If you’re trying to teach your kids about money, don’t just rely on word-of-mouth alone. A growing body of research suggests parents should do more than just talk with their kids and hope they’ll follow their advice.
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If you want your financial lessons to stick, you’ll be more successful if you encourage your kids to practice handling money on their own. A recent study published in the Journal of Family Issues found college students who remembered handling money as kids expressed confidence about their financial skills as young adults.
According to these students, the early financial experiences they had before heading off to college helped prepare them for adulthood by instilling important financial lessons, such as saving and conserving their cash.
Kids who don’t get that early experience, by contrast, may not have the knowledge or skill it takes to avoid costly financial mistakes, say researchers. They may also have a harder time bouncing back from financial missteps.
“If the first time kids use a credit card or have to work or have to save up something or have a bank account is when they’re on their own, that’s not a good time to be practicing,” said study co-author Ashley LeBaron in a news release. “It’s important for parents to give kids age-appropriate financial experiences when they’re monitoring them.”
That way, kids have room to fail – without endangering their financial health.
See related: Kids with debt are in luck: 9 out of 10 parents would help bail them out
Early financial experience gives kids a frame of reference
The study published in the Journal of Family Issues was small. However, it supports previous research that’s found kids who practice using money at a young age tend to grow into financially savvier adults.
For example, a 2013 study found young adults who open a savings account as a kid tend to have more assets as adults. Kids who spend and handle money on their own – with their parents’ supervision – also tend to be more self-confident about money once they are on their own and less anxious about their finances.
Other research has found those who earned an allowance as a kid and received advice from their parents about how to budget it are more likely to be savers as adults.
Researchers think part of the reason why early financial experiences are so crucial is because they give kids a financial frame of reference and make it easier for them to understand their parents’ advice.
In addition, early financial practice gives kids a chance to think back on their experiences at a young age and learn from them, according to University of Wisconsin researchers Elizabeth Odders-White and Charles Kadish.
“Hands-on experiences are also likely to promote feelings of efficacy, or confidence in one’s ability to manage finances,” White and Kaddish wrote in a Federal Reserve Board of San Francisco book about family finance.
See related: 6 smart-money lessons from holiday movies
How to help your kids achieve financial confidence
Time-tested practices, such as giving your kids an allowance or a household job or opening a bank account, aren’t the only ways to give your kids hands-on experience.
A growing number of new tools promise to help parents teach their kids how to responsibly handle money.
For example, a number of financial services providers offer prepaid cards that are designed specifically for kids. The FamZoo prepaid card offers a family-friendly app parents can use to monitor their kids’ spending, create child-friendly budgets and teach their kids to track their spending and save.
Similarly, a soon-to-be released digital debit card called Honey promises to help parents teach their kids about money by offering a slew of financial education features, including customized advice for app users, visual goal trackers and budget reminders.
Some allowance apps also help younger kids get a better sense of where their money is going – or where it’s coming from – by pinging them when they’ve made a purchase or by tracking different chores they need to do in order to earn more income.
In addition, some apps such as Rooster will even let you add customized interest rates to your kids’ digital savings accounts so you can teach them about compound interest. Others, such as the FamZoo app, will facilitate loans between you and your kids in order to teach them how to handle debt.
Just be sure you stay involved in your kids’ finances throughout their childhoods – even if they seem to be making good choices on their own. Research shows kids learn best when they practice their money skills under the watchful eye of mom and dad.