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Teaching kids good money habits for life

21 April 2015

Money habits for children before they are seven

The famous British documentary ‘Seven up’ was based on the premise that children’s behaviours are formed from the age of seven but it seems financial habits are set by this age also. Catherine Birchall from Money 101 tells us more.

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.

The study says 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, of Cambridge University 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.

The study reveals that by the age of seven most children have grasped how to recognise the value of money and to count it out and 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.

By the age of seven, most children are capable of complex functions such as planning ahead, delaying a decision until later and understanding that some choices are irreversible but children under eight years old have not developed an understanding of the difference between ‘luxuries’ and ‘necessities’.

Tips for parents

So if this is the case, 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?

One way is through 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’.

Allowing the child to take on small-scale ‘jobs’ around the home for pocket money may be a method of adults bringing to life for children the concept of ‘earning’ money.

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

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 which helps children understand how to plan and how to avoid overspending.

It’s also a valuable experience for children to learn about shopping and comparing item prices with items that are ‘on sale’, deciding which size packet to buy, how many packets and how much money to spend in total.

These are all important financial lessons that are simple to demonstrate and incredibly valuable for your children in their adult years.

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.


Earning and learning app for children 

A great tool for teaching earning to children is Westpac's Pay Pig app. With the Pay Pig App, kids and parents can set goals, while kids help out around the home with jobs like washing the car and walking the dog, then at the end of the week - it's Pay Day! Understanding the basics of earning and saving is good to know at any age.

This article first published by Westpac's Davidson Institute.