Development of Economic Concepts

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.”

Even though they understand that people go to work to get money, children do not understand the relationship between work and pay. To them, a person works and also gets money rather than gets money because she works. When 5-year-old Danny’s mother told him she didn’t have enough money to buy the toy he wanted, he suggested they go to the “money store” to “buy” some more money.

By age 6, children are progressing into concrete operations and have a clearer understanding of money; they can distinguish between and name the various denominations of coins and know which coins will buy more things. They still cling to the idea that the larger and perhaps more elaborate the coin, the more it is worth. First-grader David’s father, who traveled a great deal, brought David coins and bills from other countries. David was fascinated with the size, shapes, and colors of the money and was convinced that the coins of other countries were worth “much, much more” than American nickels, dimes, quarters, and bills because “they’re so large and so much prettier.”

Children also continue to believe that the shopkeeper gives customers money but are moving toward the idea that there is a manufacturer who produces goods for which the shopkeeper has to pay. Economic experts suggest that a best practice in economics education involves engaging children in literature, factual and fictional (VanFossen, 2003). Because children are in the concrete stage of thinking, reading books about money, such as Bunny Money (Wells, 2001), The Story of Money (Maestro & Maestro, 1995), My Rows and Piles of Coins (Mollet & Lewis, 1999), and Follow the Money (Leedy, 2002), can give primary-aged children additional insights into the function of money.

Around 6 or 7 years of age, children know that, although you do not have to have the exact money to pay for a purchase, you do need enough. They are also moving toward some clarity of employer-employee relationships but are far from any clear understanding of customer and producer concepts.

Seven-year-olds can compare coins and understand the value of money. They know that manufacturers are paid, as are employees, and that numerous persons and activities are necessary for the production and exchange of goods and money. Children no longer consider work as going someplace to get money but begin to make a connection between the activity and the benefits (Berti & Bombi, 1988). They now have some idea of production and selling and can describe a few paid occupations that they can actually observe and with which they have direct experience, such as a police officer or a bus driver. They also now seem to understand that people are paid differently for different jobs, but they say that police officers make much more money than doctors or shopkeepers do.

Between ages 7 and 10, pre-economic ideas are replaced by more accurate and conventional ideas. Nevertheless, not until the period of formal operations, ages 12 and older, are children able to understand that the price of goods is based on the costs of production, which include the cost of labor. They do not understand that the materials necessary for production are not old or broken things, and they still confuse making something with mending something. Raw materials are not recognized as natural products.

Economics Concept Development

Sensorimotor, Age 0-2	Preoperational, Age 2-6/7	Concrete, Age 6/7-10
Observes and attends to shape and size of coins Observes shopping, consuming, and purchasing	Plays store, demonstrating initial concepts of consuming and purchasing Counts more or less Recognizes coins/money Knows money is necessary to make purchases	After 9, can compare coins, knows relative value of coins Understands that people work to make money Some clarity in understanding employer-employee relationship