It is very common for studios to have several levels of belts training together. It allows the lower belts to learn from the higher belts and the higher belts practice some teaching.
My daughter's school used stripes on belts to keep kids motivated (there were three different colors for form, technique and breaking), as each child mastered the different areas, a stripe was added to their belt. Once all three stripes were earned (and after the proper amount of time had passed) then you could test.
By the way, a good studio will have waiting periods between testing, specially with kids as young as yours.
