By age 7, most financial habits have been formed

06/21/2013 3:55 PM

06/21/2013 5:54 PM

Trying to win over a stubborn 7-year-old to eat his or her vegetables isn’t always easy. The same with teaching a grade schooler to throw a ball or enjoy something other than a picture book.

But what about trying to teach the ABCs of money, like counting coins or using a youth’s cash at the checkout line to pay for a candy bar? When should kids start to get it?

Try age 7.

By then, for better or worse, most children’s financial habits have been formed, according to a new study by two researchers at Cambridge University in England.

“The habits of mind, which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first years of life,” said David Whitebread, a psychologist and co-author of the study with Sue Bingham.

Their research, titled “Habit Formation and Learning in Young Children,” shows that most children by age 7 should know how to recognize the value of money and be able to count it out. They also should understand how money can be exchanged for products and what it means to earn money through work.

Children by that age also understand to some degree the notion of delayed gratification, although they might not have a clear grasp of the difference between wants and needs, the researchers found.

The study reinforces what many financial experts have long believed: Waiting until middle school or high school to introduce sound money skills is too late. By then, a lot of bad habits may already be in place and be too hard to change.

It’s worth noting that the Cambridge study has been endorsed by education experts in the United Kingdom who plan to emphasize personal finance as part of the curriculum for grade school students.

I think the key messages in the report are especially relevant today in our country given the financial problems encountered by so many adults before, during and after the recession. Many of those problems point to a lack of knowledge of basic money management skills.

It’s disturbing, for example, that many adults don’t understand that paying just the minimum on their credit card allows the balance to keep growing for years. Many also don’t recognize the dangers of living beyond their means, which contributes to bankruptcies, divorce and broken families, and heavy and unhealthy daily stress.

The Cambridge researchers make one other key point — the role that parents, along with teachers, play in helping to form children’s money habits. That role involves more hands-on experiences that go beyond “simply imparting information,” the report said.

For example, include the kids on trips to the grocery store and let them help draw up the shopping list. Take them to the bank when making a deposit or withdrawal. Rent videos or check out books from the library to explain the notion of borrowing and the cost of late returns.

“Children learn from observation, instruction and practice,” the research noted.

And, I might add, practice and more practice.

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