When confronted with a child who is lying, it is important to first remember the child's age and developmental stage.
Children under the age of 3 do not lie on purpose. This age group does not understand what they are saying and instead are just experimenting with language and new-found facts about the world. They might also lie to avoid punishment because they understand the consequences but have an undeveloped moral code.
Children from the ages of 3 to 7 often have problems separating the real world from fantasy. They might have imaginary playmates at this age and enjoy fairy tales and make-believe play. The lies told by this age group are mostly tales that they have made up, not intentional lies.
By the age of 6 or 7, however, children understand what lying is, but will continue to cheat if able.
Children from the ages of 6 to 12 understand what lying is and the moral wrongness of this behavior. However, children may continue to lie in order to test adult rules and limits. The child may admit to telling a lie, but usually he/she has many reasons for having done so. Rules are very important at this age, so cheating becomes less important.