Kids who grow up in economically challenged households face many challenges—throughout childhood and beyond, including financial hurdles. Childhood poverty is associated with depression, anxiety, anger, lower levels of self-control and higher stress—but that doesn't mean those individuals are predestined for a negative financial future. 

Conversely, you might think that children from economically advantaged families are inherently headed for better financial outcomes, but that's not necessarily so. While financial resources can provide opportunities and experiences not available to kids from lower-income families, affluence in childhood is far from a guarantee of financial benefits in adulthood (in fact, it can be detrimental, as we'll get into a bit later). It turns out, parenting style, rather than family finances, actually has an enormous impact on a child's future financial outcomes.

An image of a floating stack of $100 bills.

But first things first: All parenting styles are a combination of responsiveness and demands/expectations, and there are four typically recognized styles of parenting.

This style is characterized by an overabundance of responsiveness, also called sensitivity, coupled with low demands.

This one is characterized by low demands and low responsiveness.

This type of parent is highly demanding, with low responsiveness.

This style provides a balanced amount of demands and responsiveness. In simple terms: love and limits.

Which is best?

Sensitive parenting has been shown to be the most effective parenting style. There's positive engagement, interaction, and responsiveness—as well as expectations. These are parents who demonstrate warmth and show consistent interest in their kids. This helps children to develop strong emotional regulation and secure attachment—which leads to more stable lives, including financial stability. A new study reveals that sensitive-style parenting results in cost savings to families as well as future financial benefits as children mature into adulthood. 

One of the study's authors, child and adolescent psychiatrist Stephen Scott, explains that sensitive parenting leads to children who get into less trouble and are less destructive. This, in turn, is a financial benefit to the family; when kids consistently have problems at school or with the law, it can lead to parents needing to pay for damage, fines, or even reduce their work hours or quit their job to provide greater supervision.

But what about poverty?

Interestingly, "sensitive" parenting can serve as an important resource or protective factor for children who face the risks associated with poverty. Professor Scott found that the beneficial financial effects of sensitive parenting carry over to other family members and even whole communities.

While parents live under financial stress, they may have less patience or time to focus on responsive parenting. Of course, there are parents who can and do engage in sensitive parenting even despite these considerable challenges, and according to the study, it's possible that economically disadvantaged children may reap greater benefits from sensitive parenting than wealthier kids.

Scott's research also found that when parents of disadvantaged children were offered parenting classes, they were able to learn sensitive parenting techniques. Over time, they continued to put their new habits into practice—and their improved interactions made a positive difference. In turn, better parenting quality is a strong predictor of occupational, health, and behavioral outcomes in a child's eventual adulthood—all of which impact financial stability.

More money, more problems?

When looking at indulgent/permissive parenting, which can be common among affluent families (ie, relying on rewards and bribery in hopes of attaining "good" child behavior), it's clear it can have a negative impact on the family's financial outcomes. When parents don't hold their kids accountable, a sense of entitlement can be the result. If there are no (age and developmentally appropriate) demands or expectations, a sense of responsibility or ambition won't develop. When you become conditioned to someone else always fixing your problems and cleaning up your mistakes, you don't develop the ability to handle adversity on your own.

This can negatively impact a child's eventual financial stability as an adult, too, because these individuals can develop poor coping skills, low self-control, substance abuse and/or legal problems, and a lack of healthy relationships. Scott explains that "a child from a well-off family can have everything they require materially, but if they did not receive emotionally sensitive care, they did less well on a range of outcomes."

There's even a name for kids from these types of situations; it's known colloquially as "affluenza." The term emerged when teenager Ethan Couch killed four people and injured two others while driving drunk. "Affluenza" was used as his legal defense; the assertion was essentially that, because of his financial privilege, he grew up with no boundaries and couldn't discern right from wrong. 

So, stricter is better?

Sure, but only in balance. Authoritarian rather than sensitive parenting can lead to kids having poor self-esteem—as well as difficulty thinking on their own or making their own decisions. They also tend to rebel against authority figures when they're older. The potential for negative financial impact from authoritarian parenting styles is not difficult to foresee; poor self-esteem and inability to trust your own judgement could be an impediment to your own personal financial success, while a rebellious personality could drive work or legal issues.

Bottom line: Sensitive parenting leads to many benefits (including financial) later in a child’s life.

As children who have been parented sensitively grow into adolescence and adulthood, they have better interpersonal skills, are more trusting, have healthier relationships, and exhibit good socialization skills, all of which contribute to better financial outcomes.

Why and how? For one thing, these individuals are better at seeking jobs and keeping them. They're more resilient if they end up losing a job—or face any other challenges or setbacks. All of these factors and personality traits contribute to better eventual financial success for a child who was parented sensitively. After all, we already knew that parenting quality predicts a child' health, behavioral, and occupational outcomes in adulthood—it's no surprise that their finances follow.


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