10 minutes and every ‘day’ they’d be given an additional 10 tokens. So, for instance, after the first hour – ‘6 days’ – if they’d spent none of the tokens in the meantime, they would have ‘saved’ 90 tokens.
Next, the children were shown around a set of rooms. Some activities were free. Others cost tokens. In the library, there was no charge for reading books, but they had to pay if they wanted to watch a film. In the room next door, video games attracted a charge, as did items in the café and the sweetshop, but borrowing pencils and paper for drawing was free. The decisions the children made about their spending would affect their activity in the final room – the toyshop – where they could buy real toys to take home, but only if a child still had 70 tokens left. You can see the excruciating calculations the children had to make. In order to get a toy in the toyshop, they would have to spend time, but very little money in the different rooms. It would mean forgoing computer games, food, drink and sweets for 40 minutes in order to accumulate those 70 tokens. They would be left with nothing to do but boring old reading or drawing.
Children tend to take experiments like this very seriously, but find them hard. Part of the reason is that for children such tests involve real sacrifice. This was demonstrated by Walter Mischel, the psychologist who invented the famous marshmallow test.15 As you may know, the marshmallow test offers children the choice between eating one marshmallow straight away or waiting 10 minutes to get two. An adult taking part would know they could show restraint during the test because they could always buy a whole bagful of marshmallows on the way home if they felt like it. The small child has no such get-out.
The children in the ‘play economy’ faced the same struggles, and very few had the willpower to save up enough tokens for a toy, however much they wanted it. They had already learnt that savings were a good thing, but when faced with more immediate temptations in the other rooms, they couldn’t restrain themselves. By the end of the experiment, only half the children had saved enough tokens for a toy and a quarter hadn’t saved any tokens at all. For those who worked out quite early on they were going to be a long way short of being able to ‘buy’ the toy, their overall behaviour was actually very rational. After all, they couldn’t take their play savings out of the play economy. Certainly they felt their ‘savings’ were money lost, rather than something useful.
BANKS, SHOPKEEPERS, ROBBERS AND TOOTH FAIRIES
Back in the 1980s, the influential Italian psychologists Anna Berti and Anna Bombi followed a group of three- to eight-year-olds in order to track how their ideas about money changed as they grew up.
What the two psychologists found was that children of about four or five usually had no idea where money came from. They had little concept of paid work and tended to assume that everybody was given money, often by the bank.16 It was an assumption a group of five- and six-year-olds also made when questioned by New Zealand’s ‘fourth most popular musical comedy band’ Flight of the Conchords. The duo was looking for ideas for lyrics for a song to raise money for sick children for Red Nose Day in 2012. They asked a group of children in a school where money comes from. ‘Banks,’ came the answer. And where do the banks get the money? ‘The prime minister.’ And where does the prime minister get the money? ‘The Queen.’ And where does she get the money? ‘Banks.’
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
