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Research review: Child development findings support and inform personal financial education from an early age

A recently released literature review suggests personal financial education belongs in elementary and middle schools, not just high schools.

January 1, 2012


Richard M. Todd Former Vice President and Advisor to the CICD
Research review: Child development findings support and inform personal financial education from an early age

Amidst a wave of foreclosures and household debt problems, support for teaching personal finance in American high schools is high. Eighty-five percent of American parents surveyed in spring 2011 said a course in personal finance should be a high school graduation requirement,1/ and a survey of 1,200 K-12 teachers found that 89 percent expressed moderate to strong agreement that either taking a course or passing a test in financial literacy should be required for high school graduation.2/

The teachers' survey showed much weaker support for personal finance instruction in the elementary grades. By contrast, prominent advocates argue that personal financial education should begin early on,3/ and this view is reflected in many financial education standards, including those of some states in the Ninth Federal Reserve District. For example, the Jump$tart Coalition for Personal Financial Literacy recommends a detailed set of concepts that students should know by 4th grade, with further concepts to be learned by the 8th and 12th grades. Wisconsin's model standards follow this pattern, while Minnesota's 2011 draft social studies standards specify personal finance topics beginning in 3rd grade. North Dakota includes discussions of consumer concepts such as wants and needs in its K-8 social studies standards.

Are elementary and middle school students truly ready to learn personal finance concepts? Research by child development experts suggests they are. As early as preschool, children are developing critical decision-making skills and grappling with the financial aspects of time, trading, and value. By grade school, according to University of Exeter psychologist Paul Webley, "it is possible to teach many economic concepts," and by age 12, "children's understanding of economic situations is broadly comparable to that of adults."4/ Webley's examples suggest the same is true of personal finance concepts.

However, it appears that K-8 financial education programs are not always designed with child development research in mind. In a recently released literature review, personal finance scholar Karen Holden and educational psychologists Laura Scheinholtz and Charles Kalish ask "whether financial literacy programs have been structured taking into account what is known about cognitive development and capabilities of the children."5/ They find many gaps and recommend that "specialists in cognitive development and financial literacy should together develop strategies for effective and timely education" in personal finance. Their literature review and one by Webley provide practical information for teachers and curriculum designers about the way a typical child's financial and economic understanding develops, such as:

  • The ability to delay gratification is a critical decision-making skill that starts taking shape at very early ages but can be improved through instruction. Holden and her colleagues report that "younger children can be helped to make more efficient choices if they are guided through experiences that teach how to manage delayed gratification. For example, if they are taught to take their mind off of the desirable immediate choice ... or the most desirable attribute of that choice ... they have an easier time delaying gratification."
  • In early grade school, children may struggle to distinguish size from value. Accordingly, they may find it difficult to understand that a dime is worth more than a nickel or that a small piece of cheese costs more than a large head of lettuce.
  • Ideas about savings mature significantly in grade school. By about 4th grade, most students view savings as a financial decision. In earlier grades, children may save for more social reasons, such as to please their parents.
  • By the end of grade school, children begin to understand interest rates on savings deposits. The understanding that interest rates on loans are usually higher than rates on deposits, and that this is how banks make profits, tends to develop later.

These generalizations gloss over the many developmental differences among children and the effects of culture and personal experience. Nonetheless, educators can use child development research in at least two ways. They can work within their students' developmental limits in order to deepen existing understanding of personal finance concepts. Alternatively, they can deliberately stretch their students' limits in order to introduce new concepts. Either way, personal financial lessons based on an understanding of child development belong in elementary and middle school as well as high school.

This article is based on a Federal Reserve Bank of Minneapolis Community Development Research Report titled Early, Broadly, and Through Young Adulthood: A Child Development Perspective on Youth Personal Financial Education.

1/ Practical Money Skills for Life: 2011 Father's Day Survey, Visa, Inc., 2011. Available at

2/ Wendy L. Way and Karen Holden, Teachers' Background and Capacity to Teach Personal Finance: Results of a National Study, The Board of Regents of the University of Wisconsin System, March 2009. This study and related materials are available via the search feature at

3/ Alejandro Lopez-Fernandini and Karen Murrell, The Effectiveness of Youth Financial Education: Summary of a Convening Held July 15–16, 2008, New America Foundation and Citi Foundation, December 2008. Available at

4/ Paul Webley, "Children's Understanding of Economics," in Children's Understanding of Society, edited by M.D. Barrett and E. Buchanan-Barrow, Psychology Press, 2005. Pages 43–67.

5/ Karen Holden, Charles Kalish, and Laura Scheinholtz, "Cognitive Development and Children's Understanding of Personal Finance," in Consumer Knowledge and Financial Decisions: Lifespan Perspectives, edited by Douglas Lamdin, New York: Springer, October 2011.