Why we should teach kids about money at an early age
Can money buy happiness? According to renowned Harvard University psychologist Professor Daniel Gilbert, yes, but only if you know how to spend it correctly.

Despite the common belief that money can’t buy happiness, longitudinal research data shows that it practically does, especially if handled in a way that contributes to personal well-being.

Money provides us with the access to things we value, such as basic needs, comfort, pleasant experiences and the ability to care for others.

When you have enough money, you are better able to be financially generous. Giving is considered as double happiness, where the receiver can reflect on gratitude, and the giver benefits from the act of generosity.

You may also spend money on engaging in experiences that mean a lot to you. For example, if you are given two options; to either spend a fixed given amount of money on materials or a pleasant experience, which would you choose?

Research show that majority of people would choose pleasant experience, such as attending a concert over buying paraphernalia of their favourite performers. Research also show that the happiness from buying items does not last as long as buying pleasant experiences because memories of experiences last longer.

We also know from mental health studies that financial health is a strong determinant of mental health and sense of subjective well-being. This is because the top two factors for psychological distress that are seen in people who are suicidal are relationship problems and financial crises.

So, apart from having healthy relationships with family and friends, financial stability is also a significant buffer against psychological problems.

Money and health issues

Research data shows that economic hardships and perceived low efficacy in managing money are associated with various health issues including mental health. Poor financial literacy, or the inability to feel competent in managing financial security is also associated with various noncommunicable diseases such as heart diseases and chronic pain. People have been found to also experience trauma more easily as a result of poor financial health.

Basically, financial stress contributes to poor health, and financial fitness contributes to good health.

This is confirmed by a 2020 study conducted by Drexel University researcher Emily Brown Weida and her colleagues, which suggested that it is not how much money you have that contributes to a sense of well-being but how competent you are in earning and managing money.

As such, these researchers say financial health is a significant part of overall health of a family, subsequently calling for better literacy about managing money as part of public health initiatives.

That said, it is important for parents to teach children about the value of money, as well as the skills to earn, save and invest towards financial independence and stability as early as possible.

The cost of living is ever increasing and we live in a country that has a relatively weak currency. On top of that, geopolitics affect global economy and the prices of goods.

Shocking reality

Like any form of healthy habits such as regular exercise, adequate sleep and balanced nutrition, skill acquisition and practice should start as early as the child can learn. Financial health is no different. You don’t want to leave it too late.

As an academic at a private university, I see many affluent students get monthly pocket money that far exceeds their future starting salary. These students graduate into a reality that will shock them when they realise that their salaries do not provide enough earnings to maintain their current lifestyle.

Some end up rejecting jobs that do not meet their expected starting salary and remain jobless for longer than expected. Such a situation brings up distress in the individuals as well as their parents.

Even before graduating, university students’ main complaints include concerns about cost of living and the opportunities to find part-time work to supplement their monthly pocket money. This comes from our annual survey of students’ sentiments about studying at university. Leaving the learning about financial literacy this late is detrimental to a young adult’s well-being.

So when is a good time to teach children about money? I would suggest as soon as they can identify differences between symbols. When they are two or three, you may introduce them to coins and banknotes to tell them apart. We are lucky that our Malaysian banknotes are in different colours according to value, and coins are of different sizes. This makes introducing them to toddlers a bit easier.

Once children are familiar with the currency, you may start exchanging play money for items they want in a play setting. They may not understand the values yet but they can get used to the function of money.

Once they are old enough to count basic numbers, children can be guided to buy simple items when you go to the shops or supermarket. The training goes on until they know how to independently buy things with money.

The value of money

However, knowing how to buy things does not mean that children are financially literate. How do we teach financial literacy to children?

Firstly, they need to understand the value of money and the behaviours that come with earning money and saving it. Monitoring money and being skilful about anticipating its future use, as well as prioritising needs over wants are all important skills to be developed gradually.

Learning how to delay gratification is one part of training that is key to reducing likelihood of impulsive spending. It is useful to teach children about consequences of their actions around money. As they grow older, it will be helpful for them to learn how to be independent with money and investment before they become adults who are accountable for their own decisions about finances.

It is very important that the whole family understands that money has a significant influence over their overall well-being. They must also know why it’s important to be financially fit.

To that end, I think financial literacy is a public health issue and it is the society’s collective responsibility to teach children about spending and saving skills so when these kids grow up, they are equipped with the ability to manage their finances and thrive, instead of being bogged down by money issues.

Dr Alvin Ng Lai Oon is a professor at the Department of Psychology, School of Medical and Life Sciences, Sunway University. He is a clinical psychologist by training and is passionate in promoting mental health literacy in the community.
Children
Being savvy with money contributes to better well-being, which is why children should be taught financial literacy.