You may have seen it before -- two siblings grow up to have radically different financial personalities, from their savings rates and spending habits to their attitudes toward debt. Or maybe one is a financial risk-taker with a portfolio of exotic investments, while the other is content with slow-and-steady rates on savings accounts.
How do you explain these differences? In a recent paper, a group of academic researchers looked at how nature and nurture affect financial behavior. They found that both nature and nurture play a role but that the influence of nurture changes as individuals accumulate experience over time.
The following are some observations on the paper "Nature or Nurture: What Determines Investor Behavior?" by Amir Barnea, Henrik Cronqvist and Stephan Siegel.
Nature and Financial Behavior
The study looked at the financial portfolios of twins. Because Sweden happened to have both a registry of twins and detailed financial information on individuals, the researchers were able to examine portfolios of over 37,000 twins, as well as a pool of non-twins of the same size. They sorted the twins into identical and fraternal categories to account for the degree of genetic similarity and also distinguished between twins raised together and those raised separately to identify differences in experience, or nurture.
The authors compared similarities and differences in portfolios with known shared environmental factors -- i.e., upbringing and personal experiences. They deduced that any unusual degree of similarity in the portfolio behaviors of twins that is not explained by environmental correlations is explainable by genetic factors.
Based on this methodology, the authors concluded that about one-third of portfolio behavior is genetically determined. Perhaps what is most striking is that this genetic factor appears to be lasting, even as each individual acquires a unique set of experiences.
Nurture and Financial Behavior
If nature, or genetics, accounts for one-third of financial behavior, does that mean that nurture plays a dominant role? Not necessarily. The researchers found that upbringing is an important factor in the investment behavior of young people but that its effect is replaced over time by the accumulated life experiences of the individual.
Another way to think of this is that, while your genetic makeup is permanent, your experiences are continually evolving. Childhood experiences are important, but as you age, other experiences become more significant.
Introducing Self-Determination
What does this mean to individuals who want to acquire better financial habits such as raising their savings rates? The study suggests that the die isn't already cast by your genetic makeup and your past experiences. As important as genetics and upbringing are, one of the most encouraging things about this study is the changing influence of experience over time.
In short, people can change their spending patterns, savings rates and investment decisions as they mature. Experience can be a teacher, and it can be a good teacher if you make it your business to improve your financial literacy and examine your decisions rationally.
You can't do anything about your genes, but you can influence your experiences. A little self-determination can help you break out of old habits and reinforce good savings behavior through first-hand practice. Nature and nurture may be powerful influences on financial habits, but self-determination allows you to alter the type of financial nurturing you give yourself over time.
The original article can be found at MoneyRates.com: Nature, Nuture, and Savings Rates
http://www.financemetrics.com/9-habits-that-keeps-you-from-having-money/
I on the other hand had to do chores because I am a girl, and I had to get some sort of job so I wouldn't have to stay home with my jerk brother, and be like him. Most of what made me financially responsible was seeing my mother and brother crash and burn. I know every set of twins has an evil one, and in this article, i would assume a lazy one. I don't mean pure evil, but one kid will always resent the other for being better behaved or getting better grades. Like I know one set of twins where one has a good job, and the other is a drug dealer. Then I know another set when one always got straight A's and made tons of friends, and the other one ditched classes and got into fights. Twins are definitely very different because they normally don't want to be the same, just like I don't want to be like my brother.
Very interesting article. I believe financial knowledge is one of the five critical elements needed to become fully functional adults, and though experience apparently influences and can override genetic propensity and childhood experience deficiencies, I was happy to see that the effects of parental influence were seen to have impact.
It makes sense to start kids out on the highest plateau as possible regarding not just the knowledge of what money is (a tool), but how to think about their relationship with money (attitude), and what money does for them (choices).
It is great news that bad habits can and often tend to be corrected with time and accumulated positive experience, which means there is hope for more kids if we can only get more parents to take advantage of that possibility.
Thanks for the thoughts,
Lawson Meadows
KEEP YOUR WORD: Remind them of the first payment a week ahead, then never say another word about it or any other payments... never! It is their job to remember, the first time was only a courtesy, which is how you should say it. The opportunity for the lesson arrives when they request another bailout, and you say NO if they have not make the payments as agreed. If fact that is what you say... "No, I can't loan you money because you chose not to repay me the last time I did, and until you do, I will not change my mind." (Keep your word!).
If they use the "you owe me" guilt line, simply say, "Well, as far as I can tell, I have already paid you whatever I may have owed in the past, but now, you owe me, and like I said, I won't be changing my mind." ... and then shut up... no babbling on; you said your peace; you're done.
Of course emergencies, real ones, are exceptions. But, even then, even with no contract, you should be unashamed to mention, after the fact, that you expect to be repaid, and invoke the same "lesson" if you are not.
Anger and resentment may occur; if you are in doubt about your ability to cope... seek counseling, and keep your voice low.
Good luck with this, and the maintenance of good money habits.
Lawson Meadows
TV Host Rene Syler weighs in with her advice on this tricky parenting issue…
http://www.goodenoughmother.com/2010/06/ask-rene-credit-crisis/
If she's at college and you're worried about emergencies, fear not. I moved more than a thousand miles from home, where I only knew one person, and never had an emergency that my checkbook couldn't handle.