“Money Learning” – Start Early for Financial Health

By Melanie Wells


“We’d rather talk to our kids about sex than about money,” was the quip with which Dr. Melissa Donohue, Founder and Principal of Financial Nutrition, greeted her audience. As the chuckles died down, she reassured them that “what I love about financial education is that it’s so attainable,” likening it to learning to “take care of one’s health.”

Rather than avoid the topic, said Dr. Donohue, parents best serve kids if they initiate clear, direct conversations about money, and the earlier the better. “Money learning is behavior based as well as fact based,” she said, acknowledging the anxiety parents may feel about plunging into what is often – especially among the well-to-do – an emotionally loaded topic. In a presentation blending facts, emotional concerns and sensible advice, Dr. Donohue gave the parents a road map for educating their children financially – and effectively.

“Many parents dread talking to their children about money,” acknowledged Dr. Donohue. She emphasized three compelling reasons for pushing past the discomfort to do so. Why does “money understanding” matter?

  • It helps ensure financial security, health, happiness and opportunity;
  • It reflects one’s value system;
  • It prepares kids to navigate a financial landscape containing “increasingly complex instruments.”

Kids growing up now face a world shaped by a “financial crisis evolution;” people have greater responsibility for their own retirement and the wild market gyration of 2008 is “no longer a one-off” (it could happen again).

THE FACTS – Data from FINRA (Investor Education Foundation National Financial Capability Study) showed, said Dr. Donohue, that the millennial generation (young adults born 1978-1994) is struggling financially, and shows low levels of financial literacy. And a Charles Schwab 2011 survey on teens and money found that 86% of teenagers would prefer to learn money management in a class before making mistakes in the “real world.”

Stressing how complicated money learning is, Dr. Donohue noted that financial education is not just mastering “a system of exchange;” rather, money “means a lot of things – it can mean knowledge, behavior, values, and communication.”

Knowledge: the “nuts and bolts” facts;
Behavior: as with nutrition, we learn what we “should eat” but may not choose wisely;
Values: money views in one’s family transmit values, and these must be communicated.

Financial education, said Dr. Donohue, may begin at home with three simple concepts: Wants vs. Needs, Goal Setting, and Saving.

Start in the elementary school years, but let the concepts grow increasingly complex as children move through high school, college and into young adulthood. In age appropriate ways, parents should help their children grasp related skills:

Wants vs. Needs – Learn to weigh and make choices (You can’t have EVERYTHING.”)

  • Your elementary school daughter wants a new backpack. Ask her how many she has. If she already has one, ask how many she really NEEDS.
  • In high school and college, use the same principle, but now it can be tied to allowances and part time income, which need to be budgeted.

Goal setting – Learn to delay gratification (the ability to delay gratification is thought to directly correlate to success in life.)

  • The child who wanted the backpack may decide to save her allowance to buy it.
  • The high school student may take a part-time job to save for college.
  • The college student may pursue a major leading to a potentially lucrative career.
  • Young adults should learn to negotiate salaries – and not just accept what’s on offer immediately.

Saving – Learn to save early; later, learn to invest.

  • Children can be encouraged to save allowance for goals they have set.
  • High school students can be guided to save for college.
  • College students should learn to manage their college loan debt service and save to be able to repay debt.
  • Young adults should learn to “save for the future,” which means learning to invest, beginning with their first jobs. Your adult child should start investing in a 401(K) or other retirement fund as soon as possible to take advantage of the power of compounding.

BEHAVIOR – Dr. Donohue noted the value of teaching your child experientially. You can teach her about negotiation by engaging in it. For example, if her allowance doesn’t cover a coveted item, offer to lend her the money – and establish an interest rate. This teaches not only that it costs to borrow, but also what happens when there isn’t anyone around to just “take care of it on the credit card.”

Similarly, investing learning can be made experiential. Let your child see you invest a small amount of stock – for him, or for yourself. Watch it together. Chart it out – learn how to follow what happens to an investment.


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Emotional traps lurk around money matters. Parents dread hearing, “Are we rich?” Saying that “we’re rich in love for each other,” avoids answering what the child wants to know. A better response would be, “Why do you ask?” Usually at the “heart of the matter is insecurity,” said Dr. Donohue, with issues ranging from comparison with one’s friends, to pressure from the media, to anxiety about the future. If you begin by finding out why your child is asking, you’ll be guided to choose a good response. “Talk about the economy,” suggested Dr. Donohue, and share articles on financial matters.

COMMUNICATION: Dr. Donohue told parents there are two kinds – verbal and non-verbal. “They’re always watching,” she noted, and modeling is paramount. “You can tell them” anything at all, but “they watch, and do what you do;” thus, “your spending habits are transferred” to them. Dr. Donohue advised a proactive stance – communicate with intent. Talk about investments, financial goals, career advice and philanthropy. During discussions, your values will be communicated along with your actions.

Partner with your child’s school, too, advised Dr. Donohue. Find out whether the school offers financial learning, and if not, ask about it. Time is short in kids’ packed days, with homework and extra-curriculars on top of a full class load, but a structured financial education can help children achieve financial literacy, which is of greater use than mere financial capability. Financial competence may mean your child will learn how to get a mortgage; financial literacy gives him a stronger conceptual foundation and a more sophisticated grasp of finance throughout adulthood.

Dr. Donohue offered a few more practical takeaways:

  • Give your child cash. She will treat cash with more care than plastic.
  • Take out old checkbooks to use as a teaching tool – he can learn online banking later.
  • Discuss data protection – have conversations about identity theft.
  • Teach your kids about taxes – how they’re deducted, what they’re used for. If she disagrees with the uses, discuss why many people choose political involvement and activism.

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Dr. Donohue advised parents to start these conversations early. Communication is a key component in financial education at home. Money “matters,” in more ways than just the practical. Through your financial teaching – in lessons both experiential and conceptual – your child hears your values and learns your priorities. Help him or her to develop these fully for his own life, from youth to adulthood.


Bio: Dr. Melissa Donohue is the Founder and Principal of Financial Nutrition, Inc. She has experience with financial education instruction, curriculum and content development. Dr. Donohue has taught financial education to students from Spence, Brearley, Chapin, and Nightingale-Bamford. Dr. Donohue has a Masters degree from the School of International and Public Affairs at Columbia University with a specialization in International Banking and Finance, and a Doctoral degree in Education from the University of Massachusetts, Amherst that includes dissertation research on women’s financial literacy. For more information and to view Dr. Donohue’s blog, visit financialnutrition.com


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