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WHEN HUMBLEDOLLAR’S editor was The Wall Street Journal’s longtime personal-finance columnist and his children were little, he often joked that he had a special incentive to see them succeed financially.
“It would be a tad embarrassing,” Jonathan wrote, if his children “grew up to be financial ne’er-do-wells.” For that reason, he used his own home as a laboratory of sorts, testing strategies to help set his children on the right financial path. Ultimately, Jonathan developed a formula that worked well. His children, now in their 30s, are both financially self-sufficient.
It turns out that subsequent academic studies have reached many of the same conclusions Jonathan reached. While nothing is guaranteed, the combination of these four strategies seems to provide an effective formula for raising financially fit kids.
Modeling. What’s the best way to convey money values to children? At first, Jonathan tried explaining key concepts in finance to his children. That, he said, was met with “extravagant yawns.” In the end, Jonathan found it was much more effective to simply model good financial habits, with the hope that his children would learn from his example.
“I’ve spent almost my entire adult life being financially careful,” he has said. “When I worked at The Wall Street Journal and at Citigroup, I brought my breakfast and a Thermos of coffee to the office every day, and occasionally lunch as well.” They also lived in a house “far less expensive” than the family could afford.
The result? Jonathan reports that, “My kids learned from my frugality. They both have very good financial habits. In fact, their financial habits are probably too good.”
This was confirmed in a 2022 academic paper titled “Talk Is Cheap.” The authors found that, “Parent financial modeling was directly associated with financial behaviors and financial satisfaction.” By contrast—just as Jonathan found—lecturing children doesn’t seem to work: “Parent-child financial discussion had zero direct or indirect associations” with children’s financial success.
Experience. Throughout their childhoods, Jonathan looked for opportunities to give his kids hands-on financial experience. At restaurants, he would make this offer: If his children, Hannah and Henry, wanted to order a soda—which might cost $2 or $3—they were welcome to. But if they instead chose water, Jonathan would present them with a dollar bill on the spot.
Another strategy: Jonathan helped his children open savings accounts, into which he then deposited their allowance. “Henry and Hannah got monthly statements in the mail, and they could view their accounts online. And, best of all, the accounts came with a no-fee cash machine card.”
Earlier, Jonathan had tried teaching his children about more sophisticated financial concepts such as mutual funds, even funding small accounts for each child and setting up an investment competition. All that turned out to be too abstract, though. Giving his children the opportunity to manage their own savings account—and to make choices—turned out to be the most effective approach. The result “was astonishing,” Jonathan said, as he witnessed his kids start to make thoughtful spending decisions.
Academic studies have confirmed this finding as well. The “Talk Is Cheap” authors found that the effects of modeling financial behavior were amplified when children were given the opportunity to practice the good habits they were observing.
An even more powerful finding: Good financial habits carry over into other areas of life: “Providing children with their own experiences managing money leads to higher financial self-efficacy throughout their life, which correlates with higher life satisfaction [and] less depression and anxiety….”
Starting early. Surprising as it might sound, Jonathan advocates getting kids started thinking about budgeting as early as five years old. Even when kids are little, he says, give them a “toy-and-candy allowance.” For teenagers, this could take the form of a clothing or an entertainment budget. This is what Jonathan did for his two children, and he found it helped them start thinking about financial choices.
A 2013 University of Cambridge study confirmed that this is the right idea. Children start forming financial habits much earlier than we might expect. “The age window is zero to seven,” according to Guy Shone, one of the researchers associated with the study, adding that, “It’s very hard to reverse those habits later in life.”
Can children this young really develop financial skills? Yes, the authors argue, as long as the strategies aren’t overly complicated. Letting children make some money mistakes at an early age can also be invaluable if it helps them avoid making more costly mistakes later on.
Discipline. The area that Jonathan found most effective? Helping his children to learn about tradeoffs.
“If your kids are always asking you to buy stuff, their desires will be limitless.” Jonathan described what it was like going with his kids to the supermarket: “Henry happily throws his favorite items into the shopping cart.” But, Jonathan says, “If they are constrained by an allowance, spending has a very real cost, and your kids will be forced to make tough financial choices.”
Most effective, Jonathan found, was to give kids the feeling they were spending their own money. When he was nine, Henry went on a school field trip. Instead of just giving him some spending money, Jonathan added a twist. “I told Henry he could keep any money he didn’t spend.” Jonathan tried this same approach with his daughter, Hannah, and was amazed to see how well it worked.
Helping kids develop this kind of financial discipline is the most powerful predictor of financial fitness later in life. In the New Zealand town of Dunedin, researchers in 1972 started following a group of 1,000 children from birth, regularly checking on their progress. While intelligence, work ethic and family background had some influence on the children’s success, none of those was as important as the level of mental discipline they exhibited during childhood.
The good news: According to the Dunedin study, discipline isn’t just an inborn trait. It can be cultivated by parents, using the 
strategies Jonathan discovered and which academic research has confirmed.
P.S. These stories from the Clements family home can be found in a recently published anthology of Jonathan’s writing, The Best of Jonathan Clements, which was produced by a small group of fellow authors and longtime friends. Proceeds from the book will help fund the Jonathan Clements Getting Going on Savings Initiative. The initiative’s goal is to help teenagers jump-start their financial lives by educating them about the benefits of Roth IRAs, assisting them in opening accounts and, in some cases, providing $1,000 grants to fund their Roths.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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Teaching by example, or Leadership by example are powerful methods. My parents were frugal but beyond saving did not invest. Not all that unusual if there is no spare cash to invest, and with six children there wasn’t. Much of what I learned I had to teach myself, trial and error.
Jonathan’s column at the WSJ was very helpful. I reached out and I once took exception to an article by a syndicated writer in the Chicago Tribune. That led to some correspondence and I became a case study in one of her articles. This was published in a book about Retirement Saving, Investing and Health Care.
One can never begin these lessons too early. Montessori said “The most important period of life is not the age of university studies, but the first one, the period from birth to age six. For that is the time when man’s intelligence itself is being formed.”
Integrating financial management into a child’s life should be easy, but it often is not. Teaching that rewards are to be earned became anathema for a time. I was an assistant soccer coach for a Park District in the 1980s. Some parents would show up and insist that all of the children be acknowledged with awards. I wonder which University drummed that into them? We, as coaches took the position that learning to play well was the reward.
As an employer it became even more interesting as some potential employment candidates wanted to be rewarded for simply showing up. Their position was that to really work would require bonuses, etc. My firm paid above scale, had flexible work hours, generous holiday and vacation benefits as well as profit sharing via a SEP. But that was insufficient for some candidates.
I guess one area I succeeded with the children was preparing them for life. They learned about the value of money and a lot of other things, too. As a parent one can guide and at times manipulate (install guardrails) so the children learn and achieve a desired result. But one was very resistant; I guess there will always be one. It took him a while to really get with the program. He was undisciplined but did get a nuclear engineering degree after abandoning his vision to be a game designer. Today he’s happy, well employed and is in much better financial shape than I was at his age. That’s true for all of the grown children.
Excellent information!
I empathize with fellow readers who wish they knew all this when they were younger. Me too. I did learn fundamentals from my folks, who taught by example, about living within one’s means, being a value oriented consumer and saving. I can use some of the wise ideas shared here by Jonathan, Adam and many other contributors and commenters to assist our adult children and grandchildren. So its never too late to benefit from learning!
I am a firm believer that the “secret sauce” in most of the strategies Jonathan employed with success with his (then young) children can be tied to his focus on experiential learning.
In contrast to traditional education, which tends to focus on memorization and regurgitation of concepts and facts (most of which being soon forgotten), experiential learning during childhood tends to have real staying power. First-hand experience executing a new financial concept tends to embed the germ of an idea into the subconscious. Really good takeaways can conveniently resurface from the cerebral cortex, sometimes decades later. Likewise, the hands-on learning from of financial missteps tied to not adhering to the “rules” also show a similar degree of stickiness.
Jonathan’s new book is a thoughtfully curated anthology of collective wisdom culled from the best of his past WSJ columns. Each column is digestible in about 2-3 pages, making this book an ideal read during my daily treadmill ritual.
Kudos, Jonathan – and many thanks to the army of volunteer editors that helped put this valueable compilation together!
Great Article. I was one of the fortunate ones, and my parents taught by example. Mom had an envelope system for the budget, and I remember her saying, she robbed Peter to pay Paul. Dad did accounting work, so we had a electro mechanical adding machine. Dad also talked about stocks, and it was my job to get the Red Steak newspaper, buy only the one with the Final Market quotes. Also, my 2 brothers and I were highly encouraged to get a bank account at age 10, and to always save some of any gifts or money from my paper route. I was amazed that the bank paid me money, on my money every month! EXAMPLE from my parents taught us a lot.
My parents employed some of these strategies with me and my siblings. My mother was very frugal and that rubbed off on me. I had a toy cash register that you could put change in and keep a running total of the amount. Only after it reached $10 would it open. Then I would take it to the bank and deposit it into my own savings account.
When I turned 12 she told me I was going to get a paper route, I never would have thought of it on my own. I was allowed to spend half of the money I earned, the rest went into savings. I loved watching the balance of my savings account grow.
My dad took me to his broker and I bought one share of stock. It made me feel very adult. None of my friends owned stock. After I turned 16, I always had some kind of part-time job. Summers I would work as many hours as I could. I guess the most important thing they taught me is delayed gratification.
Great article Adam. I also purchased Jonathan’s book.
The article got me thinking about the impact of grandparents giving to grandchildren. It’s easy for grandparents (not us of course) to be less rigorous in our giving.
Another winning Saturday morning blog, Mr Grossman! Bravo and thank you.
And with kids, what my sainted mother always used to say is true: monkey see, monkey do.
I’m reading it right now. Wish I’d had these ideas when my kids were young.
Wish I’d had these ideas when *I* was young.