Given the complex circularity of modern economies, maybe it’s a fair enough answer. Money does sort of begin and end with banks. And until you are yourself working, it’s easy to forget that the wealth stored in money has to be created somewhere. Indeed in the UK, our economy is based on a financial sector, rather than manufacturing.
The children helping Flight of the Conchords with their Red Nose Day song also had some good ideas about raising money for ill children, which a chancellor struggling to find funds for the NHS might wish to take note of. Among their suggestions were trapping robbers and taking the money out of their pockets, and asking children to save up their teeth and then collecting them in one big bowl so that they could get lots of money from the tooth fairy.
Anyway, you can watch the resulting song online.17 It’s very funny, and you might argue it’s as good a guide to our financial system as some economics text books.
But back to Berti and Bombi’s research: they found that children a little older than four or five often had the rather sweet idea that money came from shopkeepers. They had seen staff in shops giving their parents change, while seemingly missing the fact that their parents had handed over rather more money in the first place. It was only when children were about seven or eight, Berti and Bombi concluded, that they properly understood that their parents had money not because banks or shopkeepers gave it to them, but because they were paid for their work.18
However, more recent research on children’s understanding of money would appear to contradict – or perhaps bring up to date – the seminal work of Berti and Bombi. This research, conducted in 2010, is by the Finnish social anthropologist Minna Ruckenstein and it involves group discussions with young children at nurseries in Helsinki.19 Ruckenstein admits that she and other facilitators often have no idea what the children are talking about until they carefully study the transcripts afterwards. But what those transcripts reveal is that these days pre-schoolers seem well aware that you get money through working and then you exchange it for food and other items in shops. Indeed when a few children in the groups suggested that you could obtain money by buying things, others soon corrected them.
Generally these young children were also able to explain the purpose of piggy banks, cash machines and high-street banks. What they really liked was finding what they called ‘free money’ around the house, but even then they knew it hadn’t just appeared magically, that it must belong to someone. The children in Ruckenstein’s study knew so much about the idea of saving money, of only buying what they could afford, and not wasting money on things they didn’t need, that they were annoyed when they were asked about it. One child even refused to respond to questions about saving because the answers were so obvious, saying: ‘Do you have some other questions?’
Not surprisingly, the main source of the children’s information on money was their parents. Ruckenstein found that some parents actively taught their children how not to spend – in other words to exercise the self-restraint the children in the play economy had found so difficult. The huge influence of parents might explain why the young children in Ruckenstein’s study seemed more clued up about the source of money than the kids in Berti and Bombi’s studies. Remember the latter pair was doing their research in Italy back in the 1980s, when fewer women would have been out at work and more would have been caring for children at home. These days, both parents (especially in a country like Finland) are likely to work. And when little children ask the question: ‘Why do you have to go out to work, Mummy?’ the answer is very likely to be: ‘To earn the money we need to live.’
So children acquire most of their knowledge from their parents. But how exactly? Mostly through observation. They see the frequency with which their parents buy or deny themselves the things they want. They repeatedly witness their parents selecting certain brands, or going to different shops for bargains. They watch the way they weigh up price and value.
This process of acquiring financial knowledge and developing attitudes toward money is known as financial socialisation. Active discussion of money matters is much rarer. Research shows that many children reach adulthood without any idea what their parents earn or what savings they might have. Some therapists have found that couples would rather discuss their sex lives or even their infidelities than discuss their finances.20 And if people won’t discuss money with their partners, they’re even less likely to discuss it with their children.
THE POWER OF POCKET MONEY
For most of us, our first introduction to the concept of having our own money to manage is through pocket money. In the UK, for example, research has shown that most children get some sort of pocket money or allowance, however poor their parents might be. Indeed a study by the influential London-based psychologist Adrian Furnham has found that low-income families tend to give their children proportionately more money than middle-income families. His study also found that pocket money rises fastest between the ages of seven and ten, and slowest between the ages of 15 and 18.21
Furnham’s study also showed that middle-income parents were more likely to make their children work for their allowance, an interesting finding given that these parents could afford to be more generous without expecting any help around the house in return. Though maybe parents in households where there is more money available feel that it is more important to emphasise the message that money doesn’t grow on trees.
There is no definitive proof on whether the middle-income parents are taking the right approach. Some studies suggest that a contingent approach, where pocket money has to be earned through completing homework or doing chores, is the best way for children to learn about money. Others find that a consistent allowance gives the child more responsibility for planning how to manage their own cash.
Then there’s the risk that once you monetise housework, your children won’t ever volunteer to help. (We’ll learn more about this issue, which affects adults too, when I turn to intrinsic motivation in Chapter 7.) Then there’s the problem that when it comes to exam time, you might prefer it if your children revised rather than washed up to earn their pocket money.
Some researchers in the field suggest it’s a good idea to explain the family budget to children as they get older, so that they can see where their allowance fits in to the bigger picture and how, if they want more money, it will have an impact elsewhere. Neale Godfrey, the author of parents’ money guides such as Money Doesn’t Grow on Trees, goes as far as to suggest that children’s pocket money should be treated in the same way as an adult’s income. She recommends 15 per cent should be taken away in tax and put into a general family fund. A family vote would then decide how it was spent. Another 10 per cent of a child’s pocket money should go to charity, she says. The child gets no choice about the amount assigned, but does get to choose the good cause. In this way children learn to become ‘citizens of the household’, Godfrey argues.
Not everyone will want to go to such extremes. What all parents should do, however, is be open and consistent about where pocket money comes from and what children can expect to get. And they should be able to ask for similar transparency from their children in return. Indeed there are even experts who have made the rather extraordinary suggestion that parents should ask their children to provide a yearly review of their spending so that they can see how this fits in the context of the family budget.
That said, in a study of 1,500 families living across the United States, almost two-thirds of young people between the ages of 12 and 18 said that their parents usually or almost always knew what they spent their money on. The study also found that those children who had to work to get their allowance were