By Bonnie P

Posted on August 24, 2020

Financial Building Blocks for Every Life Stage

Managing your money or planning for the future in an unstable economy is challenging, but it’s much more difficult if your financial education is lacking. Learning how to manage your money the hard way, in the real world, can have long-lasting effects that can haunt you for years.

Since many schools don’t provide a realistic financial curriculum, it’s a good idea to brush up on the essential lessons you may have missed along the way. And if you’re a parent, you can help your children avoid stressful scenarios later in life by teaching them age-appropriate financial lessons now.

While this is not an exhaustive list, these themes and tips can give you a general idea of the financial skill level you should aim for at each life stage. Read on for our guide to financial strategies for every life stage.

Financial Lessons for Children: The Value of Money

Children learn by example, so it’s important to develop and practice good financial habits as a family. Budgeting, saving, planning and making choices together can help your kids grasp the importance of money while operating as a teammate. Kids should also know that since money is a limited resource, you may need to make compromises in order to accomplish your goals.

Here’s how you can apply these lessons to real-life:

• Money isn’t free: Set up a small allowance or some way to earn money by doing light household chores.
• You can’t have it all right now: Save money and track progress over time with visual cues, like a clear coin jar.
• Reaching a goal is rewarding: Make a family-oriented savings goal that you can save for and enjoy as a family, such as an afternoon out.
• Weigh the effects of personal choices: Considering the potential outcomes, or opportunity costs, of your decisions can lead to better choices.
• Open a savings account: Save money securely in a bank savings account. Depending on your child’s age, you may need to assist them in opening an account.

For Teenagers: How to Budget

Teenagers may start their first job, begin college or even use personal credit, so creating and managing a responsible budget is the major goal to accomplish.

Here are a few financial lessons that you can teach your child as a teenager:

• Open a checking account: If your teen has a job or regular income, they should keep their money safe in a checking account. Depending on your teen’s age, you may still need to assist them with opening a checking account.
• Budget your money: Managing your income with a budget is one of the most fundamental finance skills your teen should master at a young age.
• Understand credit scores: Learn how your score is calculated, why it matters and how to check your score for free.
• Know the pros and cons of borrowing money: Before your child ever borrows money, they need to know how to manage and repay personal credit to make more informed financial choices.

For Young Adults: Understanding Credits and Debts

Young adults typically start a completely new chapter of their lives, and as a result, are just beginning to support themselves. It’s a good idea to help your child establish good credit habits before they assume sole financial responsibility.

These real-life lessons can help your young adult child prepare for the road ahead:

• Build an emergency fund: Prepare for unexpected expenses with a separate savings account for emergency use only. Develop a habit of saving money from every paycheck automatically.
• Follow a realistic budget: Keep a closer eye on your money with a spending tracker or app that automatically categorizes your expenses.
• Set up a retirement fund: Many people start saving for retirement when they graduate college, but you or your child can start even sooner. Though it may seem like a long way off, saving at a young age compared to later in life can mean hundreds of thousands more saved for retirement thanks to compound interest.

For Early-Career Adults: Establishing Building Blocks for the Future

Adults who are just starting their careers may have big dreams and goals to achieve, but it’s important to establish (or help your child establish) the financial foundations that can help support your goals and future.

• Prioritize your financial life goals: Make a financial plan that can help you fulfill your short- and long-term goals. Set up a savings account to save money for your goals, little by little. Consider your home, family and lifestyle if you need to brainstorm future goals.
• Handling and reducing personal debt: Learn how to responsibly manage your repayments and stay within your budget if you carry any debt. Use one of these debt repayment strategies to eliminate your debt completely.
• Live within your means: Keep a close eye on your expenses with a banking or financial app that automatically tracks and categorizes your expenses.
• Consider insurance coverage: Ensure that you’re adequately covered with the appropriate insurance coverage, like home, rental, health or life insurance.
• Develop a financial routine: Save money from each paycheck or set up automatic transfers with your bank to build your emergency fund without even thinking about it. Make a habit of checking your credit scores and reviewing your full credit reports from each major credit bureau as often as you can.
• Check your goal progression: Monitor your overall financial status and check in on your financial goals with these personal finance tools and resources.

For Mid-Career Adults: Measuring and Improving Your Financial Health

With all the necessary financial foundations in place, the mid-career years can help you build the bulk of your retirement fund while you work towards (and achieve) your goals.

• Improve your credit: Aim to raise or maintain a good credit score to save money in the long run. If you already have good credit, consider negotiating for a lower interest rate.
• Look for ways to earn more money: Know your worth as a working professional. Maximize your earning potential with job-related education, or improve your soft skills to land a promotion with your existing employer.
• Review your retirement contributions: Use a retirement savings calculator to estimate your retirement budget with your current savings rate. You can also increase or max out your retirement contributions rate if you have extra room in your budget, or if you started saving later in life.
• Plan your portfolio: If you have any investments, check in on your progress. If you’re new to investing and have room in your budget to spare, you can explore potential investments to grow and expand your portfolio. You can also follow up with a low-cost robo-advisor or fee-based financial advisor for help with your investment strategy.

For Pre-Retirement: Securing Your Future

In some cases, the pre-retirement years are also the peak earning years of a professional career. If you have extra room in your budget, this is when you can increase your savings rate for retirement years.

• Review catch-up contributions: Depending on your retirement account and age, you may be able to make catch-up contributions over the amount you can normally save in a retirement account per year.
• Diversify investments: You can mitigate the risk of losing money on a single investment with a diversified portfolio, or multiple kinds of investments (e.g.: real estate/a home you purchased, certificates of deposit, bonds and/or money in a high interest savings account).

For Retirement: Maintaining Fiscal Fitness

Whether you’re completely done with your career or have a part-time job in your retirement years, you should always keep an eye on your budget and financial health.

Keep up your fiscal fitness with these helpful guides:

• Watch out for budgeting mistakes: Monitor your budget often and avoid these common budgeting errors that can cost you.
• Protect your finances: Whether you’re living on a fixed income or managing your finances in a slow economy, you should watch out for tech scams and email phishing attacks. While these can happen to anyone, many scams are aimed at older adults.

The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

About Bonnie P

Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with a fascination with finance, she loves to help others do more with less.