Experiments show how a spending-saving schism exists even among young children
Just as people have different investment risk appetites, they can also be divided according to their inclination to spend or save. There’s a scale of financial predilections — with adults who feel distressed when spending money on one end, and those who spend money excessively on the other — that academics have created and used to successfully predict people’s credit scores and long-term savings, regardless of income.
But according to a recent study published in the Journal of Behavioral Decision Making, these tendencies don’t just exist in adults. “Young children experience a range of feelings related to spending and saving, and those feelings actually affect what they do with their own money,” said University of Michigan researcher and study co-author Craig Smith.
The research sought to determine whether children as young as five might manifest the same miserly or free-spending behaviours that have previously been pinpointed in adults, reported the Wall Street Journal. Smith, along with co-authors Scott Rick, Susan Gelman, and Margaret Echelbarger, modified the scale for children and found more than 200 children ages 5 to 10 to participate in the study.
In one phase, the children were shown seven slides, each of which displayed two toy characters. One might say “I like saving money,” while the other would say “I like buying new things.” Each child was asked to point to the one that was most similar to them. Based on the responses, the researchers placed the children along the tightwad-spendthrift spectrum.
Next, the children were given a dollar and asked if they would rather buy a bag of toys or keep the dollar and take it home. Around 51% opted to buy a bag of toys; those classified as spendthrifts were more likely to buy the toys, while the tightwads were more prone to keep their dollar.
“The scale did a pretty good job predicting what would happen when the children had a dollar in their hands,” Smith said. The researchers are doing a follow-up study on the origins of these spending and saving habits develop, looking into possible factors such as impulsivity, numerical fluency, and possible parental influence.
The Journal noted that the line of research could have implications for financial education, according to Smith. Children could be taught specific lessons based on their location on the spectrum: spendthrifts could benefit from learning about opportunity cost and overspending, while parents of tight-fisted tots might teach them why it’s important to buy what you need.
