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Welcome to the second part of our series on financial literacy. In this article we are going to take a deeper dive into the first 2 pillars of financial literacy: budgeting and saving. By educating our children and younger generation on the importance of these pillars can we actually be helping ourselves and society as a whole? Unconditional love is defined as affection without any limitations or love without any conditions. The image of a mother and her child tends to illustrate this definition.  What does unconditional love have to do with financial literacy? I’m glad you asked.

While we all have unconditional love for our children, a new report by the Pew Research Center found that a majority of young adults (52%) are now living with one or both of their parents. Pew defines young adults as 18-29 years olds(1). Before 2020, the highest measured value was in the 1940 census at the end of the Great Depression. The peak may have been higher during the great depression, but there is no available data for that period. While your children moving back home may not put your “unconditional love” to the test, it can have far reaching impacts on the overall US Economy. Even before the pandemic, the growth in new households trailed population growth.  The acceleration in this trend due to the outbreak could mean less overall demand for housing and household goods. While lack of spending in areas of leisure, travel and hospitality may be helping to offset this impact, lack of financial literacy may indeed have a trickle-down effect on our overall economy.

The first pillar of financial literacy is having the knowledge and skills required to maintain a budget. Part of your budget is allocating a portion of that money to your savings. A budget is simply a plan for every dollar you have. It starts with identifying the amount of money you have coming in each month and then allocating those resources accordingly.  Before we can effectively teach these skills to our kids, we’ve actually got to understand the process ourselves.  If we want our kids to actually listen to us, we better be following a budget as well. Do as I say and not as I do is not an effective form of learning for most.  In the immortal words of Ralph Waldo Emerson “The apple doesn’t fall far from the tree”.

Simple Budgeting for Adults

  • Figure out your monthly net income– the number after taxes, deductions, 401K contributions is what your budget should be based on.
  • Calculate your monthly expenses– Your fixed expenses include your mortgage or rent, utilities, vehicle cost, property taxes and insurances. They may include alimony or child support. Then calculate your variable expenses such as gas and vehicle, groceries, dining out, travel and gym membership, doctor visits and gifting/charitable intents.
  • Adjust your expenses accordingly– make sure the income exceeds your expenses and evaluate your wants vs needs. Is HBO and cable a fixed or a variable expense?  Is having a new car a want or a need?
  • Make it a priority to save-Saving 10% at minimum should always be a part of a basic budget.
  • Track your spending and adjust according– Budgeting is an art not a science and your needs and wants will vary with your income and stage of life. This should be re-evaluated on a regular basis.

Now that the tree is somewhat rooted, we can focus on the apples as there are little things we can do at each stage of our children’s lives to build their budgeting skills and overall financial literacy. While many of these lessons will overlap, financial literacy is a foundation that can and should be built upon.

Ages 3-6

This is a great age to start teaching your kids about giving, saving, and spending.  While 3-6 year olds will not be tracking a budgeting spreadsheet, teaching them about money and giving them their own money to spend will have an impact.  Making this a visual exercise whether purchasing a toy or giving money to a charity or church can have a lasting impression.

Ages 7-12

If they have been spending their own money for the last few years, they are well on their way to knowing that money doesn’t materialize out of ATM’s as many children believe. Generally by this age you have a good idea if your child is a saver or a spender. Whichever way they lean, it doesn’t hurt to encourage a little of the opposite behavior to prevent overspending or an inability to spend money later.  It’s also a great age to begin to identify things they aspire to purchase and help them save toward that goal.  Through saving allowance, chore money and financial gifts over time, they will come to the realization that they can save towards an aspirational purchase.

Ages 13-15

They should now realize both how spending, giving and saving work.  Budgeting is a natural progression from this point.  This is an ideal age to start the discussion about a car.  Will they be buying their own car or paying for their own phone?  Will they be paying for a portion of either? Ideally having a plan will help them do their part and put to practice some of the skills and values that they have learned.

Ages 16-19

Most 16-19 year olds will have some expenses of their own and will have had some experience with one, if not many summer and part time jobs. Earning money and actually having to pay for expenses is where all the lessons from the years prior begin to really sink in. When your teens start paying a portion of their cell phone bill or car insurance, the value of a dollar and working for those dollars becomes a tangible lesson.  (On another note, the amount they pay of those bills can also be a tremendous tool for driving positive behaviors.)

Moving Out

Before your child leaves home, take the time to sit down with them and create a simple budget.  Whether it be monthly expenses while off at college or venturing  immediately out into the work world, your child will be much better equipped by knowing the difference between a fixed and a variable expense, as well as, a want and a need. The final lesson will be a quick warning on statistics before they part.  There is a 52% chance your child may be moving back sometime soon, so they may want to take your budgeting lesson to heart.


(1) https://www.pewresearch.org


The content contained in this article represents the opinions and viewpoints of Cardan Capital Partners only. It is meant for educational purposes and not meant for consumer trading decisions. All expressions of opinion are as of its publishing date and are subject to change. There is no assurance that any of the trends mentioned will continue in the future. Market performance cannot be predicted, so nothing in our commentaries is ever meant to provide any kind of guarantee of future results.

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