Teenagers are more rational in their economic choices than many older young adults, a new study suggests.
Study conducted by researchers in Duke University in North Carolina has found that teenagers aged between 10 to 16 years are rational in terms of how they handle their finances.
Adolescents should be given more credit for being rational but parents still need to help children hone their money skills in making real-life decisions.
"The new results point to the idea that we should not think of adolescents as being irrational. What's different about them is they don't use simple rules as effectively. Simple rules' are the mental shortcuts people use in decision-making such as 'don't drink and drive'. In contrast, teens may more carefully weigh this decision. Adolescents are going to be more likely to use cost-benefit analysis than the adults use. That can get these kids into a lot of trouble," said study author Scott Huettel, a professor of psychology and neuroscience.
The study participants were presented with three scenarios labeled A,B and C and asked to pick the best one. Each scenario contained a set of outcomes that could lead to winning or losing different sums of money.
If the teenager picked scenario A, they had a one-third chance of winning $6, one-third chance of winning $4 and a one-third chance of losing $4. Scenarios B and C each came with their own chances of winning or losing three different sums of money.
Young adults aged 22 years old on average used simple rules. As they completed more trials, they counted the number of wins and losses in each scenario. They picked the one with the most wins and ignored the dollar amount of each potential gain or loss.
On the other hand, teenagers accounted for the magnitude of the potential win or loss and chose scenarios to minimize loss.
"I was surprised by how consistent the effects were," said Professor Huettel.