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Education: Is Money Bad for Your Character?

Research tells us that it is important for children to take on financial responsibilities; one franc in weekly pocket money per school grade is enough; and shopping makes us happy – even when we don't buy anything.

I have no regrets. I earned one franc for a young guinea pig, two if it was full-grown. The baker from the next village stopped by periodically to buy guinea pigs from me, which he then sold to another buyer. And I knew who that was – more or less.

No, I don't regret that when I was eight years old, I earned some extra money and learned the same lessons experts recommend teaching to children today. Whether they are rich or poor, children need to learn that money doesn't grow on trees. You have to work for it. I had to feed the guinea pigs, clean their cages, breed some and sell others, then put some of my earnings back into food for the guinea pigs. Eventually I earned a profit. My hourly wage amounted to roughly 10 centimes.

The Role of Money

More importantly, I learned the basics of managing money. As the German Youth Institute has pointed out, pocket money is also a good way of teaching children, over time, how to handle money. Education includes learning about money. "You can't live without it," says Moritz Daum, a developmental psychologist in Zurich. But handling money involves certain risks. From a parenting perspective, money is not very different from drugs (prescription or otherwise), cars, electronics or kitchen appliances. Any of them may be dangerous when not used properly.

The danger of money lies in its immediate and often irresistible appeal. Money can have incredibly varied effects: It can lift your spirits, or it can make you nervous and hyperactive. It can also trigger envy. Because of its seductive power and potential for addiction, it can ruin a person's character, if measured out inappropriately. At least that's what people say.

Requests Must Wait until They Can Be Paid For

Daum, a professor in the Psychology Department at the University of Zurich, doesn't believe that money in itself has a negative effect on character. However, he also points out that money is "so abstract" that it is difficult for young children to comprehend. He therefore recommends gradually allowing children to use money, starting at an early age. They should be given pocket money for which they are responsible. This teaches them that money doesn't grow on trees, and that it shouldn't be left lying around. They also learn that money can satisfy needs – but that you can't get what you want until you're able to pay for it.

Pocket Money as a Tool for Learning

Unlike the play money used in a game like Monopoly, pocket money is an effective way to teach children about money at different stages of their development. They learn, for example, that there are tangible consequences when money runs out before the end of the month. The German sociologist Christine Feil, author of several books about the commercialization of childhood, says that pocket money should not be viewed as compensation for work, or charity, but rather as a resource that the child can use independently, without parental control.

"Talk about the Real Cost of Living"

Authority figures can provide guidance, however. They determine the amount – and the amount helps the child learn about value. "You should talk to adolescents about the cost of living," says Daum. "Talk to them about rent, car expenses, the cost of food, insurance and taxes, as well as about things they may have wanted for a long time, but can't afford to buy." As he points out, "If young people are not taught about the actual costs of living, then they will dream of staying in hotels, earning executive salaries and winning the lottery. They will focus, unrealistically, on the things they would like to buy."

Four Swiss Francs per Week in the Fourth Grade

How much pocket money children need depends on where they live and their culture. Budgetberatung Schweiz, a Swiss organization that provides advice on handling money issues, recommends, as a rule of thumb, one franc per school grade per week. In other words, a fourth grader would receive four francs every week. Later on, pocket money should be paid out monthly, with the amount increasing to between 50 and 80 francs by the 11th grade.

Children who are responsible for their own purchases think twice before buying expensive brand-name goods, says Daum. Responsibility teaches them to be careful. "They take better care of their bicycles and are less likely to lose books. They keep their mobile phones in working order longer, buy a second-hand snowboard rather than a new one, and come to appreciate a sandwich from home."

Wages for Young People Are More than Pocket Money

This perspective is in keeping with "Jugendlohn," literally "wages for young people," an idea that is currently the subject of much discussion. Family therapist Urs Abt developed this model in the 1970s, and it is endorsed by many debt-prevention agencies. "Jugendlohn" is more than pocket money. The idea is that beginning at roughly the age of 12, children should be given a fixed amount that they are expected to manage and use to cover some of their basic expenses: clothing, haircuts, bicycle, mobile phone, sports. They also receive a certain amount to spend on optional items.

Shopping Makes You Happy

This allows them to go shopping with friends, for example – a social activity that makes people happy, as neuroscientists have shown. It is important to note, however, that the brain produces pleasure hormones primarily when anticipating a purchase. Researchers at Brunel University in the UK have found that dopamine – a pleasure hormone – is released even when people are window shopping. So while the amount of money that is available has an effect on someone's ability to make purchases, it doesn't necessarily have an impact on happiness.

Discipline Can Be Learned

Since Paracelsus, we have known that it is the dose that makes the poison. In the case of money, also a psychotropic drug, the situation is more complicated. According to Austrian economist Matthias Sutter, it is important to turn strategies into a routine. His "experimental economic research" has confirmed that educational measures have long-term benefits. University students who kept an account of their finances over a period of several months spent less money than their peers. What's more, they continued to save even after that period. Sutter's conclusion: Discipline can be learned.

Discipline, ultimately, is what determines whether money ruins a person's character or not – and this is true no matter how wealthy the parents are. "Even rich kids need to stay in touch with reality," says developmental psychologist Daum. If they succeed in doing that, they will not be spoiled by money.

Poverty Is More Harmful than Wealth

Whether or not a lot of money is basically good for children is hard to say. Wealthy people can save, too. However, empirical evidence shows that poverty is more likely than wealth to be harmful. In 2012, a study in the United States found that low parental income when children are young is associated with worse health later on. As young adults, study participants were more likely to develop high blood pressure and arthritis. Studies showed deficits in their cognitive development as a result of childhood poverty. Daum also points out that severely socially disadvantaged children often have a much smaller vocabulary than children who are not disadvantaged.

A longitudinal study of 2,300 women revealed that the poorest mothers were most likely to show symptoms of anxiety disorder. They were plagued by worry, insomnia and restlessness. The study's director, psychiatrist Judith Baer from Rutgers University in New Jersey, believes that such anxiety disorders are "a reaction to severe environmental deficits."

Daum also believes that children are adversely affected when their parents are constantly worried about finding the money to cover their day-to-day expenses: "In that respect, poverty can reduce the amount of attention parents are able to give their children. And the parents' worries can also be transmitted to their children."

Wealth Can Undermine Dreams

Can a wealthy family environment have negative effects, too? More research has been done on poverty than on wealth, says Daum. But of course there are (less common) cases of extremely wealthy families spoiling their children through excess. When children are aware that they have everything, it is difficult for them to dream. The bottom line is that those who have everything stop striving for success. "But the experience of being a worker among workers is something that privileged children need as well," says Daum. "It is something they yearn for."

A 13-Year-Old with Debts

My flourishing guinea pig business didn't make me rich. And when I turned 13 I started to accumulate debts – I wanted a social life. But I seem to have had some inkling that debts aren't fundamentally a bad thing – after all, they stimulate the economy. So I didn't worry too much, but I didn't overdo it, either.

Running a guinea pig business taught me that you can earn money if you do real work. However, my early financial education wasn't necessarily beneficial to the little creatures in my care. The baker from the next village sold my guinea pigs to the pharmaceutical industry, and they ended up in test laboratories.

But at least my heartlessness as a young boy helped me to become a responsible capitalist.

Urs Willmann is a science journalist for the newspaper "Die Zeit".