Measuring financial literacy of children aged four to six years

The results show that it is an appropriate and viable tool for future studies into financial education in young children.

This research tested a measure of financial literacy called Arlo's Adventures, which is aimed at four-to-six-year-old children. It uses a comic strip and an interview script to assess children's knowledge and experience of money. ​ 

The aim of this research, the second phase of the study, was to evaluate the feasibility and validity of the measure, as well as the relationship between children's financial literacy and their numeracy skills, demographic characteristics, and parental attitudes and behaviours.

The research builds on results from the first phase of the study, which we published in July 2022.

Early intervention is important. Children’s money habits and attitudes towards money start to be formed before the age of seven. At that young age, parents and carers have the biggest influence on children and young people. ​ 

The Financial Foundations national goal of the UK Strategy for Financial Wellbeing aims for two million more children aged five to 17 to receive a meaningful financial education by 2030.

MaPS has research measures in place for children aged seven and above through our Children and Young People’s Financial Wellbeing Survey, but there is a gap for those aged under seven. This work has helped us improve our understanding of current levels of knowledge and experience of money among the younger age group.  

 The report highlighted a number of key findings from this large-scale pilot study:  

1. First and most importantly, Arlo's Adventures can be used at scale, with a brief training session for interviewers, and children are generally engaged and interested in the story and the questions.  
2. To check reliability, some of the children’s interviews were marked by two different scorers. Both scores were found to be in very close agreement, which means that scoring is consistent amongst different interviewers and likely to give reliable results, which is reassuring for use at scale.  
3. The questions from Arlo's Adventures can be grouped into five constructs related to financial literacy: transaction methods, getting money and making money decisions, saving money, where money comes from, and spending money.  
4. The project showed that children's financial literacy, as measured by Arlo's Adventures, is significantly predicted by their numeracy skills, even after controlling for age and socioeconomic status. Variation in numeracy skills account for 31% of variance in Arlo’s Adventures measure. This is the first study to show early numeracy predicts early financial literacy. However, the report highlights that while numeracy interventions may improve financial literacy, specific financial knowledge and skill development is also needed.

The project did not find a significant relationship between children's financial literacy and a parent’s responses to questions about attitudes and behaviours related to money or their children's financial education. Further research is needed, however, possible reasons for lack of relationship are:​ 

• At this young age, parents may not accurately perceive/assess their children’s financial knowledge​ 
• Limited sample size (110 full sets of data) means possible relationships aren’t as clear
• Potential low quality of parental responses ​ 
• Parent survey measures correlated with each other so possible misalignment between parental measures and Arlo’s measures.

These findings suggest that parents may not have accurate perceptions of their children’s knowledge and understanding of money and finance. This could inform future research and interventions, as this indicates that a successful intervention may need to inform parents as well as children.

We hope these findings will be useful for and could be used by: 

• stakeholders and practitioners working on financial education that supports young children’s financial literacy 
• any organisations funding, developing or delivering interventions aimed at improving young children’s financial literacy
• academics who are working on how financial literacy impacts children’s financial development, young children’s decision-making or their overall financial skills.