Development of Economic Concepts

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Economics is the study of how goods and services are produced and distributed and the activities of people who produce, save, spend, pay taxes, and perform personal services to satisfy their wants for food and shelter, their desire for new conveniences and comforts, and their collective wants for things such as education and national defense.

Children experience economic concepts daily. They observe parents exchanging money for goods, and they themselves participate in paying for some purchases. They receive money as gifts, sometimes saving it in a bank, or they may even participate in opening bank accounts. Advertising convinces children early in life that they need more than they can have. And children make decisions between the things they really need and those they only want.

In their play, children reveal some understanding of economic concepts. They use economic scripts as they play store, pretending to see and purchase goods; they pretend to use money to obtain services. Nevertheless, like geography and history concepts, children’s economic concepts are far from fully developed. Not until after age 9 do children understand the value of money, become able to compare coins, and comprehend the idea of credit or profit.

Following Piagetian theory, children’s stages of economic understandings have been identified as (1) the unreflective and preoperational level, exemplified by a highly literal reasoning based on the physical characteristics of objects or processes; (2) the transitional or emerging reasoning level, exemplified by higher-order reasoning and similar to Piaget’s concrete operational stage; and (3) the reflective level of economic reasoning.

Researchers have found that 3-year-olds can distinguish between money and other objects but are unable to differentiate between types of coins. Until around 4 1/2 years of age, children are generally unaware that money is needed to purchase things. Three-year-olds may take candy or toys from a store, totally unaware of the fact that money is exchanged for goods (Berti & Bombi, 1988). However, children under age 4 often “know that you can buy things in stores and recognize money and pretend to pay for things. They know the difference between ‘yours’ and ‘mine’ and identify adult activities as ‘work’” (Berti & Bombi, 1988, p. 175).

Three-year-olds can distinguish between money and other objects but cannot tell the difference between types of money. Many arguments among 3-year-olds revolve around whether a nickel is worth more than a dime because it is physically larger.

Between ages 4 and 5, children still cannot distinguish between and name coins and believe that the larger the coin is physically, the more it is worth. However, they are aware that you need money to buy things. Children who are 4 to 5 years old develop play scripts of pretending to ask for and get goods, give and receive money, and go to work, suggesting that children of this age do have concepts of economic exchanges. They still do not understand the function of money in buying and selling but believe that shopkeepers give money to customers and that any type of coin is suitable for any type of purchase. No concept of production is present. At age 4 or 5, children believe that shopkeepers get their goods from some other shop, which gives them away without asking for money. These children do not understand that shopkeepers are customers as well (Berti & Bombi, 1988). When asked where milk came from, Josh, a student in Head Start, said, “From the store.”