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Don't leave your children financially illiterate

02 August 2017

Money habits – they’re set by seven years of age

According to a Cambridge University study ‘Habit formation and learning in young children’, parents and caregivers have a large role to play in modelling good money habits at home: Good habits at home combined with simple and playful parenting is required for children to develop good money management skills, which are essential to help them become financially capable adults.

Co-author of the study, Dr David Whitebread, says behavioural habits are largely determined in the first few years of life and simply imparting information is now recognised as being ineffective in this area.

“By contrast, early experiences provided by parents, caregivers and teachers which support children in learning how to plan ahead, in being reflective in their thinking and in being able to regulate their emotions can make a huge difference in promoting beneficial financial behaviour,” he said.

By the age of seven, according to the study, most children have grasped how to recognise the value of money and to count it out. By this age, they will also have come to understand that money can be exchanged for goods, as well as what it means to earn money and what income is.

Most seven-year-olds are also capable of complex functions such as planning ahead, delaying a decision until later, and understanding that some choices are irreversible. However, children under eight years old have not developed an understanding of the difference between ‘luxuries’ and ‘necessities’.

Tips for parents

What advice is there for parents and caregivers in the first seven years of their children’s development so they can encourage positive money habits for the future?

1) Reinforcing positive saving skills

Many children receive a regular ‘income’ in the form of ‘pocket money’ for jobs around the house. Children’s understanding of income is shaped by this cultural practice but it is important to also talk about the different amounts of money that are awarded for different types of work because this is a valuable way to raise children’s awareness of ‘earnings’.

2) Raising awareness of earnings

Allowing the child to take on small-scale ‘jobs’ around the home for pocket money is a method by which adults can bring to life for children the concept of ‘earning’ money.

3) Emotional regulation

To help children ‘practise’ waiting until they have saved enough to be able to buy an object they desire, they may benefit from tangible activities such as developing a savings chart, which indicates how much money has been saved and how much is needed.

4) Learning how to plan

Shopping experiences help to demonstrate buying decisions to children. A young child might help their parent compile a shopping list of priority items for the home, helping the child to understand how to plan and avoid overspending.

5) Learning about value for money

Shopping is also a valuable experience for children to learn about item price comparisons and value for money, especially when items are ‘on sale’.

These all important financial lessons are simple to demonstrate and incredibly valuable for your children in later life.

Children’s ages of development for financial learning



2-3 years

At this age children are able to distinguish counting words from other labelling terms and by four, many children are able to express counting concepts sets and order of numbers. At this age, they also learn that the last number counted is the total in the set.

4-5 years

By four to five years, children understand that they need to pay for merchandise, but may not understand that coins have different values.

A child can usually understand the concept of ‘equals’ by the age of five also.

5-6 years

Children understand that some denominations do not carry enough value to buy some items. It is not until children approach seven years of age that they begin to understand money can be exchanged for goods and that ‘change’ is returned by the shopkeeper only when denominations larger than the cost of the item are offered by the purchaser.


6-7 years

By the age of seven years, several basic concepts relating broadly to later ‘finance’ behaviours will typically have developed including counting, representing value through different coin sizes, understanding money exchanges requires a sense of giving and receiving and of equivalence and the concept of earning and spending.