When do Kids Learn about Managing Money?

3 stages on the path to truly understanding what money is and how to get the most out of it.

Kids are constantly learning about money, but various academic studies suggest they go through three stages on the path to truly understanding what money is and how they can get the most out of it. According to the University of Kansas these stages are formation, normalization and performance.

  • The formation stage typically occurs in kids between three and six years old, as they grasp the concept of money and develop the belief that saving is socially desirable. Through observation and guidance they start to understand concepts around saving and spending. A savings jar can help kids visualize how much money they are saving and trips to the bank to deposit money can be made into a learning experience. Letting children pay for a small transaction at the grocery store can be a great way for kids to get first-hand "money" experience.

    A woman with two young kids counting coins on a counter top with a small green piggy bank and a gray tin beside them.
  • The normalization stage usually occurs between the ages of seven and 10 years old, as kids begin applying their money knowledge. You may notice your kids in this stage are choosing which items they want to save for, are using strategies for saving and have a desire to save. Allowances or paying for chores, along with guidance from parents, helps kids learn about budgeting, form saving habits and set savings goals. This is also a good time to show kids the benefits of comparison shopping and finding sales. Kids are also able to grasp the idea of opportunity cost, i.e., if they spend money on something, they won’t be able to buy something else.

  • The performance stage normally begins around the age of 11 and continues to build throughout an individual’s lifetime. By this stage, kids display an integrated knowledge of money and finances and are coming up with different ways to save. They start to grasp more complex financial concepts and become increasingly curious in financial matters. For many kids, these are the years where they get their first job and encounter real world finances for the first time. This is a good time to talk with kids about long-term savings goals like a car or college. Getting in the right saving habits could mean the difference between having enough money to buy their first car or not! Before college, it is beneficial for teenagers to learn how to manage a checking account, so they will have a firm foundation on which to build their adult finances. 

As you teach your kids about money, review A Parent’s Guide to Raising Money-Smart Kids for a comprehensive guide with tips, resources and examples and visit the Education Center for more articles, videos and worksheets. 

Source: Assets and Education Initiative. (2013). Building Expectations, Delivering Results: Asset-Based Financial Aid and the Future of Higher Education. In W. Elliott (Ed.), Biannual report on the assets and education field. Lawrence, KS: Assets and Education Initiative (AEDI).