home, at the dinner table,” she says.

“How young people deal with their money seems to be related to their psychological well-being, at least when they are college-age,” Otto adds. Research suggests that saving behavior, she explains, is often learned through social relationships within families, which is why it’s important for parents to encourage their children to save as well as to model saving practices.

A survey of 1,000 parents and 881 kids released last month from T. Rowe Price found that having conversations with children about money is essential for raising “financially savvy” kids. Giving an allowance and letting them gain firsthand experience with money can also help, the survey of 1,000 parents and 881 kids ages 8 to 14 found. Parents who gave an allowance to their children were more likely to have kids who said they felt smart about money (40 percent versus 25 percent) and say they are “knowledgeable about managing personal finances” (32 percent versus 16 percent).

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