Study shows what ages young children learn financial literacy concepts

This image shows the importance of young children learning financial literacy early. A family sitting together and practicing financial lessons.

As we grow, we observe everything around us and learn important values through imitation – this is no exception for young children as they grow and learn financial literacy concepts. Encouraging positive habits of self-regulation in young kids and supporting their financial understanding. Introducing them to concepts as they grow in a positive environment, be that at home or school will be crucial for their development but also prepare them to be conscientious teens and adults.

Parents have two methods of teaching their child: First, by active listening, understanding, and acknowledging their child’s feelings. The second is by rewarding good behavior. The study conducted in 2013 looks at different aspects that introduce us to the world of finance when we enter a mature age. We’ve broken down what the study found.

Counting coins and currency:
  • Ages 2-3: distinguish counting words
  • Age 4: express counting concepts
  • Age 5: understand the concept of ‘equals’
Concept of exchange and equivalence to young kids:

In order to truly understand the ideas of exchanging currency and receiving change, kids need to be able to learn the difference between need vs want.

  • Ages 3-4: know what money is but for only specific contexts (i.e. buying food or toys)
  • Ages 4-5: children understand at this age that they need to pay for things, but may not understand that coins have different values
  • Ages 5-6: children understand that some denominations do not carry enough value to buy some items
  • Ages 7 and up: understand money can be exchanged for goods and get change from the merchant
The concept of ‘earning’ and ‘income’:

A great way to introduce your young child to these concepts is by giving them pocket money. They can be given small tasks and responsibilities and receive pocket change in return for completing their task. This will help your child to understand income.

You can talk to your child about your job and some of your responsibilities.

Ability to plan ahead:

The concept of the future is important in financial understanding. Little kids struggle to understand distances in the future. In addition, it is important to know the difference between the future self and the current self.

  • Ages 4-5: limited in being able to distinguish future distances. They cannot foresee the future past a few weeks
  • Age 7: Unable to judge future distances by 1 month
  • Age 8: At this age, they understand months in a year and judge the times of coming months
Inventions to support giving children experiences in choice-making

Children join in simple ‘saving’ behavior because they want to participate in ‘adult-like’ behaviors. It is important to teach them saving habits but stress that this should be done because they want to, not because it is expected of them. You can use an app like FataFeat that encourages saving.

In conclusion

In summary, the evidence indicates that teaching young children explicit forms of ‘financial’ knowledge per se is likely to be ineffectual in shaping or changing their behaviors. Since young children are dependent on parents and have few material goods or monetary resources that they control independently, it is the basic approaches and skills which are modeled, discussed, and demonstrated by
parents and other significant adults, that are likely to be influential ‘levers’, instilling efficient habits and practices.

Opportunities for parents and teachers to support a child’s capacities to defer
gratification, to understand the ‘future’ in concrete terms, to talk about their understanding and new knowledge, all aid the development of a child’s executive functions, underpinning their self-regulation, including the implementation of any ‘habits of mind’.

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