How Parents Shape Their Kids’ Risk Tolerance - Pacific Standard

How Parents Shape Their Kids’ Risk Tolerance

A new working paper outlines how mom and dad can influence their child's levels of risk tolerance and trust, traits that have a significant impact on career outcome.
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(ILLUSTRATION: LEO BLANCHETTE/SHUTTERSTOCK)

(ILLUSTRATION: LEO BLANCHETTE/SHUTTERSTOCK)

The apple tends to fall not far from the tree when it comes to a child's future income and education levels. So what’s the best way for parents to influence those outcomes in a positive direction?

Some of the harder-to-measure traits that strongly influence economic and education decision making—risk and trust levels, in particular—can be transmitted from parents to their kids simply with a few extra heart-to-hearts, according to a new working paper from researchers in Germany. In other words, the more time parents spend doing things like talking to their kids about their day, and involving the child in family decision-making, the more those kids' risk-tolerance and trust levels will resemble mom and dad's.

Those who trust too little tend to give up profit-making opportunities, while those trust too much can get cheated more frequently.

The study authors relied on responses to a large, nationally representative German household survey, administered annually since 1984. The survey asked 2,100 kids and their parents how willing they were to take risks, on a scale of one to 10; it also asked over 1,400 kids and their moms and dads to rate how much they agreed with statements like "on the whole one can trust people" on a scale of one to four. Finally, it posed a handful of questions about parental involvement: things like whether the parents help with the kids’ studying, show an interest in their child's performance, and involve the little ones in making family decisions. Moms and dads with higher levels of engagement were found to be more similar to their kids when it came to risk and trust preferences.

For better or worse, these traits have a significant impact on career outcomes. Those who trust too little tend to give up profit-making opportunities, while those trust too much can get cheated more frequently. Trusting too little is almost as bad for the typical career as skipping college: Individuals with the lowest levels of trust in one study had income that was 14.5 percent lower than the income of those with the right amount of trust. Risk tolerance, meanwhile, has long been known to influence career outcomes; one study found that a small increase in willingness to take risks in one’s career was associated with a 43 percent increase in the likelihood of being self-employed.

It’s something for parents to keep in mind that, even after controlling for variables including the child's gender, parents' education levels, household income, and immigration history, the similarity between parental involvement and kids’ attitudes stayed strong. If anything, the authors speculate that they are dramatically underestimating the parents' influence.

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