“Four Bright Coins Shining at Me”: Financial Education in Childhood, Financial Confidence in Adulthood

• Published date: 01 June 2019
• Author: Dario Sansone,Mariacristina Rossi,Elsa Fornero
• Date: 01 June 2019
• DOI: http://doi.org/10.1111/joca.12207

630 THE JOURNAL OF CONSUMER AFFAIRS

DARIO SANSONE , MARIACRISTINA ROSSI, AND

ELSA FORNERO

“Four Bright Coins Shining at Me”: Financial Education

in Childhood, Financial Condence in Adulthood

Weanalyze the relation between receiving an allowance (pocket money)

in childhood and nancial condence in adulthood. We measure this

condence using self-reported nancial knowledge. Our empirical

exercise is based on informationprovided by a Dutch survey carried out

in 2015. Wecompute our estimates by controlling for parental attitudes

and by using a “within-family” xed effect model. The results arerobust

and suggest a long-lasting effect of pocket money as an easily imple-

mentable and informal educational vehicle to help children acquire

basic nancial concepts and develop good habits, such as budgeting.

The role of nancial literacy in enhancing people’s capabilities to effec-

tively manage their income and wealth in a life-cycle perspective has long

been recognized, at both theoretical and empirical level. Policy recommen-

dations have identied in nancial education programs a major instrument

to help people save for their retirement, avoid taking up “too much” debt,

make imprudent mortgage decisions or suffer the negativeconsequences of

myopic nancial decisions. Although the effectiveness of these programs

is yet to be rmly established, the general principle that nancial education

can be seen as a necessary tool—though certainly not a sufcient one—to

create a less unequal playing eld in the economic sphere is well recog-

nized. Despite this, researchers have found low levels of nancial literacy,

even among young adults (Lusardi, Mitchell, and Curto 2010).

There are, of course, various ways to help people acquire basic nan-

cial elements (nancial literacy) and possibly to build further knowledge

on these elements: from formal/compulsory programs in schools, to infor-

mal/voluntary courses specically addressed to segments of the population

Dario Sansone (ds1289@georgetown.edu) is in the Department of Economics at Georgetown

University,Mariacristina Rossi (mariacristina.rossi@unito.it) and Elsa Fornero (elsa.fornero@unito.it)

are with CeRP CCA Netspar, University of Turin.We are grateful to the editor, Sharon Tennyson,two

anonymousreferees, as well as the participants to the 2017 Netspar International Pension Workshop and

to the 2017 Cherry Blossom Financial Education Institute for their helpful comments and suggestions.

We also wish to thank the EU MOPACT Grant no. 320333 for funding. In this paper use is made of

data of the DNB Household Survey.

The Journal of Consumer Affairs, Summer 2019: 630–651

DOI: 10.1111/joca.12207

Copyright 2018 by The American Council on Consumer Interests

SUMMER 2019 VOLUME 53, NUMBER 2 631

considered to be “more at risk” of poor nancial decisions. Parents can

also contribute to improve their offspring’s nancial knowledge by pro-

viding children with some basic nancial concepts and the opportunity to

learn, as well as by involving them in youth nancial literacy programs

(Van Campenhout 2015).

How do children build up their attitudes toward money and saving?

Are parents responsible for transferring good savings habits by nudging

children toward helpful nancial habits? Mandell (2008) highlights the

pivotal role of parents as a key source of nancial information for students

at high school, nding a strong and monotonic relationship between

nancial literacy scores and parental education. For low and middle income

households, the link between parental habits and saving attitudes is even

more important (Grinstein-Weiss et al. 2011): Americans who had been

exposed to high levels of money-management teaching in childhood by

their parents show higher credit scores and lower credit card debts as adults.

Interestingly, parental socialization—that is, having parents who taught

how to budget and encouraged saving—seems to be as important as nan-

cial knowledge in determining nancial planning (Jorgensen and Savla

2010). Serido et al. (2010) also nd that explicit parent–child socializa-

tion helps to develop sound nancial behavior more than parental social

status. Grohmann, Kouwenberg, and Menkhoff (2015) provide a general

framework to link childhood experiences within family, school, and work

to nancial literacy, numeracy, and nancial behavior. In line with the

previous studies, they also nd that nancial socialization by parents is

positively related to nancial literacy.

In this paper, we look at one possible way to help children to acquire

a basic familiarity with decisions involving money, i.e., the practice

of “pocket money.” More specically, we test whether the children’s

habit of managing a little money—received more or less regularly by

parents/grandparents—is related to the achievement of a greater ability to

cope with nancial matters later on in life. The basic idea is that the habit of

properly managing some pocket money could generate a familiarity with

“good” lifelong nancial practices, such as budgeting.

Using Dutch data, we provide sound evidence of a positive rela-

tion between receiving an allowance during childhood and the level of

(self-assessed) nancial knowledge as adult: individuals who are used to

receive an allowance are also more knowledgeable in adulthood. We also

provide evidence that receiving an allowance in childhood is associated

with a better understanding of ination.

This eld of research is quite novel, as the previous literature has con-

centrated on the effects of (well-structured) nancial education programs