Don't Tell Your Kids

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Most parents have difficulty deciding how much of the “bad stuff” (war, death, etc.) they should tell their kids about, or when they’re old enough to hear it.

New research from Ulrike Malmendier of the University of California and Stefan Nagel of Stanford identifies another kid-sensitive subject parents might want to avoid for a while: the financial crisis.

According to this Economist article on their research, Nagel and Malmendier found that “people’s eventual appetite for risk is affected by the economic environment during their childhood, well before financial matters could possibly have been of interest.”

In short, what you tell your kids about the current financial crisis — or what they discover on their own — could affect what financial choices they make throughout their lives.

But grown-ups aren’t immune either. The study found, for instance, that “people who had experienced lower stock-market returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better,” reports the Economist.

And so, to readers of this blog with children: have you discussed the financial crisis with them, and if so, how did they respond?

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  1. Celeste says:

    This idea of teaching your children to be savers and not spenders is great, and I agree it’s a lesson that needs to be taught. However, how many kids are actually interested in hearing about the world-wide financial issues (or world issues for that matter)? Based off my childhood experience and those of my friends, I would say not many. A conversation about the world financial crisis would have bored me to tears. Most kids would much rather be playing on their Nintendo Wii rather than talk about how the world’s banks are failing.

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  2. katieb says:

    There’s actually quite a bit of research in human factors (psychology or industrial engineering depending on your alma mater) dealing with man’s ability to assess risk, specifically how humans model risk. It’s well known we put a lot of weigh on personal experience regardless of having access to actual numbers. A doctor who has come across a rare disease is more likely to consider it in another patient even if that disease’s symptoms are the same as a far more common disease. I know the daughter of a fire fighter whose personal assessment of the chance a potentially risky behavior will lead to a fire is skewed to the point that she acts as if it’s more likely that that behavior will cause a fire than not (not that being cautious is bad). The opposite is true too- thus the phrase “I never thought it would happen to me” used on so many public service announcements.

    One of the key factors here is that while exposure definitely effects our perception of risk, personal experience has a much larger influence on perceived risk levels than anything you can tell someone. That doesn’t mean you shouldn’t be careful about what you tell you kids, but chances are how they, their family, and their friends’ lifestyles are actually affected by the change will probably have a much larger effect.

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  3. sarah K. says:

    We have three kids ages 6,6 and 9 and we have discussed the financial crisis extensively with them. The tool that has worked the best, surprisingly, is the American girl doll named “Kit,” who my daughter owns and loves. Because all our children have seen the recent movie based on the book about Kit they know about the Great Depression and they know what a foreclosure is. It may be Hollywood’s version, but they’ve learned from it. They understand that our nation is currently in a recession, and although we are personally fortunate to not be facing job losses or foreclosure right now, our kids know that other families are. I think they have some understanding of how lucky they are, and we’re hopeful that this sticks with them into and through adulthood, and that their financial habits will be guided by it.

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  4. Tony says:

    “The study found, for instance, that “people who had experienced lower stock-market returns over the course of their lives put a smaller fraction of their money into stocks than people who had lived, on average, in times when stocks had done better,” reports the Economist.”

    And in other news, people who had been crippled in car accidents were less likely to own cars.

    Was that report sponsored by the Department of the Bleeding Obvious and No Brainer U?

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  5. Lizette says:

    I was a kid who understood economics. Don’t underestimate your kids!

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