Financial Literacy for All Life Stages

Updated: September 24, 2024

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Making smart financial decisions is crucial at every stage of life, whether you're a high school student, a recent college graduate, a first-time homeowner or a midlife worker. Financial literacy is about understanding and applying basic principles to everyday decisions, like trimming your spending, saving to buy a home or building funds for your child's education or your retirement. Being financially literate is key to making informed decisions that lead to long-term financial stability.

KEY TAKEAWAYS FOR FINANCIAL LITERACY AT EVERY LIFE STAGE
  • Teens: Learn budgeting basics, the importance of saving and an introduction to credit and banking.
  • 20s to 30s: Focus on building credit, managing debt, starting retirement savings and understanding health insurance.
  • 30s to 40s: Adjust your budget for family expenses, plan for children's education and balance career growth with family needs.
  • 40s to 50s: Maximize retirement savings, reduce debt and maintain your home efficiently.
  • 50s to 60s: Finalize retirement plans, prepare for health care costs and optimize retirement income.
  • 60s and Beyond: Manage a fixed income, strategically withdraw from retirement accounts and ensure proper estate planning.

Ground Rules: Basic Money Principles

These four basic money principles will help you establish a reliable and consistent money management plan throughout your life. These guiding principles will stay relevant from your teens all the way into your retirement.

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    Save by paying yourself first

    Whenever you earn money, prioritize saving by setting aside at least 20% of your net income into a savings account before paying any bills. If you have a regular paycheck, automate the transfer with your bank so you don't have to think about it. Then, pay your monthly bills and other living expenses with the remaining funds.

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    Make a budget

    A budget is a powerful tool that helps you allocate your money with intention. By tracking your daily, weekly and monthly expenses, you can better understand your spending habits and make necessary adjustments to stay on track.

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    Track your spending

    A spending diary can reveal how small, everyday expenses add up. It can also help you anticipate upcoming bills, whether fixed (like rent) or variable (like utility costs). Consider using a budgeting tool or app — such as YNAB (You Need a Budget) or Monarch Money — to automate tracking and gain better insights into your spending habits. These tools can help you stay organized and adjust as needed to manage your finances effectively.

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    Eliminate debt

    Taking on debt is not inherently unwise. You may have heard of the concept of "good debt," which is a debt you take on to improve your financial position later, such as a student loan that helps you get an education that can increase your income. However, if you're focused on learning the fundamentals of money management, treat all debt as obligations you should pay off as soon as possible.

Financial Literacy in Your Teens: Building a Strong Foundation

Key Takeaways for Your Teen Years

Start by learning to budget, save regularly and distinguish between needs and wants.

Learn how credit works, the importance of a good credit score and the basics of managing a bank account.

Use part-time jobs to earn money and develop financial skills like managing income.

Setting good financial habits early in life can help you manage debt responsibly and lay the groundwork for financial security later. If you've begun earning your own money through part-time jobs or allowances, start developing a habit of saving and learn to manage your spending wisely. Additionally, this is the time to begin understanding how financial systems like banks and credit work, which can help you maintain responsible financial behavior later in adulthood.

Although teens can't qualify for a credit card until they’re 18 since they cannot enter into legal contracts, you can be added as an authorized user on your parent's account to help build your credit history. If you're not yet eligible for a credit card, you can use a debit card instead, although this won't help you build credit. Below are some financial concepts you need to grasp at this stage of your life:

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    Learn budgeting basics

    As a teen, you should learn to create and stick to a budget. This helps you understand where your money is going and how to prioritize spending on needs versus wants.

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    Get in the habit of saving

    Saving a portion of any income earned can help build a habit of saving. Opening a savings account and setting small financial goals is a good start.

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    Understand credit

    Even if you aren't using credit yet, it's important to start learning how credit works, the impact of a credit score and the importance of maintaining and improving good credit.

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    Look into banking

    Banking is one of the most important financial tools, especially if you have income. At this age, you can start learning the basics of how banks work, including checking and savings accounts, interest rates, how to open a bank account and how to use online banking.

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    Set financial goals

    Setting short-term financial goals, such as saving for a specific item or event, can teach you the value of planning and delayed gratification.

Financial Literacy in Your 20s to Early 30s: Starting Out

Key Takeaways for Your 20s and 30s

Track your spending to avoid overspending and ensure you're saving for future goals.

Take advantage of compound interest by contributing to a retirement plan as soon as you start working.

Learn about your options for health coverage through your parents, employer or the marketplace.

In your 20s to early 30s, you're likely transitioning into full financial independence. This period involves making critical financial decisions such as managing a steady income, investing wisely and planning for significant future goals like starting a family or even retirement planning.

During this stage, you may also need to buy health insurance to protect against unexpected medical expenses, especially if your parents' plan no longer covers you. Below are some financial concepts and steps you should take in your 20s to early 30s to strengthen your financial footing:

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    Start retirement planning

    It's never too early to start planning for retirement. Begin by participating in your employer's retirement plan, such as a 401(k), as soon as you start working. Even small contributions can grow significantly over time due to compound interest, especially if your employer offers matching contributions.

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    Understand health insurance

    Explore your health insurance options, whether that means staying on your parent's plan if you're under 26 or choosing coverage through your employer or a state exchange. Having health insurance protects you from unexpected high medical costs.

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    Manage debt

    If you have student loans, credit card debt or a car loan, learn effective debt repayment strategies. Always prioritize paying off high-interest debts while making minimum payments on the rest to avoid damaging your credit score.

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    Plan for big purchases

    You may need to finance major purchases like a car or home. Start by getting pre-approved for loans and exploring different financing options, such as fixed-rate versus variable-rate loans, to ensure you're getting the best deal. Always compare loan rates to make informed decisions.

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    Build an emergency fund

    An emergency fund is a savings account that covers unexpected expenses or financial emergencies. Start with three to six months' living expenses. This fund will provide a safety net in case of job loss or other unexpected financial challenges.

Financial Literacy in Your 30s to 40s: Career Growth and Family Building

Key Takeaways for Your 30s and 40s

Adjust your budget for new family expenses, including child care, education and health care.

Start saving for your child's education early and consider the long-term costs of raising a family.

As your career progresses, balance the financial benefits of increased earnings with the demands of family life.

In your 30s and 40s, your financial focus often shifts toward career growth and family responsibilities. This stage may involve purchasing a home, planning for children's education and deciding whether one parent should stay home or continue working. Revisit your budget to accommodate these new expenses while also planning for the future. Consider the impact of career advancement opportunities, which can increase earnings but may also demand more time and energy.

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    Adjust your budget for family life

    As your family grows, so do your expenses. Incorporate child care, education, health care and other family-related expenses into your budget. Look for ways to stretch your dollars by shopping for gently used items or swapping with other parents.

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    Plan for your children’s education

    Start saving for your children's future education costs as early as possible. Consider options like 529 plans, which offer tax advantages for college savings, and explore other strategies to manage education expenses.

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    Balance career growth with family needs

    Evaluate career growth's financial and personal implications. While higher earnings can improve your financial situation, they often come with increased demands on your time. Consider how these changes align with your family's needs and your long-term financial goals.

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    Evaluate child care options

    Child care costs can be high, often rivaling college tuition. Analyze your situation to determine the right child care option and whether one parent staying home or both parents working is the best financial decision. Consider the long-term implications on income and career growth.

Financial Literacy in Your 40s to 50s: Peak Earning Years

Key Takeaways

It's not too late — boost contributions to retirement accounts and be cautious of advisory fees.

Focus on paying off high-interest debts, including your mortgage, to lower financial stress before retirement.

Maintain your home. Perform regular maintenance and opt for energy-efficient upgrades to prevent costly repairs and reduce expenses.

In your 40s and 50s, you are likely in your peak earning years, but with greater income comes increased financial obligations. This period is critical for catching up on retirement savings, planning for your children's education and ensuring your home is in good shape for the long haul. Prioritizing these goals while managing your income will help secure your financial future so that it doesn't negatively impact your finances in retirement.

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    Boost retirement savings

    With children potentially leaving home, now is the time to focus on building your retirement nest egg. Max out contributions to your employer-sponsored retirement plan or IRA.

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    Manage and reduce debt

    Focus on paying down or eliminating high-interest debt. Aim to pay off your mortgage before retiring, as reducing monthly expenses will ease the transition into a fixed income.

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    Home maintenance and efficiency

    Reduce home-related costs as you approach retirement. Regular maintenance, such as replacing HVAC filters and checking for leaks, helps avoid costly repairs. Consider energy-efficient upgrades like insulation or a programmable thermostat, which can reduce utility bills and may offer tax credits.

Financial Literacy in Your 50s to Early 60s: Pre-Retirement Planning

Key Takeaways

Reassess your retirement strategy and make final adjustments to ensure you're prepared.

Anticipate and plan for significant health care and long-term care expenses.

Develop a strategy for managing retirement withdrawals and explore options for supplementing income.

As you enter your 50s and early 60s, your focus should be finalizing your retirement plans. This is the time to make critical adjustments to your retirement savings strategy, ensuring your investment allocations match your risk tolerance as retirement nears.

Health care costs become a significant concern, so planning for potential expenses, including long-term care, is essential to protecting your savings. Optimizing your retirement income by developing a withdrawal strategy and considering post-retirement work options can help maintain financial stability throughout retirement.

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    Finalize retirement contributions

    As retirement approaches, take full advantage of catch-up contributions to bolster your retirement savings. Adjust your investment strategy to align with your risk tolerance and timeline.

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    Plan for health care and long-term care

    Health care expenses are a major concern in retirement. Consider long-term care insurance and ensure you have a plan to cover out-of-pocket medical costs.

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    Optimizing retirement income

    Develop a strategy for managing retirement account withdrawals. Ensure that your retirement income sources, including Social Security and pensions, are sufficient to cover your expenses. Consider part-time work or consulting if additional income is needed or desired.

Financial Literacy in Your 60s and Beyond: Retirement

Key Takeaways

Adjust your budget to align with your retirement income, ensuring you can cover essential expenses.

Strategically withdraw from retirement accounts to maximize the longevity of your savings and minimize taxes.

Ensure you have adequate coverage and a plan for potential long-term care needs.

In your 60s and beyond, the focus shifts to managing your retirement funds and ensuring financial stability throughout your retirement years. Carefully manage your savings as you transition from earning an income to living on a fixed budget. You'll need to balance your withdrawals to ensure your savings last while minimizing tax implications. Additionally, estate planning becomes increasingly important at this stage to ensure your financial legacy is secure and your wishes are respected.

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    Adjust to a fixed income

    Once retired, reassess your budget to match your fixed income, ensuring you prioritize essential expenses like housing, health care and daily living costs. Consider reducing discretionary spending to stay within your means.

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    Make strategic retirement withdrawals

    Develop a plan for withdrawing from retirement accounts. The goal is to withdraw enough to cover expenses while minimizing the risk of quickly depleting your savings. Be mindful of required minimum distributions (RMDs) and the tax implications of your withdrawals.

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    Manage health care costs

    Health care becomes a significant expense in retirement. Ensure you have adequate health insurance, whether through Medicare or supplemental plans and consider long-term care insurance to pay for health care in retirement and protect your savings from potentially high costs associated with extended care.

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    Estate planning

    As you age, estate planning becomes increasingly important. Ensure your will, trust and other estate documents are current. Consider setting up a power of attorney and health care directives to ensure your wishes are respected if you are unable to make decisions yourself.

Expert Insights on Financial Literacy at Any Age

  1. What's the best way to make a budget plan? Should we think daily, weekly, monthly or annually?
  2. What financial concepts are most important for young adults to know?
  3. When are credit cards a good idea? What is the value of giving a college student a first credit card?
  4. What kinds of skills can parents teach their kids from a young age?
Suzanne Bagnera, PhD
Suzanne Bagnera, PhDDirector of the Hospitality Institute at Indian River State College
Xi Bai, DBA
Xi Bai, DBAAssociate Professor of Finance and Accounting, Director of Financial Planning
Shannon McLay
Shannon McLayFounder of The Financial Gym

Additional Resources

Below are some valuable resources that can help you build and enhance your financial knowledge:

About Nathan Paulus


Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.