Kids develop money habits by age seven: study

Kids develop money habits by the time they’re seven, according to recent research from Cambridge University. And that means that parents’ financial styles have an influence on their kids own fiscal skills well into adulthood.

Backed by London’s Money Advice Service, a free financial-literacy organization, the “Habit Formation and Learning in Young Children” report found that by age seven, most kids recognize the value of money and know how to count it out. They also understand that currency can be exchanged for goods and what it means to earn money.

Furthermore, most kids are capable of complex functions such as planning ahead, delaying a decision until later, and understanding that some choices are irreversible.

“The ‘habits of mind’ which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first few years of life,” study co-author David Whitebread, a developmental cognitive psychologist and Cambridge senior lecturer, said in a statement.

“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”.

Susan Beacham, CEO of Money Savvy Generation, a Lake Bluff, Illinois-based company that teaches money-management basics to elementary school aged children, says the findings make sense.

“I knew that very young children were the very best people to start to teach money skills to from watching my first-grade daughter [now 23] learn Latin and watching her understand slowly but surely the abstract concepts she was presented with in math and watching her take on the complex task of learning to read,” Beacham says. “What the Cambridge study tells us is your child, developmentally, has all the tools they need to understand money.

“We need to empower parents to teach children critical life lessons and to get the message going at a time when children are really listening,” she adds. “If you give them a lot of time to refine and tweak those skills, by the time they’re going off to college there’s no hand-wringing. Your voice is in their head and your values are in their heart.”

Beacham, who worked as a private banker for 18 years before starting Money Savvy Generation with her husband, says a lot of parents don’t bother teaching very young kids about money because they figure they have lots of time; it’s something they’ll get to later (which may or may not happen).

In other cases, parents avoid tackling the subject of finances with their little ones because they think it’s far too complicated. But abstract concepts can be taught in a concrete way. Beacham points to the Money Savvy Pig she developed, a see-through piggybank with four compartments: Spend, Save, Share, and Invest. Plastic containers or bags would serve the same purpose: allowing kids to literally see coins or bills pile up then having different places to direct them.

“This is really simple,” she says. “Kids will watch money accumulate. It’s a very concrete example of how coins accumulate, and that translates later on to a quicker better, firmer understanding of saving.”

That kind of tangible lesson is especially important for kids in today’s digital age, where pay cheques are deposited directly to your bank account and bill payments are automatically withdrawn.

As kids get older, then they can begin to more fully understand the value of money.

“Eventually a dollar is meaningless unless there’s education behind what that dollar can do,” Beacham says. “It can feed a family; it can help cure disease; it can be put toward something you’re saving for; it can help pay for college. Unless kids understand that, a dollar has no value.”

Parents aren’t the only ones who play a crucial role when it comes to teaching young ones money lessons. So do grandparents, who, in Beacham’s view, tend to “understand the key to not only surviving but thriving as an adult is understanding money, plain and simple.”

The British Money Advice Service, meanwhile, plans on using the Cambridge resource as a springboard to push for financial education in primary schools.