Four bright coins shining at me: financial education in childhood, financial confidence in adulthood

1. Context
2. The study
3. Key findings
4. Points to consider

Context

Very little has been written on the effect of allowances and pocket money during childhood on subsequent financial behaviour. The topic is worth studying in depth because the practice of regular pocket money can be a good supplement to formal financial literacy courses in school, and because it can shed some light on the role of (good) habit formation (like acquiring some ability to plan) on saving behaviour. The study is related to the literature on habit persistence in saving behaviour over the lifetime and across generations. From a policy perspective, if some families help their children to acquire basic knowledge and to form good habits and some do not, this can enhance inequality.

The study

The study uses DHS Household Survey 2015, a longitudinal survey collected every year since 1993 by CentERdata at Tilburg University and sponsored by the Dutch Central Bank. The aim of the survey is to collect information about the economic and psychological determinants of saving behaviours at the individual and household levels in the Netherlands. 2,128 households were interviewed between April and October 2015, a random sample representative of the Dutch population. All household members aged 16 or over were invited to complete the questionnaire, although some sections focused only on certain individuals such as the head-of-household. The survey contained information on whether the interviewee received an allowance or pocket money during childhood and on how they judge their own current financial knowledge.

Key findings

• The main aim of the study was to test whether receiving an allowance on a regular basis between the age of 8 and 12 increases financial literacy, measured as self-reported financial knowledge, later in life. The major finding is that a person who used to receive an allowance will be more confident on financial issues in adulthood. In particular, this decreases the probability that an individual will consider themselves ‘not knowledgeable’ (Level 1) or ‘more or less knowledgeable’ (Level 2) by 1-3 percentage points, while it increases the probability that such individual will answer ‘knowledgeable’ (Level 3) or ‘very knowledgeable’ (Level 4) by around 1-3 percentage points.
• The study found that female respondents are less likely to report high levels of financial knowledge.
• Parenting during adolescence seems to play an important role. Individuals tend to have higher levels of financial knowledge if their parents or grandparents taught them money management techniques. This suggests that being trained to budget in adolescence has a substantial impact on subsequent behaviour as an adult, particularly if compared with other factors such as general education.
• Further research is encouraged to investigate, possibly with a cross-country comparison, whether receiving an allowance during childhood affects educational achievements. Gender bias in pocket money practice and its implications are also worth investigating.

Points to consider

Methodological limitations:

• The study looked only at Dutch data from 2015.
• The study was based entirely on people’s self-perception; there was no attempt to verify people’s perception of their own knowledge and ability in relation to financial management.

Relevance:

• The study is highly relevant and indicates that early intervention can make a tangible difference to the financial decisions of adults later in life.

Generalisability / transferability:

• The study is transferable but is specific to the Netherlands, and this should be taken into account before treating the findings and implications of this study as applicable to any other country or culture.

Full report

http://gflec.org/wp-content/uploads/2017/04/SANSONE-Paper-Cherry-Blossom-2017.pdf?x28148