Help Young Children Form Positive Financial Habits

Photo credit: Leonid/

June 4, 2019, 9:40 am | Sandra McKinnon, Laura Sternweis
AMES, Iowa – Children form financial habits at an early age. Parents and care providers can influence what those habits will be, says Sandra McKinnon, a human sciences specialist with Iowa State University Extension and Outreach.

University of Wisconsin-Madison researcher Karen Holden and colleagues found that habits children learn when they are young form the basis for their future behavior. A study from Cambridge University found that children form financial habits by age 7, noted McKinnon, who specializes in family finance.
“We may teach our children that a dime is thin and worth 10 cents, but developing financial habits includes more than just recognizing coins. Parents and care providers can help children gain the knowledge and skills they need to develop positive financial habits,” McKinnon said.
The Consumer Financial Protection Bureau suggests teaching preschoolers these basic concepts:

  • You need money to buy things.
  • You earn money by working.
  • You may have to wait before you can buy something you want.
  • There is a difference between things that you want and things that you need.

Other concepts to establish good financial habits include learning about numbers, time and institutions, such as stores, banks or credit unions, and employers, McKinnon said. Children also can learn about budgeting, regular saving and shopping strategies; social values, such as gifts, generosity and sense of community; and public goods like the library.
“Read money-related books with children, and provide hands-on learning opportunities. The goal is to help children become comfortable with basic tools of how and why financial choices are made,” McKinnon said.
“For example, we can encourage pretend play, like a grocery store. Or we can explore careers by playing dress-up or acting out stories. In addition, we can talk about whether spending money on entertainment, for example, is a need or a want,” McKinnon said.
ISU Extension and Outreach human sciences specialists in family finance offer Preschoolers and Pennies: Read, Talk, Learn and Play, a 2-hour training for child care providers. Providers practice a way of reading with children that gives children an opportunity to become storytellers of books with a money theme. This introduces and reinforces money-related words and concepts in a more meaningful way. Complementary activities throughout the day encourage preschoolers to practice money skills.
“We learn to tie our shoes by practicing. The same idea applies to money. Children learn about money by having some. Parents may like to start giving their children a regular allowance. It is one way to develop decision-making skills like comparing alternatives or giving up one thing for another,” McKinnon added.
Visit the Extension Store for the Allowance Game (PM1776). Playing this game starts a great discussion on choices and consequences, McKinnon said.
Photo credit: Leonid/

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