Whether we realize it or not, money has a tremendous amount of power in our society.
We can manage it wisely, become financially secure, and reap the rewards that money can provide. Or, we can struggle with money our entire lives, let it damage relationships, and feel like we never have enough. My goal is to help readers attain financial security and a healthy relationship with money.
The steps toward financial security can begin at a very young age. We are going to break down the stages — from age 3 to 103. Two wise strategies are listed for each stage.
Stage 1: Ages 3-9
DISCUSS MONEY, AND USE CASH (NOT CREDIT CARDS): The money messages we learn from our parents and grandparents have a lasting impression on how we handle money as adults. Therefore, teaching our kids smart money habits at a young age will pay off.
When your children are very young, discuss money whenever possible. While buying groceries, have your child count out six apples. Use a grocery list so your child will learn you are only buying items that are on your list. Discuss how much a six-pack of soda costs.
This is a great time to start teaching children that they do not need immediate gratification. Set a special event once a week. For example, if you take the family out for dinner on Friday, remind your child that they can order dessert at that dinner. However, they cannot have every sweet impulse item they want in the grocery store.
Use cash in front of your children as much as possible. Pay for your groceries with cash. Use cash when eating out. Teach your children the difference between a quarter and a dime at a young age. Let them help you count out the change.
Discuss the monthly cellphone bill and the price of popcorn at the movie theater. Tell them you are saving for a long-term goal (you fill in the blank — an upcoming vacation, for retirement, to pay for their college, a replacement car, etc.).
START GIVING AN ALLOWANCE: Children as young as age 4 or 5 can understand the concept of an allowance. You can use whatever system you choose, but you must be consistent and pay the allowance on the same day every week.
One system that works well is to use mason jars. If you decide to give your child a $4 allowance, you can set the rules. Perhaps $1 goes into the spending jar, $2 goes into the saving jar (for a bigger item the child is saving to buy), and $1 goes into the charity jar.
Discuss this with your child. At a young age, kids are impressionable and eager to learn. Discussing money issues with teens is much more difficult, so lay the groundwork while they are young.
The amount in the spending jar can be spent on anything the child chooses. This may be candy or video games or anything else. The saving jar is for larger, more expensive items that the child wants. Suggest charities to your child for the money in the charity jar. Teaching young kids to help others who are less fortunate is a valuable lesson.
I recommend that the allowance not be tied to chores. You may assign your child chores to do each week, and this teaches children the importance of helping the family. However, the chores are separate from the allowance.
Stage 2: Ages 10-17
DEALING WITH PEER PRESSURE: By this age, kids are learning about status and peer pressure. Their friends may get the latest smartphone or be wearing designer clothing. Your child wants to fit in, so they want expensive items, too.
This is a perfect opportunity to discuss money with your kids. Explain that saving is hard but important. Use a shopping excursion to demonstrate that buying expensive items could lead you into credit card debt. Discuss the risk of using credit cards frivolously.
Emphasize that you want to live within your means, and you do not want to try to “keep up with the Joneses.” Also, explain that their friends who have the latest gadget may have parents who are worried about their debts, and you prefer not to fall into that trap.
Help your child look for discounts on clothing, or let them find a treasure in a thrift store. If they want an expensive pair of sneakers, tell them they can use the money in their savings jar. Help them determine how many weeks of saving will be required to buy the expensive item.
Often, once a child buys an expensive item with their own money, they will realize how to be more frugal in the future. These are important lessons, and it is much better for a child to make a mistake now, rather than a much larger error with a credit card as an adult.
EMPHASIZE LONG-TERM SAVING: During this stage, your child may have a part-time job or get paid for cutting the neighbor’s lawn during the summer. A part of this money should go toward their savings jar, but they will also have more spending money.
At age 15 or so, some parents or grandparents choose to “match” the amount the child saves. This is much like a 401(k) plan, and it provides a further incentive for the child to save for the future. This matching system is only recommended if the parents or grandparents can afford it.
Keep in mind that if you (as parents or grandparents) want to save more and get on track financially, discuss this with your child or grandchild (ages 10-17) and work on it together. You can motivate each other to become financially secure.
Stage 3: Ages 18-29
LEARN TO LIVE ON A BUDGET: During this stage, young adults will have far more autonomy and responsibility than ever before.
If your teenager is going to college, I recommend getting them a debit card. This will allow you to transfer a set amount onto the debit card each month. Most banks provide services for college-age kids. Make certain your bank is not charging you any fees.
Explain the danger of a credit card to your child, and decide the rules before they leave for college. In our household, routine expenses (pizza night, buying groceries or snacks, toiletries, etc.) were paid with the debit card. Our children also had a credit card while they were in college, but it had a low limit. It was only to be used for larger expenses that my husband or I had pre-approved. This included plane tickets to get home, occasional concert tickets, etc.
Peer pressure continues to be a challenge at this age. Talk with your child and suggest how they can respond to their friends who want to order pizzas at college several nights each week. It is perfectly fine for them to say, “I do not have the money for pizza tonight. I am on a tight budget. I can afford to go out once a week, but I need to stay within my budget.”
During this stage, socializing with friends is important. Dating is expensive. Sometimes weddings occur during this stage, and people start having children. Weddings can be beautiful and memorable without being excessively expensive. Forget the catered meal, keep the invitation list small, and plan a wedding that is small and intimate rather than large and extravagant. Young families can find used baby items, so spending above their budget can be avoided.
Remember the mantra: “I want to live within my means, and I don’t want the pressure of keeping up with the Joneses.”
START SAVING: This is also the stage where people will select a career and begin their first full-time job. Making saving automatic is essential. I can hear the young people reading this saying, “This is impossible! I don’t make enough to save!” My response: It doesn’t need to be a huge amount. It may be 5 percent of your income, or $25 or $50 a month. The key is to make it automatic. Once you start saving, it becomes easier.
Many of my clients saved throughout their careers. Many did not have high incomes, but their savings grew and compounded quickly. Although they came from low or middle-income backgrounds, many of them are now millionaires. Savings is the number one way to attain financial security.
Stage 4: Ages 30-49
STRIVE FOR BALANCE: This stage often involves lots of expenses. People may be buying their first home. They are having children, and the kids are growing up and going to college. The car needs to be replaced. People in this stage are often just trying to keep their head above water.
This is the stage where work-life balance can be important. I will not suggest that a healthy balance is ever completely attainable, but it is worth striving for. If you have young kids, you want to have the time and energy to devote to your family, even if you must work full time. If a couple is married, one spouse may need to change careers to gain more flexibility in their schedule.
The tendency (of past generations) to stay with one company for an entire career is long gone. Now, jumping between companies and careers is common. You still have many working years ahead of you, so making a major change to become happier in this stage is wise.
FOCUS ON SAVING: It is essential that you establish a saving habit if you have not already done so. If your employer has a 401(k), contribute at least the amount that receives the full match from your employer. If possible, contribute the maximum allowed. If your employer offers a 401(k) Roth option (in addition to a traditional 401(k)), choose the Roth option. Establish an emergency fund that will cover four to six months of expenses. Start a Roth IRA.
Strive to save 15 percent of your gross income. If necessary, simplify your lifestyle. Continue to focus on living within your means, even if it requires taking the bigger house, the replacement car, and the vacation in Disney World off your wish list.
A happy family life, having no credit card debt, and a reasonable mortgage can be far more satisfying than trying to keep up with the Joneses.
Stage 5: Ages 50-64
After age 50, looking after your health becomes a priority. Getting enough exercise, eating healthy food and getting enough sleep become essential. (SOURCE: Donna Skeels Cygan)
PLAN FOR RETIREMENT: This is the stage where you can start to daydream about retirement. It is now within reach, and depending on your prior saving history and whether you love your current career, you can set the retirement date sooner or later. Age 65 is still a common retirement age, but anywhere between 55 and 75 can work. I have one client who is nearing age 80 who is still working. He works because he loves it.
If you have not yet “run the numbers” on your retirement planning, now is the time. Sit down with a financial planner or go online and find retirement calculators. Visit my website (www.joyoffinancialsecurity.com) and read the two blogs Preparing Psychologically for Retirement and Preparing Financially for Retirement.
I strongly encourage you to put some effort into preparing psychologically several years before you plan to retire. A book that may help is “The New Retirementality” by Mitch Anthony.
Continue to focus on saving. If you need to “kick the savings into a higher gear” because you are behind in saving for retirement, this is the stage to do it. Most likely, the kids are out of the house and out of college, and your expenses have declined. I have seen people save 25 percent to 40 percent of their gross income during this stage if necessary.
MAKE HEALTH A PRIORITY: This is also the age where our health becomes very important. We can almost ignore our health at younger ages, but that is no longer the case. Getting enough exercise, eating healthy food and getting enough sleep become essential.
If you are working full time, carving out time for exercise can be difficult. Yet neglecting your health once you are over age 50 can have dangerous results. Good health becomes your most valuable asset as you get close to retirement.
Travel is often important in this stage, whether it is to visit kids or grandkids, or to experience faraway lands you could previously not afford. Travel requires good health and mobility, so focusing on your health needs to be at the top of your priority list.
Stages 6: Ages 65-79
With retirement comes time to spend with your family, sharing thoughts, values and stories.
CELEBRATE RETIREMENT! This stage can be full of exploration if you have planned well for your retirement.
Hopefully, you have made a list of all the things you would like to do. This may include getting more exercise, volunteering at several places, working part-time jobs, starting new hobbies, meeting friends for lunch, or taking special trips. Perhaps you have always wanted to take an art class, go on a sailing trip, or participate in an archeological dig. Now you can.
Retirement is a time for learning new things, expanding our horizons, and experiencing joy.
FIND THE JOY IN LIFE: I am a firm believer that we need to seek joy. It does not come to us automatically, and psychologists have shown that much of our happiness is within our control.
Retirement is a time to make positive changes. It is also a time to change directions. If your health is not great, work to improve it. If you want to improve your relationship with your spouse, kids, grandkids or siblings, devote time to them. If you do not like something about your personality, change it.
I recommend pondering everything you would like to do so you will not have any regrets later in life. I have seen retirees make major changes to their lives, and they provide proof that we can break out of our routines and become happier.
Attend concerts, write letters, sort and organize your kids and grandkids’ photos, plant a vegetable garden, learn to play a musical instrument, get together with your neighbors, tell your kids and grandkids stories from your childhood. The list is endless.
If you would like to write a letter to your kids or grandkids as a legacy, I recommend a workbook titled “The Wealth of Your Life” by Susan Turnbull. It will guide you through the process of writing down your thoughts, values, and family stories.
Stage 7: Ages 80-103
MAINTAIN YOUR HEALTH: Although people may joke that “60 is the new 50,” most people would agree that by the time we reach 80, we are elderly. Yet I know many people in their 80s and 90s who do not act elderly. Most of them have more aches and pains than when they were 60, and they may slow down their pace. However, they are still enjoying life each day.
After age 80, make sure you don’t become isolated. Spend time with younger people — grandchildren are ideal! — and share your wisdom.
People this age must focus on maintaining their health. I have friends in this age group who walk regularly. I have a friend who is 91 who exercises every day. Another friend (age 93) gets massages and strives to maintain her mobility. She just returned from a trip with her family that included five generations!
There is a tendency to become isolated and secluded as we get older, but studies have shown that a secluded lifestyle is strongly correlated with depression. Social interaction as we age is very important.
Look for exercise classes or walking groups that match your level of ability. Take trips with tour groups and let them handle all the arrangements. Continue to make new friends. There are many groups available to senior citizens, so try something new.
SHARE YOUR WISDOM: People in this age group have attained an enormous amount of wisdom. Giving them an opportunity to share their experiences and their opinions with younger generations is very important. This requires all generations to make some effort, but it is richly rewarded.
If you are a young person with living parents or grandparents, take time to ask them about their childhood, and about the good times and the bad times in their history. If you are a senior citizen, initiate conversations with your children and grandchildren. Pass down your family stories.
If you are able, volunteer at a local library. Seek out opportunities where you can help. Offer to speak to a school group about your experiences. Read books and continue learning. Stay active, and share your wisdom whenever possible.
Of course, none of us will live forever. I recommend a book by surgeon Atul Gawande titled “Being Mortal.” It shows how the ultimate goal is not a good death but a good life – all the way to the very end.
In each of the seven stages (ages 3-103), I have briefly described some financial strategies for you to consider. It is possible that you are reading this at age 50, and you are thinking “I didn’t do any of those strategies for Stages 1-4, and I’m way behind.”
Do not fret. Start wherever you are, but start today. Start saving. Start talking with your kids and grandkids about money. Strive to be a strong role model. You will soon be able to say “I got a late start, but I’m now on track for financial security.”
Donna Skeels Cygan, CFP, MBA, is the author of the multi-award-winning book “The Joy of Financial Security.” She has been the owner and financial planner for the firm Sage Future Financial in Albuquerque for 19 years.