Most people are familiar with the phrase, “Life is about the journey, not the destination.” This journey is full of milestones and achievements we need to hit to be happy and successful. Have you ever considered what financial milestones would be appropriate for your children?
Many milestones in life impact us financially, whether it’s our first lost tooth, first car, first date, first job, first apartment, first child, or first house.
As we journey through life, these milestones provide essential benchmarks for our growth and development. They help us gauge how far we’ve come and illuminate the path ahead of us.
Most people are now familiar with the fact that financial education is both a crucial but missing part of our educational system. Social media is full of memes of people lamenting the fact that they know the Pythagorean Theorem, but not how to pay taxes or save for retirement.
Table of Contents
- Financial Milestones: Ages 3-4
- Financial Milestones: Ages 5-7
- Financial Milestones: Ages 8-10
- Financial Milestones: Ages 11-13
- Financial Milestones: Ages 14-16
- Financial Milestones: Ages 17-18
- Financial Milestones: Ages 19-21
How to Determine Appropriate Financial Benchmarks for Kids
Financial benchmarks can be a little harder to decipher than traditional benchmarks. We all know when our children should walk, but do we know when they should open their first savings account? Just like learning to walk or ride a bike, there are certain financial benchmarks that we should aim to achieve at different stages in life.
Whether it’s helping them open their first bank account, starting to build an emergency fund, or making a budget for college, familiarizing and working towards financial milestones with your kids can make a world of difference in securing their financial future!
In this article, we are going to dive headfirst into exploring the financial milestones that kids should be working towards as they grow. We focus on money skills and achievements for each age group. This list isn’t all-inclusive, but will provide you with an idea of what financial goals your kids should be looking at as they progress toward financial independence from you.
Financial Milestones: Ages 3-4
You might be thinking, how is it even possible for kids this young to have financial benchmarks? Isn’t it enough that they’re potty trained, mostly dressing themselves, and learning not to share toys?
However, the fact of the matter is that financial habits are set by age 7. It’s crazy but true. A study out of Cambridge University established that kids are highly social learners. They assimilate the values and standards they observe around them. This includes financial habits.
These little kids, barely out of the toddler years, can be hitting some key benchmarks which will help them on their way to financial success. They might not need to save for retirement yet, but they certainly can be learning the habits that will help them be financially independent.
The biggest savings milestone at this age is just understanding what savings is. Even 3-year-olds can start to understand that money doesn’t grow on trees – it must be earned. This is the perfect time to introduce a rewards system for chores and behavior.
You can also start to save for your child’s future at this age. You can open a 529 college savings account for your child as soon as they’re born, and that will pay dividends toward their future. You can tell them about the money you are depositing into that account so that they start to understand that it’s important to save for the future.
When it comes to actual money, at this age it’s important to talk about money openly and honestly in your home.
Money has traditionally been a taboo subject. Studies have shown that people would rather talk about religion, sex, or politics over money.
This means that kids aren’t growing up in an environment that teaches them basic money concepts, because their parents just don’t want to talk about them.
Even little kids should be beginning to understand the concept of needs versus wants. Have intentional conversations with them about the difference between the two. This can be done while shopping at the grocery store or when they ask for something they don’t need.
We spend money on groceries which we need to make dinner because we need to eat dinner. We choose to spend our money on those groceries instead of candy because candy is a want.
With little kids, you can keep the conversations about money simple and practical. The important thing is that you have the conversations openly and honestly.
Financial Milestones: Ages 5-7
Between the ages of 5 and 7, kids start to truly understand much more about their world. They start to differentiate between themselves and their friends at school. They may be jealous of things their friends have and ask for items that are outside of the family budget.
This is the perfect time to let kids in on family savings goals. Children can understand that vacations, amusement parks, and fancy shoes cost real money and that your family spends and saves in a deliberate manner.
Allowances and Chores: This is a great age to introduce the concept of earning money through chores or a small job, and encourage them to save a portion of their earnings for short-term goals, such as buying a toy. If you choose to give your child an allowance, this age is a good time to start. Talk to your children about setting-up automatic savings so that part of their allowance automatically goes into their savings.
Informed Purchasing Decisions: At this age kids start wanting to spend their own money. When mom and dad say “No,” kids frequently say “I’ll buy it with my own money.” This should be music to your parental ears.
You can start to encourage your kids to compare prices and make informed decisions when making purchases, such as buying a toy on sale or choosing a less expensive option.
As parents, we are hardwired to try to keep our kids from making mistakes, but this is actually an ideal time to let kids start making some. When kids make mistakes on their own they are much more likely to remember the lessons learned.
Financial Milestones: Ages 8-10
At 8 to 10 years old, kids gain more independence in their thinking and decision-making. They understand the value of money and can earn it by doing small tasks like chores. Encourage them to set savings goals and make choices on spending. By teaching budgeting and saving basics, kids can develop healthy financial habits.
Banking and Investing: Kids in 3rd-5th grade should be introduced to the concepts of banking and investing. They can be saving money, not only to buy something that they want but because they can earn interest. You can start to talk to your kids about investing and show them the statements from their 529s and any other accounts you might have opened for them.
Savings: Kids this age can easily save $100-$300 over the course of a year. It’s very healthy for you to set a goal together and for them to see that they can easily hit that goal if they simply put a percentage of their allowance into savings every month.
Create a Budget: Budgeting is a skill kids can learn early in life. Roughly only one-third of Americans have a budget, which is unfortunate because budgeting is an important personal finance and life skill.
Kids can start to track where their money is going, and make future plans for spending, saving and giving. Teach them the importance of prioritizing needs over wants and making informed spending decisions by helping them to create a budget for their allowance or earnings.
One excellent way to teach kids how to budget is to give them a budget for one activity.
If your child is going to play soccer, give them an appropriate amount of money and let them decide how to allocate it. This will give them a practical opportunity to put their financial education to good use.
They will learn to differentiate what they need (the sign-up fee) from what they want (name-brand cleats). These budgeting lessons will help them when they leave home and need to spend their limited money on unlimited options.
Financial Milestones: Ages 11-13
For tweens, financial needs, and responsibilities become more complex. They may have an allowance or part-time job. This is a great opportunity to give them control over their own spending and to teach them delayed gratification and saving for the future.
Set a Longer-Term Saving Goal: This is a good time to start encouraging kids to set aside money in longer-term savings accounts. There is a push right now to engage kids in investing in individual stocks or cryptocurrencies, but the safer bet is to encourage kids to start using their money to invest in mutual and index funds. Before kids can learn about investing in more risky stocks, teach them how to research the market and learn about companies in which they have an interest.
Savings: Kids this age can easily save $500 over the course of a year. If you encouraged them to save the $100-300 benchmark when they were younger, $500 will not seem like too much of a stretch. They will be proud of themselves when they hit their goal and know that saving small amounts over time adds up.
Earning Income: Pre-teen is a fun age, full of excitement and possibilities. Kids are starting to do some work outside the home. They can babysit, tutor, or shovel their neighbor’s driveway.
Kids this age can start to help pay for some of the extras they want in their lives. If you choose to get your child a phone, they can help pay the monthly costs. If your child must have a particular music or video streaming service, ask them to make small monthly contributions.
It may seem obvious, but kids don’t always understand what costs money and how much it costs. It will be impactful to give them this first taste of just how expensive things such as cell phones and streaming services can be.
Learning about Value: At this age, your tween is going to want to start spending on bigger-ticket items. Give them the freedom to make mistakes, but teach them how to shop around: thrift stores, garage sales, and online shopping are all avenues to compare prices and teach your child about value and the trade-off between price and quality.
If you are in the habit of swiping your credit card every time your child wants something, these are good years to break that habit. We discussed a sports budget above, but you can also do a monthly budget for your tween for other things such as clothing, school supplies and movies.
If they spend their own money they will feel the purchase in a way they never will if you keep buying them everything.
Financial Milestones: Ages 14-16
Teenagers begin to seriously consider their financial future. At this age, they’re ready to start learning about more adult-type financial issues like insurance and investing for long-term financial success.
Save for Life’s Expenses: These are the years things are about to get real. Kids want more independence and the cost of independence can be quite steep.
The savings milestones during these years should focus on saving for a car and for car insurance.
Kids should understand what insurance is, and how having a good credit score can lower their premiums. There will be a lot of financial lessons jam-packed into a couple of short years, but if they start saving they will be much happier when it’s time to actually purchase their first car.
They’ve already learned how to set a savings goal, but by this age, they should be able to save $1000 and start to think about keeping a reserve emergency expense fund with that money.
Learning about Investing: Teach them about the risks and rewards of investing by exploring different investment options, such as stocks or mutual funds, and discussing the potential returns and risks involved.
Consider introducing them to an online investment game so that they can play with house money while they’re getting their sealegs.
Open a Checking Account: 14-16 is the time most kids get their first checking account and debit card. Help them find a banking institution you trust, ideally the one where your family has been banking since they were children.
Teach them how to log into their account, see their balance, and keep track of their expenses. They will need to learn about overdraft fees, minimum balances, and automatic deposits. Hopefully, most of those requirements will be waived for student accounts, but that won’t be the case forever so it’s best that they get some solid understanding from the start.
Financial Milestones: Ages 17-18
As young adults, teens prepare for college or independent living. This is when their financial education becomes very real.
Planning Ahead: Adulthood and independence are officially just around the corner. Now is the time to start having honest discussions about college or vocational funding options. Encourage them to explore scholarship and grant opportunities. As students are accepted into colleges, spend time going over the cost/benefit analysis of different schools and their financial aid packages.
Student loan debt is crippling many Americans and it seems like too many students don’t understand what it means to sign on the dotted line. Talk to your kids about the different loan options, and what their payments will look like when they graduate. If your child wants to go into a profession that is historically low-paying, discuss educational options which will keep them from drowning in debt.
Fill out the FAFSA (Free Application for Federal Student Aid): Dependent students will be required to provide information about themselves and their parents on the FAFSA. This information will include income, assets, and other financial information. This process will need to be collaborative between students and parents.
Open a Roth IRA: If they haven’t already, this is a great time to think about opening and contributing to a Roth IRA or other retirement savings vehicle. While college students aren’t known for vast amounts of disposable income, the idea is to get them to contribute even small amounts of their income into a retirement account. This habit will continue into their more lucrative post-graduate careers, and they will be ahead of the game on retirement.
Understanding Credit vs. Debit Cards: The second your sweet child hits 18 the credit card offers will start coming. The average college student graduates with over $2,500 in credit card debt. This can have a significant impact on their financial future. High-interest rates can lead to a cycle of debt that is hard to break.
Hopefully, your newly minted adult has been engaged since early childhood in financial education so they are well aware of the pitfalls and dangers of high-interest credit cards. If not, scare them now.
Real Jobs: Read about the benefits of teen jobs here.
Taxes: Chances are that your child will have a job and need to file taxes. Walk them through how to file and explain the importance of being open and honest. No one wants a visit from an IRA auditor, and being truthful on taxes is a habit they can establish early.
Financial Milestones: Ages 19-21
Young adults begin to establish financial independence and are usually out on their own with all of the associated expenses.
Emergency Fund: As your child gets ready to take off their adult training wheels and ride into the world, make sure they have what they need to withstand their first financial tests. Teach them about the importance of emergency savings and encourage them to build up a fund to cover unexpected expenses, such as a car repair or medical bill.
First Job Benefits: Offer to sit down with your child and go over all of the benefits of their first career-level job. It will be important for them to maximize all matching options, pick the right healthcare plan, and contribute as much as possible towards retirement. Remind them that these are the ideal years to be maxing out all retirement contributions because their expenses are lower than they may be if they decide to marry and have children of their own.
High-Yield Savings or Money Market Accounts: Savings accounts that offer a higher interest rate are a good place to store emergency funds or short-term savings you might need to have liquid on short notice.
The Income Trap: There is frequently a feeling among the newly independent earners that they just need to earn a high salary and they will be financially secure.
This is simply not the case. It’s good to mention to them that 48% of those making in excess of 100,000 are living paycheck-to-paycheck. While earning a good income can be important, it is more important to establish good habits around spending and saving.
Remember that budget you taught your child about when they were much younger? This is the reason why. No child really needs a budget, but every adult does. If you raised your child to learn to set and stick to a budget, they will thrive during these early years of their careers.
These benchmarks will help you establish some concrete goals for raising financially educated children. Whether you like to talk about money or not, it is something that comes up multiple times a day. It’s vital for kids to grow up understanding its role in their lives.
All too often financial milestones and benchmarks get overlooked in childhood. Parents take care of their children so it might not seem like kids need budgets, emergency funds, or IRAs. But this rationale misses the point. Financial habits are established by age 7. The early childhood years are crucial for establishing good habits.
Everyone’s financial journey will look different, but the things that make people financially successful are universal. Patience, delayed gratification, and discipline are the keys to living a financially stress-free life.