Do Kids Have Emotional Responses to Spending?

A new University of Michigan study says yes – and that these reactions actually impact children's financial decision-making.

“Money doesn’t grow on trees.” You heard it as kids and you likely tell your children the same thing. Still, people spend – even if it’s money they don’t have. After all, the U.S. debt reached $12.96 trillion in 2017, according to NerdWallet.

Emotions, it turns out, play a role in how people spend and how likely they are to save, says Craig Smith, a research investigator at the University of Michigan Center for Human Growth and Development in Ann Arbor.

“Some adults fit into this category of what you call spendthrifts,” Smith says, and don’t have an emotional response to spending. “Tightwads,” though, find spending painful. “Sometimes they don’t actually spend money when they need to.”

The same goes for kids, a recent U-M study found. In fact, children as young as 5 experience emotional responses to spending, which in turn affect their financial decisions.

Save a dollar, spend a dollar

Back in 2008, Washington University tracked adults’ emotional responses to spending with the “spendthrift-tightwad scale.” Other studies have looked into kids’ understanding of money. However, little was known about kids’ emotional responses to spending – until now.

“We know that other things as well can impact the way we decide to spend and save,” Smith – who was lead researcher of the new study – says, but emotional responses play a role. The researchers wondered if they could find this in kids.

So they asked children ages 5-10 to look at two different characters who said things like, “Saving money makes me feel good” and “Spending money makes me feel good.” Kids then told researchers which character looked more like them.

In addition to asking kids a series of questions, researchers spoke to parents about their children’s spending and saving habits.

“We asked parents, ‘What do your kids do when they get money?'” Smith says. Kids and parents ended up reporting similarly.

Next, kids were shown two bags of “fun stuff,” the study notes, including pencils, balls and a small ring-toss game. They picked which one they liked best and rated it on a 5-point scale. Finally, they were given a dollar to save or spend on the goodies. Children were more likely to spend if they leaned that way during the question-answer process, Smith says.

“Kids that tended to be more like spendthrifts who didn’t necessarily love what we were selling were more likely to buy it.”

Money talk

Smith, a dad of two sons ages 13 and 15, is no stranger to conversations about spending and saving. He suggests having kids start handling money early on – around 5 years, which is also a common age to start allowances.

“Kids who have more of that practice tend to do better with saving and spending when they hit adolescence and adulthood.”

For the younger set, make money visible in some way. Chart it online through your bank (PNC offers this option for kids) or put it in a jar so your child can see what they’re saving. The “save, share and spend” system is popular, too. Kids split their “income” among three envelopes and can, for example, save half, donate 10 percent and spend the rest.

When it comes to older kids, keep that dialogue going. “I talk a lot about my own spending or things that they want or they are asking for,” Smith says. One son wants to take a trip with his jazz band, for example, but it’s costly. So dad told him that he and mom will pay for a portion, but it’s up to his son to cover the rest.

Kids need to realize that it takes time saving and planning when it comes to getting certain things or taking trips, Smith says.

“Give those kids insight about their behavior,” he adds. If you have a spendy child, you might consider saying this: “It seems like you feel bad when you get money and spend it right away.” Talk to that child about his spending habits and see if you can work out a way to save a bit more.

The same goes for tightwad kids. “It seems healthy for them to be appropriately frugal,” but if you see a child is really being tight with money early on, talk about balance, Smith suggests.

Say something like, “It’s great that you’re saving, but it seems like sometimes you don’t spend on things that are OK to buy.”

Ultimately, as parents, the goal is to help kids think more critically about spending from early on so they can avoid negative consequences – like being a part of our country’s massive debt – later.


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