Is Your Child Economically Literate?

Economic literacy starts here

Source: Gail F. Melson

We live in times of high economic anxiety, driven by inflation, which reached a high of 9.1 percent in July in the U.S. As inflation soars, fears of a wage-price spiral increase, fueling even more anxiety.

Families are increasingly focused on their household economies. For many, nothing is more important than managing what feels like ever-shrinking resources.

Children Live in an Economic World

Economic matters often seem far removed from child development issues, but few topics will engage these future adults more. Moreover, it’s not just a future issue. The economic well-being or distress of a family permeates every experience of childhood.

Beginning in early childhood, children become aware of their family’s social and economic position relative to others. Children, from infancy, are economic consumers and actors. Popular culture saturates children’s media with the lure of the right, best, latest toys, clothes, shoes, videogames, and digital devices.

Any adult who has reached the checkout aisle with a young child knows the siren call of the candy display. “Buy me this” may be one of the most used English language sentences during childhood. From a very early age, children understand that to get that new prized something, some shiny coins or green paper must be handed over.

Studying “Naive Economics” Isn’t Naive

So, it is quite surprising that child development research has been late to the game in terms of studying what children understand about economic issues, how they learn about them, and how they feel about economic hot topics—poverty, income inequality, social mobility, even mundane money management.

How is accurate and inaccurate economic information acquired? What roles do family, teachers, peers, and media play? Importantly, how do children make meaning out of this information? For example, how do they explain why some people are poor, and others have abundant resources? In addition, we need to understand how children feel about economic issues like poverty and income inequality.

Are their emotions engaged? Finally, inequality, mobility, and resource distribution are moral questions. When considering economic issues, do children think about justice and fairness? Hence, our question: Is your child economically literate?

One place to look for answers is in studies of “naïve economics.” This refers to ideas about economic subjects that children develop independently without the benefit of formal training. Like much else in life, children are trying to make sense of what they hear, observe and experience. They come up with their own explanations, often inaccurate or partially true. These gradually give way to reasoning that is more adult-like.

The concept of “naïve economics” is similar to the much more studied “naïve biology,” i.e., ideas about being alive, growing, reproducing, and dying that children hold and that gradually, as they mature and have formal education approximate accurate biological understanding.

Several studies illustrate how “naïve economics” works. For example, one study (Furnham, 2005) asked ten to fifteen-year-olds to explain taxation. What are taxes, why do they exist, and what are they used for? These children surely will be more focused on this subject when they become working adults, but few of even the oldest children could explain the purpose of taxation.

In another study (Smith-Flores, 2021), researchers asked whether children ages four to ten could understand the relationship between demand and price. Central to the concept of inflation, when resources and goods become scarce, there generally is more demand for them, and hence, their price increases. While adults understood this relationship, most of the children in the study did not.

Understanding Poverty

Perhaps no aspect of economics is more critical to our understanding (and action) than poverty. In the U. S., economic inequality has surged to heights not seen since the Great Depression of the 1930s.

As of January 2022, the child poverty rate was 17 percent. Thus, one out of every six children is in poverty. Moreover, children are more likely to be poor than those over 18 years of age. The 2022 U. S. poverty threshold for a family of four is $26,500. The specter of children living in poverty in the wealthiest country on earth takes on more urgency when considering social and economic mobility.

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A 2008 study showed that economic mobility declined sharply in the U.S. after 1980, after rising between 1950 and 1980.

As of 2020, the U.S. ranked 27th, behind Lithuania, South Korea, and Estonia, among 82 countries in the rate of economic mobility. These national rankings do not take into account intra-nation variation in mobility.

In the U.S., economic mobility for African-American, Hispanic, and Native American children is dramatically lower than for white children.

Given such dispiriting findings on upward economic mobility, it is perhaps not surprising that 42 percent of children living in poverty are estimated to remain poor as adults.

Despite the data on actual economic mobility, Americans traditionally have embraced “rags to riches” tales of upward mobility. We are a country, so the thinking goes, where anyone, even the most destitute, can rise to be a millionaire through grit, determination, and hard work. Anyone can get ahead if they just work hard enough.

This reasoning concludes that those who fail to work themselves out of poverty have only themselves to blame. This view is embraced particularly by relatively wealthy adults. There is evidence that wealthy adults are less likely to show empathy toward those less wealthy and are likely to distance themselves geographically and socially from poor people.

One reason may be that wealthy individuals, compared to those less wealthy, are especially likely to hold “essentialist” beliefs about economic success or lack thereof. Such “essentialist” views explain poverty in terms of individual, immutable deficits, such as lack of intelligence or motivation.

Views about poverty, income inequality, and economic mobility are significant as they tend to drive support or lack of support for programmatic action. If poverty stems from essentialist shortcomings, then the thinking goes that social programs are not only unlikely to help but they harm the poor by increasing dependency.

To explore this through the lens of “naïve economics,” Mistry et al. (2016) asked children in kindergarten, first, and second grade about poverty. Why are people poor? What causes them to be poor? Can a poor person change their economic situation? As expected, the youngest children had trouble giving causal explanations. Instead, they said, “A person is poor because they don’t have money.”

Older children did reach for causes but tended to give essentialist explanations. In the Mistry et al. (2016) study, the researchers had teachers incorporate a curriculum on poverty and economic mobility, something quite rare in education. After the five- to seven-week unit, compared to peers in a control group, children who completed the curriculum were less likely to view poverty as a condition that could not change and less likely to blame poor people for their economic situation.

Although this study did not query children older than eight, other research indicates that as children become adolescents, they consider more complex and nuanced reasons for poverty and economic mobility or lack thereof. Specifically, teens begin to recognize societal and structural impediments to economic well-being, such as lack of education or occupational opportunities.

Pressing Questions Remain

Although the field of “naïve economics” is growing, we are left with many questions. What influences children’s ideas about their own and others’ economic life? As the Mistry et al. (3016) study showed, well-designed teaching tools can help children become more engaged and thoughtful on the subject. However, many teachers and school systems shy from discussions of poverty and economic mobility out of concern that such topics will be viewed as political or divisive.

What do parents contribute to children’s knowledge, attitudes, and feelings? Does it matter if parents share information about the family’s economic struggles instead of hiding them from the children? How do economically segregated neighborhoods–the norm in many places–influence how children view their own economic status and their odds of changing it?

We also need to study how mass media, especially social media, influence how children think about poverty, inequality, economic mobility, and related economic issues. The media can distort and harden stereotypes. At the same time, media can be a vehicle for enriching a child’s knowledge and engaging the child’s interests and concerns.

A young citizenry well informed about economic issues and committed to creating a fairer and more just society, with opportunities for all: What could be more important?