The Kids' Guide to Emergency Savings

Teaching the value of emergency savings to kids.


Guide published by Jose Abuyuan on September 13, 2020

Talking about money and savings are often reserved for grown up discussions. But even at an early age, it’s crucial to expose children to basic money management. Teaching kids how to budget and save may not seem very important when they’re young. However, as children grow, developing healthy financial habits can help them avoid toxic debt and other stressful money problems.

Did You Know?

In 2018, the Federal Reserve reported that 40 percent of Americans are not able to afford a $400 emergency charge with cash, credit card, or even savings. This is based on the 2018 U.S. households economic well-being data. In the same report, 27 percent of Americans must borrow money or sell belongings to cover a $400 emergency cost, while 12 percent cannot afford it at all.

How does one prepare for financial setbacks? Learning how to save and budget are best cultivated at an early age. If kids start saving for emergencies early, they have better chances of recovering from a financial problem, especially during rough economic times in the future.

In this guide, we’ll discuss the state of financial literacy among children. Then we’ll move on to reasons why you should build emergency savings, such as the growing consumer debt in the U.S., and the trouble with high interest-debt such as credit cards. We’ll also talk about why people struggle with debt repayment, and different factors that can keep you from building savings.

Then, our guide will provide practical savings tips to manage your finances better. We also included links to financial literary lesson plans per grade level to teach your kids. We believe imparting basic financial principles can help children become wise and responsible consumers as they grow.

Table of Contents

As this guide is detailed, you can read it linearly or jump to a section of interest using the table of contents.


Financial Literacy Among Kids

Financial literacy among kids.

How do children behave when it comes to money? Often, when parents give allowances to kids, it’s with the intent to teach saving.

Percentage of kids that save their allowances.

In October 2019, Consumer Affairs reported that 75 percent of parents say the most important reason for providing allowances to kids is to teach money management. However, in the same survey, only 3 percent of parents said their children actually save their allowances. The other 97 percent said they usually end up spending their money.

Average allowance and chores

Moreover, 86 percent of parents in the survey said they don’t just give cash to kids. They require them to do chores so they can “earn it.” On average, a child’s allowance is around $30 a week. This data is based on a survey conducted by the Harris Poll for the American Institute of Certified Public Accountants (AICPA).

What do kids spend their allowances on?

Here’s where children’s allowances usually go:

% of ParentsWhat their kids spend allowance on
45%Going places with friends
37%Digital devices and downloads
18%Buying toys

The purchases above fall under leisure and non-essential expenses. And since most of them do not save, it may indicate that kids are not yet taught about saving for emergencies and future needs. The data also shows that simply handing cash to kids without proper guidance is not enough.

Pigly's Tip!

Giving allowances should be a learning moment. Moms and dads should talk to kids about financial concepts when presented with the opportunity. Even when children become hardworking adults, saving and budgeting are primary financial skills that will help them conserve income.

In a related article, Policygenius wrote about how parents engage kids with money matters. In a June 2019 survey, they found that close to 63 percent of parents have discussed at least one major financial concept to their child. The survey was based on 1,500 parents with children below the age of 18 throughout the U.S.

When asked what financial concepts they’ve explained to their child, parents selected the following (multiple selections allowed):

% of ParentsFinancial Concept
16.3%Credit scores
37.3%None of the above

Based on this data, budgeting and debt were the most frequently discussed financial concepts. This was followed by giving to charity and paying taxes. The concept of credit scores and insurance were the least discussed financial topics.

Pigly's Tip!

Under the topic of budgeting and debt, moms and dads can easily talk about the importance of emergency savings to kids. The concept of saving even a few dollars a week, as long as you do it consistently, can go a long way.

It’s important to stress that emergency savings must not be spent on any other expense, unless there is an actual emergency. On the other hand, credit scores, taxes, and insurance are topics that parents likely discuss when children are older.

Next, Policygenius found that over 47 percent of parents have not yet opened primary savings accounts or checking accounts for their child. When asked what financial accounts they have cosigned for their children, here’s what parents said:

% of ParentsType of financial account
32%Savings account
17%Checking account
10%Stocks, bonds or other investments
7%Credit card

Parents can open traditional savings accounts or checking accounts for their child. This is a great way to encourage saving. It introduces kids formally to the banking system and even motivates them to keep saving money for the future. Other parents cosign trust funds, even stocks and investments for their kids.

How About Credit Cards?

Many credit card providers do not allow primary cardholders to authorize users under 15 years old to an account. And this is for good reason. Credit cards do not bode well with users who are not yet financially informed. If kids cannot control their spending, it would rack up large debt. It’s not a good idea to let your kids use credit cards until they understand its repercussions.

Give your kids a head start with financial management. Start talking to your children about financial concepts early on, and encourage them to save their money. In the long-term, they will thank you for it.

The following sections will detail many important historical lessons and reasons why you should teach them young.


The Growing State of U.S. Household Debt

Household debt pertains to the combined debts of all the members living in a home. These usually include consumer debts such as mortgages, auto loans, and credit card debts. The U.S. household debt refers to the overall debts incurred by American consumers. To keep track of all these debts, the Federal Reserve Bank of New York updates their record every quarter.

Historically, people typically spend most of their income on buying a house. The rest is dedicated to other living necessities and wants. A report by CNBC states that people usually spend 10 percent of their disposable income on non-housing debts, such as credit card payments, car loans, and student loans. When more people take out loans, it signifies consumers are confident they can pay back lenders. However, if people incur more debt than they can pay on time, it becomes troublesome.

To date, Bloomberg reported that the U.S. household debt surpassed the $14 trillion mark for the first time in Q4 of 2019. Coming into 2020, the country faced economic challenges due to the impact of the coronavirus pandemic, with President Donald Trump declaring a national emergency in March 13, 2020.

Stay at home orders and enforced lock downs caused widespread unemployment in many industries. Some of those most affected were the food industry, service workers, and airline companies. When states reopened in May 2020, the Washington Post reported that the unemployment rate rose to 13.3 percent.

U.S. Consumer Debt in Early 2020

By the end of Q1 in 2020, U.S. household consumer debt grew to $14.30 trillion, which is a 1.1 percent increase from Q4 of 2019. According to the New York Fed’s report, while housing debt increased together with student loans and auto debt, consumers showed a significant decline in credit card balances.

This apparent decrease in credit card spending may reflect the early impact of the coronavirus crisis on consumers. With unemployment and reduced salaries, people are obliged to reduce expenses till they find stable sources of income.

The table below breaks down debt categories from the previous quarter and Q1 of 2020.

U.S. Household Debt Figures, Q4 2019 – Q1 2020

Household DebtQuarterly ChangeQ4 2019Q1 2020
Mortgage(+) $156 billion$9.56 trillion$9.71 trillion
HELOC(-) $4 billion$0.39 trillion$0.39 trillion
Student Debt(+) $27 billion$1.51 trillion$1.54 trillion
Auto Debt(+) $15 billion$1.33 trillion$1.35 trillion
Credit Card Debt(-) $34 billion$0.93 trillion$0.89 trillion
Other(-) $5 billion$0.43 trillion$0.43 trillion
Total Household Debt(+) $155 billion$14.15 trillion$14.30 trillion

Data from the Federal Reserve Bank of New York

US household debt Q1 of 2020

In Q1 of 2020, mortgages took the largest share of consumer debt with $9.71 trillion. Second comes student loan debt at $1.54 trillion, at third are auto loans at $1.35 trillion. In fourth place is credit card debt with approximately $1.35 trillion. Other debts such as personal loans came in at fifth place with $0.43 trillion, while home equity lines of credit (HELOC) took the last spot with $0.39 trillion.

How Did People Fair with Loan Payments During the COVID-19 Crisis?

In Q1 of 2020, many consumers unfortunately fell into serious delinquency. These are people unable to pay their loans for 90 days or more. The total delinquency rate in Q4 of 2019 was 2.36 percent, and it rose to 2.38 percent in Q1 of 2020. See the tables below:

U.S. Consumer Flow Into Serious Delinquency (90 days and up)

Household DebtQ4 2019Q1 2020
Student Debt9.21%8.87%
Auto Debt2.36%2.37%
Credit Card Debt5.32%5.31%
All debts2.36%2.38%
Debt CategoryU.S. Q1 2020 Delinquencies
Mortgage debtAround 0.9% of existing mortgage balances were delinquent for 30 days or more.
Around 75,000 people got new foreclosure notations on their credit reports from January 1 – March 31.
Student debtApproximately 10.8% of aggregate student loan debt was 90 or more day delinquent or in default.
Auto debtAround 2.37% of consumers became 90 or more days delinquent in auto loan payments.
This is a slight increase from 2.36% in Q4 of 2019.
Credit card debtAround 5.31% of credit card holders became 90 or more days delinquent with payments. This is a slight decrease from 5.32% in Q4 of 2019. People were less likely to use their credit cards.

Data from the Federal Reserve Bank of New York

Delinquency occurs when you do not have enough financial cushion to cover loan payments during emergencies. While struggling to make ends meet, people who lack funds tend to incur late loan payments.

Many factors can result in substantial loss of income. These include losing your job or adjusting to a reduced salary during a recession. You may even catch a severe illness or get into an accident, which racks up expensive medical bills. Thus, when faced with emergencies, if you do not have enough savings, it’s tough to keep your living situation afloat.

Why People Struggle to Keep Up with Debt Repayment

There are many factors that can keep people from paying debts, much less build substantial savings. Indeed, overspending is an issue. Living in a consumerist culture where people are pressured to have the same things or “better” may drive people into further debt. And if you don’t know how to plan for major purchases, like buying a house or a car, you might end up with a bad deal.

Apart from lack of budgeting skills, other important costs have risen much faster than people’s wages. These growing expenses include college education and healthcare.


The Rising Cost of College Education

Rising cost of college education.

According to U.S. News in 2019, the cost of sending kids to college grows more expensive every year. Even before adults are ready to purchase a house, they have to worry about student debt. Besides the rising tuition, students need to pay for food, housing, transportation, books, and other related fees. These add up to thousands of dollars a year. To lower education expenses, families would send their sons and daughters to in-state colleges. However, in the last 20 years, tuition costs for private and public National Universities have increased a great deal.

Bloomberg notes that student debt has steadily become the second largest consumer debt in America next to housing loans. Student loans began as the lowest shareholder of household debt in 2003. But by 2010 to 2019, it has overtaken auto loans as the largest non-housing debt in the U.S.

In 2019, U.S. News included tuition fee data from 381 ranked National Universities in their 2020 Best Colleges report, which underscores these key findings:

  • The average tuition and fees in private National Universities rose to 154%
  • In-state tuition and fees at public National Universities have increased the most at 221%
  • Out-of-state tuition and fees at public National Universities rose to 181%

Here’s data that illustrates average tuition fees per year, from 2000 to 2020. It includes private colleges, out-of-state colleges, and in-state colleges. Notice how fast education cost increased in the past 20 years. (U.S. News included data to reflect tuition fee increase in 2020).

Average tuition growth among national universities.

Average College Tuition Growth (National Universities), 2000-2020


Data from U.S. News

On the other hand, the next graph shows how workers’ annual wage net compensation changed from 2000 to 2018. This is according to the Social Security Administration (SSA) Measures of Central Tendency for Wage Data. It includes the average net compensation together with the median net compensation for workers.

Worker's Annual Wage Net Compensation, 2000-2018.

Since the average is just one way to measure central tendency, the SSA also took the median wage. This is the middle amount, from where one half earns the lowest, and the other half earns the highest. The median is shown because the distribution of workers’ wage levels highly vary. Our graph above and the table below shows how median wage is considerably lower than the average wage.

Workers’ Annual Wage Net Compensation, 2000-2018

YearAverage Net CompensationMedian Net CompensationDifference% Avg Above Median

The data above was taken from the SSA, where the figures were based on the national average wage index. This indicator is used to gauge workers’ general rise in standard of living.

Average wages rose slower than major living costs and median wages are rising even slower. People at the lower end of the economic spectrum fared worse during the recent recession with nearly 40% of low-income Americans losing their jobs during the COVID-19 pandemic.

If we juxtapose the average annual compensation with tuition fee increases, we’ll notice that a substantial part of annual wages can easily be taken by college expenses. For instance, in 2001, the average annual net compensation was $31,581.97. If you send your teen to a private college, it would cost you $16,987 a year. That’s already more than half of your annual compensation. If you choose an out-of-state college, it would cost $10,101 per year, which is more affordable. But if you opt for an in-state college, it would only cost $3,508, which is one-fourth as costly as a private college.

By 2018, the average annual compensation rose to $50,000.44. However, if you send your teen to a private college, it would cost $38,261 a year, which is around 78 percent of your annual compensation. Meanwhile, sending your child to an out-of-state college would cost $25,453 per year, which is half of your annual salary. And while in-state education is priced lower than private and out-of-state colleges, it costs $11,260 in 2018. That’s over three times more expensive than the average in-state college cost in 2000. If your income is lower than the average individual, you would likely have a harder time paying for college tuition.

For the following graph, we took the median annual compensation and plotted it together with private school and in-state college tuition costs. It gives us a better idea of how much lesser people earn over the past few years in comparison to the rising cost of education.

Median net compensation and annual tuition costs.

Based on the graph above, the median annual compensation started off at $20,957.18 in 2000, which is higher than the average private school tuition at $16,294. However, by 2008, private college tuition rose to $25,664, while the median annual compensation was just at $26,514.38. In 2009, private school tuition overtook the annual median salary, which is $27,146 over $26,261.29.

Seeing this trend, a parent with a median salary cannot afford to send their teen to a private college. Therefore, they must be able to send their teen to an in-state college. In-state college tuition in 2018 reached $10,655, while annual median compensation was at $32,838.05. Choosing an in-state college gives parents more financial leeway for other important costs. Though it’s a viable option, it effectively limits your child’s school preferences.

Unless you have ample savings, it’s a struggle to afford college expenses. This is especially difficult if you have high credit card debt and a mortgage to take care of. As a recourse, many people apply for student loans, which may take them 10 or 20 years to pay off.

Large Cuts in State Funding

A 2019 CNBC article reports that large cuts in state funding for higher education aggravated tuition increases in public colleges. Michael Mitchell, senior director of Center on Budget and Policy Priorities (CBPP), stated that cuts in campus budgets pressure schools to admit more students that require less aid, or raise their tuition.


The Increasing Cost of Healthcare

Increasing cost of healthcare.

Compared to other countries, the U.S. spends substantially more on healthcare. Such spending is also predicted to keep on rising, which inevitably aggravates America’s growing debt problem.

In 2018, the Centers for Medicare and Medicaid Services (CMS) reported that the U.S. spent around $3.6 trillion on healthcare. This is equivalent to about $11,172 per person a year. The cost of healthcare also grows relative to the size of the economy. In 1960, it accounted for 5 percent of the gross domestic product (GDP). By 2018, healthcare expenditures accounted for 17.7 percent of the GDP.

Healthcare percentage on the GDP.

Moreover, the CMS projects that medical costs will rise to $6.2 trillion in 2028. That’s around $18,000 per person annually. This does not account for the Covid-19 pandemic’s financial impact yet. Experts anticipate Covid-19 treatment costs to be expensive, which can drive healthcare costs even higher.

Expensive Does Not Mean Better

According to the Peter G. Peterson Foundation (PGPF), the higher health care costs do not necessarily translate to improved health outcomes. People keep spending more, but it does not also always insure better healthcare services or results. PGPF is a non-partisan organization that raises awareness of America’s long-term fiscal problems.

Why Healthcare Expenditures Continue to Grow

U.S. healthcare costs are associated with the function of the dollar price and utilization. These refer to the amount charged in exchange for healthcare services, and the amount of healthcare services consumers use. Several factors can increase price and utilization, driving healthcare expenditures higher. In 2019, the Journal of the American Medical Association (JAMA) published a study that notes five factors that influence the cost of healthcare. These include:

  • The increasing population
  • The aging population
  • The prevalence of disease
  • Medical service utilization
  • Service price and intensity

One of the key factors is the growing population. More people increase the demand for healthcare services. People with unhealthy lifestyles—those with bad diets who do not get enough exercise—are also prone to illness. For instance, eating a diet high in sugar and carbohydrates causes weight gain and inflammation in the body. Over time, bad health can get very expensive.

If you don’t change your diet, your joints can eventually wear out. As you age, you’ll have a hard time walking. The lack of mobility makes it harder for your to exercise, which can progress to more serious health conditions such as heart disease, hypertension, and diabetes. Over time, your medical expenses get higher as your health fails to improve.

Percentage of people over 65 in the US.

When the aging population grows, more people are likely to seek medical care. The U.S. Census Bureau states that people aged 65 and above comprised 16 percent of U.S. population in 2018. This figure is expected to surpass 20 percent by 2030. On average, people over 65 years old spend more on medical costs than any other age group. Since diseases like heart problems, diabetes, and cancer are more prevalent among seniors, they tend to spend more on medical treatment. The growing elderly population is anticipated to increase healthcare prices over time.

Medical service utilization is affected by the patients’ ability to access healthcare. This is associated with a patient’s geographical area, age, gender, disability status, and even ethnicity. If medical care is not widely available in a certain location, it impacts healthcare utilization, making it more costly to access for patients. Americans also tend to pay more for administrative costs related to the complexity of the country’s heath care system.

Required Healthcare Insurance

Another reason for the rising healthcare cost is due to government policy. Ever since programs like Medicaid and Medicare (which started in 1965) were mandated to require health insurance, providers were able to increase prices. And for many people, expensive medical costs have a lot to do with rising health insurance premiums.

The Kaiser Family Foundation (KFF) states that the average annual premium for a family healthcare coverage was $20,576 in 2019. That’s a 5 percent increase from $19,616 in 2018. To show how insurance premiums have grown over 20 years, here’s a chart that details changes in health insurance premiums for single coverage and family coverage. It includes average annual premiums from 1999 to 2019.

US annual health insurance premium, 1999-2019.

U.S. Average Annual Healthcare Premiums, Single and Family Coverage (1999-2019)

YearSingle CoverageFamily Coverage

Data from the KFF Employer Health Benefit Survey 2018-2019, Kaiser/HRET Survey of Employer Sponsored Health Benefits, 1999-2017

Based on the figures above, health insurance started at $2,196 for single coverage and $5,791 for family coverage in 1999. The coverage for families increased a lot faster compared to its individual counterpart. By 2019, family health insurance premiums were almost three times more expensive than single coverage plans. Single coverage costs rose to $7,188, while family coverage increased to $20,576. KFF states that the average family healthcare premium has grown by 54 percent between 2009 to 2019.

Now, if we plot the average and median annual net compensation together with health insurance for families, we’ll see that a considerable portion of annual salary goes towards health insurance. This does not factor other possible medical emergencies or illness you might face yet. See the graph below.

Annual net compensationa and family health insurance.

In 2000, the average annual net compensation was $30,846.09, while median net compensation was $20,957.18. The average annual family insurance cost was $6,438 in 2000, which is 20 percent of the average salary and around 30 percent of the median salary. That’s a substantial amount, especially if you happen to fall under a median salary.

Fast forward to 2010, the average annual net compensation rose to $39,959.3, and the median net compensation grew to $26,363.55. Despite rising wages, the average family health insurance cost was at $13,770 a year, which is 34 percent of the average net salary, and 52 percent of the median net salary. The higher percentages indicate that wages did not rise fast enough to match the same percentage in 2000.

By 2018, family insurance increased to an average of $26,363. This is around 52 percent of the average annual compensation in 2018, which is $50,000.44. Meanwhile, the median salary was $32,838.05, making family insurance over 80 percent of the annual median compensation. The data shows that unless wages rise faster, or healthcare costs become more affordable, more Americans will have a hard time affording required health insurance in the future.

Furthermore, research by PGPF states that the cost of healthcare services has risen faster than other goods and services in the country. In the last 20 years, the Consumer Price Index (CPI), which is the indicator for the average price changes paid by urban consumers, has increased every year at an average of 2.1 percent. Meanwhile, the cost of healthcare has grown at an average of 3.5 percent annually. This is substantially higher, which may discourage people from seeking medical care as they worry about the cost.

PGPF’s graph below illustrates the disparity between the cost of common consumer goods and medical care.

Year-over-year change in consumer price index.

Education and healthcare expenses are just examples of important cost you have to prepare for. Even the price of basic goods and services rise every year, which is referred to as the inflation price. Imagine how much money you’ll need to save to cover basic necessities like food, transportation, and your rent or mortgage.

Even if it fits your finances, what if unexpected costs derail your budget? You’ll have a hard time repaying debt, let alone saving money. But if you save a lot earlier and teach your kids to do the same, your family will have a better financial safety net in case of emergencies.


Credit Cards and the High-Interest Debt Nightmare

Credit cards and high interest debt nightmare.

Using credit cards for certain expenses is helpful, especially during unexpected situations such as emergency car repairs or emergency medical treatment. It gives you access to cash which you can later pay back. However, if you regularly use your credit card without clearing your balance, you’ll soon get caught in a debt trap. Once you incur toxic debt, it’s a nightmare that’s hard to escape. states that in 2019, around 37 percent of U.S. households had credit card debt carried over from month to month. The average credit card balance throughout the country reached $6,194 in Q2 of 2019. In some states with higher cost of living such as Alaska, the average credit card debt rose to $8,026.

Young Consumers are in Debt

In February 2020, the Wall Street Journal (WSJ) reported that total credit card debt in the U.S. reached an all time high of $930 billion in Q4 of 2019. This is well above the last peak seen before the 2008 financial crisis. The report revealed that young credit card holders aged 18 to 29 years old were getting into serious delinquency. This means most of their credit card payments were late for 90 days or more.

The graph below illustrates how high delinquency rates are for U.S. borrowers aged 18 to 29 compared to all other U.S. borrowers. It shows rates from Q1 2009 to 2019.

Credit card deliquency rate,Q1 2009-2019.

U.S. Credit Card Delinquency Rate, 2009-2019

Q1 YearAll borrowersBorrowers aged 18-29

Data from the Federal Reserve Bank of New York

By Q4 of 2019, serious delinquency rate for all borrowers increased to 5.32 percent from 5.16 percent in the previous quarter. On the other hand, the serious delinquency rate for borrowers aged 18 to 29 years old rose to 9.36 percent in Q4 of 2019. This is the highest since Q4 of 2010 from 8.9 percent.

The data shows that many young credit card users did not prioritize clearing their balance early on. It can also indicate they use revolving credit to afford things beyond their means. And when faced with economic crisis like job loss, they are bound to have a harder time making payments. Either way, young consumers need to improve their financial management and build savings to steer clear of toxic debt.

Late Fees, Penalties, and Annual Fees

On top of the large balance, credit card lenders charge for late fees. Late fees can range from $28 to $39. If you are unable to make the minimum payment within 60 days of the due date, credit card companies can increase your prime rate, which increases your interest rate. This is a penalty for not paying on time. The credit card penalty rate is usually around 29.99%, which puts a massive increase on your payment. Making late payments also affects your credit report negatively.

The annual fee, on the other hand, is the amount you pay each year for using your credit card. Some providers waive the annual fee on the first year, but charge it in the succeeding years. Annual fees can be as small as $49 to as high as $550. But on average, most annual fees are around $100. Premium credit cards for traveling typically have the highest annual fees.

Unless you’re a responsible credit card holder, it’s easy to accumulate an exorbitant amount of debt. Swiping plastic is tempting when you can buy almost anything and pay for it later. But this comes with a price, which is charged in the form of interest rates. In August 5, 2020, the average interest rate on a credit card was 16.03 percent, according to

Interest is the amount your bank charges to service your credit card balance. If you carry over balance from month to month, your interest charges grow higher. Credit card interest rates are typically higher compared to consumer debt such as mortgages and car loans. This is because credit cards are considered unsecured debt, which are not tied to collateral like a house or any other asset. And with credit card use, you have to watch out for the impact of compounding interest.

How Compound Interest Works

Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.

Famed theoretical physicist Albert Einstein considered compound interest one of the most powerful concepts invented by man. Whether this urban legend is true or not, understanding the advantages of compound interest is crucial. This principle makes owing debt stressful for borrowers, yet highly profitable to lenders. If you have a savings account, you can use compound interest to substantially grow your savings.

Compound interest is interest that grows based on the original interest and principal of a loan. It occurs when interest is added on the principal balance after which the interest rate is applied to the new principal, resulting in a higher amount. The frequency of compounding interest is what increases the balance.

Compound interest applies to savings accounts and investments, and can totally turn against you if you’re paying loans or credit cards. If you have high-interest credit card with a large balance, compounding interest explains why it’s a struggle to pay it down.

Playing the Float

You can avoid compounding debt by paying your entire credit card balance each month before the due date. This strategy is called “playing the float,” which is only purchasing what you can pay in full each month. The idea is to settle your entire credit card balance before the interest charges kick in. Playing the float only works if you don’t have any outstanding balance, which means this practice is suitable for new credit card holders.

Even poor health exacts compound interest on your finances. When a person’s condition gets progressively worse, they tend to spend more on medical care. The Centers for Disease Control and Prevention (CDC) states that approximately 88 million adult Americans are prediabetic. It’s a serious health condition where your blood sugar is higher than normal but not yet high enough to be type 2 diabetes.

Aside from type 2 diabetes, prediabetic patients have higher risk of developing heart disease and stroke. Having chronically elevated levels of inflammation can increase the risk of cancer and other aging-related diseases. With so many Americans succumbing to poor health, it’s no wonder people struggle to keep up with expensive medical-related debt. Thus, maintaining a healthy diet and regular exercise is a must as you age.

What happens when you carry over credit card debt every month? Borrowers must pay interest charges on top of their balance, which is based on their credit card’s annual percentage rate (APR). The interest keeps earning as long as you do not pay off your credit card balance.

According to Experian, credit card interest is based on your account’s average daily balance during your statement period, which is compounded daily. This means your lender multiplies each day’s average daily balance by your account’s daily periodic rate. The resulting amount is added the following day to your average daily balance. This cycle repeats itself until you clear off your debt.

How does this impact your account? If you have a modest credit card balance and an average APR, the impact of daily compounding is minor over a period of a month. However, if you have a high interest rate and a large balance, compounding interest is evidently felt with much higher interest charges. Likewise, the interest charges get higher the longer it takes to pay down credit card debt.

You Must Pay More Than the Minimum

Credit card providers use low minimum payments as a marketing ploy to attract consumers. This gives the false idea that you can keep swiping your credit card without consequences. But in reality, minimum payments drive people further into debt. Banks allow consumers to pay as low as 1 to 3 percent of the balance, which is not enough to reduce their debt.

For example, if your balance is $5,600, paying just 3 percent of your balance each month will take you over 17 years to pay it off. You’ll spend more on interest than repaying the actual balance. For this reason, it’s wiser to make fixed payments with a higher amount to reduce your debt. You can use our fixed vs. minimum credit card payment calculator to estimate your monthly payment.


Compound Interest Boosts Savings

Compound interest boost savings.

When used for savings, compound interest yields higher returns. You can use this principle to build your emergency funds. Banks advertise high annual percentage yields (APY) to attract more people to open high-interest savings accounts. The APY indicates the rate of return per year, which depends on the interest rate and how frequently the interest compounds. When interest is compounded more times, it helps boost your savings faster.

For example, if your savings account comes with 2 percent APR, you are paid 2 percent when your interest compounds on an annual basis. If your interest compounds on a quarterly basis, the 2 percent is divided into four to cover four quarters of a year. In this case, you’re paid 0.5 percent four times a year.

Introducing Compound Interest to Kids

Kevin O’Leary on the show Shark Tank used a glass piggy bank to explain compound interest to his kids. As young as 5 and 6 years old, they learned the concept of saving and watching money grow the more you save. Whenever his kids placed money into an “account,” which is a glass piggy bank, he would put pennies in it while they were sleeping. The next day, his kids would notice their piggy banks had more money. He did this for a while until they understood the rewards of saving. Now, O’Leary is proud to say his kids have grown into good investors.

The key to children and money is explaining what it is to them very early in life. Money is not free, it doesn’t grow on trees, and the concept of working for it is very important. You spend your time to make money.

Kevin O’Leary, from the CNBC Make It interview

To give you a better idea, the following example shows how interest grows based on different compounding frequency schedules. Let’s say you made a $5,000 deposit at 2 percent APR for 5 years.

Principal deposit: $5,000
Interest rate: 2% APR
Investment term: 5 years

FrequencyAPRAPYInterest earnedFuture savings

Based on the table, your savings earn the most under daily frequency, which increases to $5,525.84 in five years. Annual frequency earns the least, which grows to $5,520.40 after five years. You earn greater interest if you make a larger initial deposit or continue to make monthly deposits on your savings account.

To learn more about compound interest and how it’s estimated, visit our guide on our compound interest calculator.

For the next example, let’s say you plan to deposit $50 each month to your account. Here’s how much faster your savings will grow.

FrequencyAPRAPYInterest earnedFuture savings

Again, daily frequency yields the most returns, increasing your savings to $8,680.88 after five years. Meanwhile, annual frequency earns the least returns, growing your balance to $8,642.83 in five years. The larger deposits you make, the higher interest your account earns.

Now that you know how compound interest works, it makes better sense to open a high-interest savings account. Make deposits frequently to build your savings. Most of all, steer clear of compound interest when it comes to loans, especially high-interest debt such as credit cards. Always pay your credit card on time to avoid penalties that increase your rates.


Practical Tips to Build Emergency Funds

Practical tips to build emergeny savings.

Emergency funds are cash reserves set aside for sudden unplanned expenses and emergencies. In order to build emergency funds, you must avoid touching a single cent in this account. Remember: emergency funds cannot be spent for discretionary purchases.

Common emergency situations that can arise include accidents or illness, car repairs, and home repairs. Now and then, you might need emergency plumbing, or a broken appliance needs changing. In other cases, you might be faced with sudden unemployment, which entails a huge loss of income.

The following are different types of emergencies and how they can impact your finances:

  • Emergency car repair – The average car repair bill is between $500 to $600, according to One out of three car owners cannot pay it without getting into debt. And depending on the severity of your car’s damage, some emergency car repair bills can reach $2,000 to $3,000.
  • Emergency plumbing – The usual cost to repair a leaky pipe at home is around $350. However, if your pipe bursts, it can cost anywhere between $5,000 to $50,000, according to Ace Home Services.
  • Emergency roof repair – Roofs withstand a lot of wear and tear over the changing seasons. Eventually, you’ll need to have it fixed or replaced. Home Advisor states that roof repairs can cost around $800 to $1,200, depending on the roof material. A complete roof replacement costs around $7,500 or more.
  • Medical emergency – For those without health insurance, the average emergency room visit costs between $150 to $3,000. This depends on the type of diagnostic tests needed, the treatment administered, and the extent of the condition.
  • Sudden unemployment – Losing a job is one of the most costly emergencies people face. According to ZipRecruiter, the average salary for average jobs in the U.S. is $5,555 a month as of August 13, 2020. To cushion yourself from this huge income loss, you must have enough emergency funds to tide you over until you find a stable job.

Emergency savings help buffer financial loss so you can recover faster. This way, you don’t have to rely on credit cards or loans that are much harder to pay back. This is why parents should teach kids to avoid accumulating large debt at an early age.

How Much to Save for Emergencies?

The amount of emergency funds vary depending on your income, lifestyle, and the size of your family. But as a rule of thumb, most financial experts recommend saving at least 3 to 6 months’ worth of living expenses. How does this work? Let’s suppose your monthly living expenses add up to $3,500. When you follow the 3 to 6-month rule, your emergency funds should be between $10,500 to $21,000.

For others, setting aside 3 months of income may be hard. This happens when you’re the only bread winner in the family, or when you’re faced with large debts. However, Experian states even saving one month’s expenses is better than having no emergency savings at all. If a month’s living cost is $3,500, this amount can still cover sudden repair jobs or medical emergencies.

Next, setting aside small bills whether it’s $5 or $20 still go a long way. Try to dedicate even a small amount to emergency savings every month. For instance, $20 a month can save you an extra $240 a year. If you save $40 a month, that’s an extra $480 a year. No matter how little, your money will grow as long as you set it aside without spending.

Teach Kids to Start Saving Small

Savings start with the first dollar. When you give your kid allowance, always impress the value of setting aside a portion of their money. And often, being a good example yourself will encourage them to emulate good saving habits.

Here’s how you can teach your child. If you give them a $10 a week, encourage them to save at least $3 a week. Tell them they can save $12 a month, which grows to $144 a year if they keep saving. And as an incentive, you can add several dollars each month, say $6, if they save $12, which is a great way to teach compound interest. By the end of the year, their savings will grow to $216. Of course, if they save more than $12 a month, their savings will grow larger.

Now, it might be overwhelming to think you should save a large sum. But if you take it step by step, it makes the process a lot easier. Building funds is more manageable if you save in increments. Follow these steps to grow your emergency savings:

1. Set a Savings Goal

Get your finances in order and estimate how much you spend in a month. If your living expenses amount to $2,500, multiply this by three months, and your minimum savings goal will be $7,500. If you multiply it by 6 months, your maximum savings goal will be $15,000. To make the process less daunting, you can set a goal of saving at least $5,000 every 2 years. By the time you reach your third and fourth year of saving, you should hit your $7,500 goal.

2. Commit to Consistent Contributions

You must reinforce your saving habit, otherwise your funds will not grow as planned. Make sure to allot a minimum savings amount per month. For this example, let’s calculate how much you should save per week to make $5,000 emergency savings in 2 years. That would make it $53 a week, which is $212 per month. This amounts to $2,544 in a year. Committing to this habit will save you $5,088 in 2 years.

Pay using Cash or Debit

Reduce spending and boost your savings by paying in cash or using a debit card. Using cash for purchases instantly limits your spending, while debit cards do not accumulate monthly interest or extra credit card fees. Also, using actual cash makes credit more tangible, especially to kids. When you teach money as a real object, kids better understand its value. Debt researcher Adam Carroll notes that credit cards are a financial abstraction that negatively impacts our spending habits.

Adam Carroll talks about using real money to play Monopoly with his kids.

3. Put Your Savings in a Safe Place

Place your money in a high-interest savings account, which is different from a bank account that you regularly use. This way, you’re not tempted to use your reserve funds. Banks offer high-yield savings accounts that earn interest the longer your money sits in them. It also earns higher interest with more deposits. High-yield savings accounts are also easily accessible. This helps you get money in case an emergency happens any time.

Saving with a Certificate of Deposit

Another option is placing your money in a certificate of deposit (CD). CDs are interest-earning time deposits where your money stays for a period of time. While CDs earn interest on savings, this limits your access to cash. Banks charge a penalty fee if you withdraw from a CD before the maturity date.

4. Automatically Transfer Money Into Your Savings Account

A good way to ensure consistent savings is by automating money transfers. Certain banks offer to move money automatically between checking accounts and savings accounts. You can time automatic transfers when you get your pay check by using a direct-deposit arrangement. This way, you can set aside a specific amount every pay day. You don’t need to worry whether you still have enough for savings. This strategy helps move money directly to your emergency funds before you even touch it.

5. Save Your Tax Refund

Another way to increase your emergency funds is by saving your tax refund. The Consumer Financial Protection Bureau (CFPB) states that tax refunds are one of the biggest checks workers receive each year. Consider contributing a portion of it to your emergency savings account. According to Washington Post, the average tax refund was around $3,100 in March 2020. This is a considerable sum that will surely boost your emergency savings.

6. Monitor Your Progress and Make Adjustments

Make sure to routinely check how much you’ve saved. If you think you can afford to make extra savings, adjust your contributions. This will help grow your savings faster.

For example, to save $5,000 emergency funds within 2 years, start with a weekly savings plan of $53 a week. This is $212 a month, which is $2,544 a year. You’ll save $5,044 in 2 years.

Now, let’s increase your weekly savings for the following year. If you can save $75 a week, that’s $300 a month, which amounts to $3,600 a year. After 2 years, you’ll be able to save $6,144. By adding extra to your weekly savings, you’ll exceed your $5,000 savings goal. If you keep up your savings for another year, that adds another $3,600 to your funds, which amounts to $9,744 in savings.

The figures above have not yet factored compounding interest if you deposit in a high-yield savings accounts. It also does not include added money from your tax refund. Nonetheless, making this much savings is only possible if you do not touch your funds. If ever you run into an emergency by the second year, you would at least have $6,144 to cover unexpected expenses. Starting from this amount can provide you with a little financial safety net.

Pigly's Tip!

If you have high-interest credit card debt, prioritize paying it down first. Reducing your credit card balance lowers interest charges, which means more of your income can go toward emergency savings. This frees up your cash flow, giving you more money to save for more important investments.

Once you’ve reached a reasonable savings goal, you may leave your emergency funds in peace or continue to contribute an amount. If you’re saving up for a car or house, you can open another savings account for that goal. But even if you’re not planning for major purchases, you can open a separate savings account specifically for irregular spending. This account is called your sinking fund.

Expenses covered by sinking funds include annual maintenance costs you need to anticipate. For example, if your laptop is due for timely repairs, you can use your sinking funds instead of your emergency savings. You can also use it to anticipate car repairs and home repairs. If you have a lot of room in your budget, sinking funds may even cover costs for gifts on friends’ birthdays.

You can learn more about sinking funds by reading our guide on our irregular payments calculator.


Budgeting Basics to Teach Your Kids

Kids take after their parents’ budgeting skills. When they see how well their mom and dad runs the household, it makes an impact on them. Show the importance of maximizing money for your needs. This way, they will understand that living within your means is possible, while being able to afford your wants.

Budgeting can be summarized into two main methods. This involves reducing your expenses and boosting your income. When it comes to reducing monthly costs, you have to create a list for important purchases and basic needs, and separate them from non-essential expenses.

As a rule, you should always prioritize your essential purchases over discretionary costs. But sometimes, it can be hard to draw the line. Which is why you need a proper guide, such as the 50-30-20 budget rule.

Practice the 50-30-20 Budget Method

50-30-20 budget plan.

The 50-30-20 budget plan is a financial strategy espoused by bankruptcy expert and U.S. Senator Elizabeth Warren. Under this method, 50 percent of your income should go to essential expenses. Meanwhile, 30 percent is allotted for non-essential wants, and 20 percent should go toward savings. Warren wrote about the 50-30-20 budget method in her book entitled “All Your Worth: The Ultimate Lifetime Money Plan,” which helps people increase their savings and break free from debt.

Budgeting with Your Kids

As children grow, parents adjust their allowance to accommodate their changing needs. By then, they must better understand the concept of budgeting so they can fit their expenses within a given amount. You can introduce budgeting by involving them in grocery shopping. Let them help you search for coupons by turning it into a game. Simple family activities like this teach kids how to choose good products that fit their budget.

50% – Needs

The 50 percent refers to half of your after-tax income. This is the ideal way to allocate money for living expenses like food, transportation, mortgage, and utilities. But sometimes, you may need to spend more on basic necessities. Let’s say you have a toddler in the family. If you have a full-time job, you’re likely spending extra for childcare if you don’t have relatives looking after your child. When this happens, you should reallocate budget from your Non-essential Category. It also helps to reduce certain costs. For example, you can take public transport now and then, or carpool instead of driving.

30% – Non-essential

Non-essential expenses are optional products and services that are good to have. Things like dining out, buying stylish shoes, or collecting vintage toys make life more worthwhile and enjoyable. In 2019, USA Today reported that the average American spends close to $18,000 a year on non-essential expenses, which is around $1,497 a month. The report also states the top three average non-essential expenses a month:

  1. Restaurant meals – $209.38 average cost per month
  2. Drinks – $188.68 average cost per month
  3. Takeout or delivery – $177.88 average cost per month

You can save more by preparing food at home and avoiding frequent takeout and restaurant meals. At the end of the day, it’s up to you which non-essential cost you’re willing to forego. Just make sure you’re not splurging too much on unnecessary purchases. It’s important to know when to cut back.

20% – Savings

Finally, 20 percent of your after-tax income should go to savings. While it’s a good idea to start small, you should work your way up to save at least 20 percent of your salary. This includes money for emergency savings as well as your retirement fund. To become financially independent, a person needs 25 times their annual expenses. Setting aside less than 20 percent of your income will take too long for your money to grow. It will also not generate enough interest for a substantial amount. Keep this in mind especially when you’re saving long-term for your retirement.


Financial Lesson Plans for School Children

3 Financial Building Blocks

The CFPB states that children use three fundamental building blocks for developing money management skills. These three functions are important for kids to acquire as they grow:


Executive Function – Includes the ability to plan early and remember information. Developing this skills helps them multitask, solve problems, and learn how to control their impulse. Kids learn these skills as early as three years old, and should be reinforced throughout their growth.



Financial Habits and Values – Involves learning rules that help kids figure out daily financial activities. It’s when kids observe financial practices and standards that they can emulate, such as saving and budgeting.



Financial Decision-Making Skills – Kids can apply sound financial decisions when they learn more about financial concepts. Along the way, they develop the skills and competencies needed to compare and analyze financial choices.


Parents can use these these building blocks to teach age-appropriate money management skills to kids. Below are some examples of how these functions can be taught:

For young kids in preschool, the CFPB recommends reinforcing planning ahead. Parents can start telling kids to save money for emergencies. An example is stocking extra food ahead of a bad weather. Show kids that setting aside money can go to buying extra food before blizzards or storms. This teaches them the value of preparation.

As for school-age children, parents should emphasize connecting values to spending habits. For example, mention how you always save loose change in a piggy bank. Or say you never purchase anything beyond what you can afford. When they see you practice these good examples, kids are likely to emulate them too.

For teenagers, you can talk about financial concepts in more detail. When you open the topic of buying a car, you can look up car prices and rates together online. Start explaining how interest rates increase car payments. One way to do this is by using a car payment calculator to compare how prices and rates impact savings. It’s also an interactive way to answer basic financial questions.

Below are lesson plans based on various parenting and financial sources that you can use to teach kids about financial literacy.

Financial Lesson Plans: Preschool, Kindergarten – 2nd Grade

Kids between 3 to 5 years old are typically too young to grasp abstract financial concepts. However, this is the ripe age to start building a foundation that solidifies their ability to organize resources. It's the right time to teach the concept of money and basic problem solving skills. Kids should also learn how to delay gratification and help discipline their impulsive urges.

Between the age of 6 to 8 years old, kids should be exposed to more counting and basic arithmetic. It's the time they become more familiar with adding and subtracting objects. As they grow up, this basic skill will be their foundation for solving more complex math problems.

The following financial resources are appropriate for kids in preschool to 2nd grade:

Making Responsible Financial Choices

  • CFBP's Money as You Grow Bookshelf – This is a program with a list of books that help parents introduce kids to money concepts through reading, playing, and close one-on-one discussions. The program provides opportunities to discuss money to kids and access to materials that help shape financial awareness. It helps parents turn story time into an educational experience where kids can develop financial responsibility that they can carry until adulthood.
  • 10 Fun Self Control Games to Practice Self-Regulation – The Therapy Source notes that self-regulation skills help kids control their emotions, thinking, and behavior in different environments. It allows them to develop the skill to focus and choose the appropriate response when faced with a specific situation. Kids with higher levels of self-regulation usually have higher scores in math, reading, and vocabulary. As they grow, this skill will also help them save money and decide how to spend wisely.
  • FDIC Money Smart for Grades Pre-K-2 – The Federal Deposit Insurance Corporation (FDIC) created a Money Smart curriculum including a complete financial literacy lesson for pre-K to 2nd grade students. It prioritizes helping kids understand currency and the concept of earning money. It differentiates between needs and wants as well as how to set goals for positive decision-making habits. The lesson plan also covers the basics of saving and spending and borrowing and lending.

Financial Planning and Money Management

  • Spending Plans for Preschool – This lesson plan introduces kids to the concept of dividing their money into categories. These basic categories are save, spend, and share. It includes activities that help preschool kids understand that money is a limited resource that must be used for different purposes. As they grow, they carry this lesson to know how to manage limited funds. is a nonprofit organization that provides financial literacy resources for kids in preschool, elementary, high school, and college.
  • 11 Ways to Teach Your Kindergartener Financial Literacy – came up with 11 teaching activities to develop financial literacy for children in kindergarten. It introduces coins and bills and how money is used to buy things. This guide includes basic budgeting while grocery shopping, as well as setting small saving goals. It teaches the importance of financial management by being honest about finances.
  • 5 Ways to Improve Executive Function in Children – Dr. Lynne Kenny is a pediatric psychologist who develops curriculum and activities to help improve children's cognition, including the development of executive function skill skills. Her article talks about how parents can extend learning experiences to develop children's executive function at home. Improving executive function skills enhances children's financial planning and organization as they age.

Income and Career Building

  • Business for Kids: How to Run a Lemonade Stand – This complete lesson plan teaches children how to put up their own lemonade business. It includes how to calculate expenses, set prices, advertise, and establish their business goals. It also fosters social interaction and teamwork among kids. This activity comes with printable worksheets to track orders and compute expenses. Kids can also practice their creativity in promoting their own lemonade stand.
  • Career Education Lessons for Pre-K to 3rd Grade – Workforce Solutions provides career education resources to help introduce preschool and 1st grade students to different career options. For students in the 2nd and 3rd grade, the lessons explain the economic importance of these jobs. These resources help kids understand why people need careers to make a living. It also encourages them to think about what jobs they want when they grow up. Workforce Solutions is a company that helps find human resource needs for companies in the Houston-Galveston area.
  • Who Works in Our Community? – Created by Lakeshore Learning, this lesson plan is focused on helping children identify different places and people in the community. The activity will also teach kids to classify different items, buildings, and equipment in the neighborhood. Before doing the activity, the lesson plan requires students to read or listen to the story Places in My Community by Bobbie Kalman. Parents and teachers may also use a different story related to this lesson plan to identify different workers and places.

Credit, Debt, and Risk Management

  • Fun Ways to Teach Compound Interest for Kids – The Money Prodigy came up with a detailed guide on how to explain compound interest to kids. As early as 1st or 2nd grade, once parents give allowances to kids, they can start introducing this concept. The resource includes fun games you can play with kids to help them grasp how compound interest works with savings and debt. The Money Prodigy is founded by Amanda L. Grossman, a certified financial education instructor.
  • Teach Kids About Borrowing Money – Family Education's article teaches parents how to explain the concept of borrowing and lending money to kids. It talks about certain situations where you can start allowing your child to borrow money for small purchases. You can do this as early as preschool or the first grade. This reinforces the concept of debt and financial responsibility. The resource also stresses the importance of borrowing only what you can afford.
  • How to Tell Your Kids That You Can't Afford It – Money Management International came up with a detailed guide on the importance openly communicating your finances with your kids. While young children may not understand complex economic issues, they benefit from the concept of saving. The also observe how well you manage your money. The resource talks about examining your own attitudes with money and how you can have no-cost family activities. It highlights the value of helping children understand financial challenges early on in life.

Saving and Investing

  • Just Saving My Money Lesson for Grade K – The Federal Reserve Bank of St. Louis provides free educational resources for financial literacy. In this lesson plan, kids in kindergarten learn the value or saving, savings goals, and income. First, children must read or listen to the story Just Saving My Money by Mercer Mayer. The book is about a little critter who saves money to buy a skateboard. After discussing the story, kids can play a game that requires them to earn income, have a savings goal, and save money until the goal is met.
  • Introduction to Saving and Spending – TD Bank offers a financial education lesson plan for students in kindergarten and the first grade. It focuses on explaining the importance of saving and its benefits. The resource teaches students to create a simple savings plan, encouraging them to use a budget when they need to decide how much money to save and spend.
  • The ABCs of Saving – This personal finance lesson plan that teaches the difference between short-term and long-term savings goals. Students will realize the value of giving up things today to save for the future. It also reinforces the importance of patience when it comes to saving enough money for wants and needs. EconEdLink is a resource created by the Council for Economic Education. They offer hundreds of free personal finance and economics lesson plans, videos, activities, tools, and more for K-12 teachers and their students.

Financial Lesson Plans: 3rd Grade – 8th Grade

By the time kids are 9 to 12 years old, they have a basic understanding of what money is and how it's used. Schools introduce them to more complex math problems involving money calculations. It's the right stage to teach them essential rules about managing and budgeting money. This is the appropriate time to start cultivating good financial habits and values which they can apply to the real world. And once they're in middle school (6th to 8th grade), they're more receptive to abstract financial concepts.

Around this time, kids are introduced to calculators and learn more about math concepts in school. There are different calculators, such as for measuring health markers, calculating time, as well as estimating personal finances. For a complete resource on calculators, visit our Complete History of Calculators for Kids page. It also has links to fun calculator games that help children sharpen their math skills.

Moreover, parents should encourage kids to watch more educational programs that impart financial literacy skills. An animated series called The Secret Millionaires Club has 26 online episodes. It features Warren Buffet as mentor to a group of adventurous kids who are entrepreneurs. Every episode shows how to make good financial decisions and solves basic lessons on putting up a business. It's a great way to reinforce money management, which also helps kids get interested in building income.

Financial literacy resources for kids in the 3rd to 5th grade:

Making Responsible Financial Choices

  • Money as You Learn Tasks for Grades 3-5 – This lesson plan teaches kids financial concepts like inflation, scarcity, and cost-benefit analysis. It helps improve their research skills, problem solving skills, and critical thinking, which allow them to make better financial decisions. Money as You Learn provides tools for educators to help incorporate personal finance lessons in Math and English lessons. They help children apply financial skills to real-world situations. You can also access lesson plans for grades 6 to 8 and grades 9 to 12 on their site.
  • Money Responsibility for Grades 3-6 –'s lesson plan teaches kids how to keep track of their spending. It introduces responsible money management through detailed record-keeping. The activity exposes them to tools and methods used to balance budget plans. It also aims to make kids think about what happens to your money when you don't plan expenses. The lesson plan comes with worksheets that show the value of being accountable for your own money. 
  • My Classroom Economy Grades 4-5 – My Classroom Economy offers fun experiential learning courses that teach children financial responsibility. To create a classroom economy, their site offers program outlines and activities appropriate for different grade levels. For example, teachers assign jobs and responsibilities to students, and create lists of bonuses and fines. They have pay days, rents, and auction activities. It's a kind of role playing kids can engage in all year round. You can also access middle school and high school programs.

Financial Planning and Money Management

  • FDIC Money Smart for Grades 3-5 – This complete lesson plan covers topics including how to prioritize expenses, the concept of opportunity cost, and setting a savings goal. Students will practice how to create a budget and save for emergencies. It even discusses lessons such as credit and debt, investments, and exploring careers for a stable source of income. The course comes with exercises and conversation starters to aid teachers and parents.
  • Spending, Saving, and Giving: How to Use Your Money – Scholastic's lesson plan teaches how money is used in three ways: to spend, save and to give to charitable causes. It teaches children how budgeting and keeping records of spending habits can help them make better financial choices. The first part deals with how to make a budget. The second section gives kids a word problem to test how well they keep spending records and calculate expenses. The third part is a follow up writing activity which makes kids give advice on budgeting. Parents and teachers can follow up the lesson with an online budgeting game called Road to Riches.
  • How Do You Spend Your Money? – Specifically made for 5th grade students, this lesson plan teaches the value of earning money, saving, and spending money wisely. It also introduces the concept of tradeoff and cost-benefit analysis. Students are required to read chapters from a book called Tarantula Shoes by Tom Birdseye before doing the activities. It also comes with a worksheet on bargain shopping, where kids determine the best deal when it comes to buying shoes. Take Charge America provides ten lesson plans for a complete unit of study at each grade level from first through fifth grade.

Income and Career Building

  • How Do They Do That? – Made for 3rd grade students, this lesson plan helps kids recognize the contributions made by different workers. These jobs are based on the 6 career paths introduced by the teacher. In this lesson plan, students should be able to compare and contrast academic skills that relate to various jobs. It will also ask students why skills taught in school are crucial for securing a useful career. The Missouri Department of Elementary and Secondary Education provides a wide range of free career development lesson plans.
  • Career Jeopardy – The Career Jeopardy lesson plan is designed for 4th grade students to research more about careers and job descriptions. It starts off by letting kids review the Nebraska Career Model, which includes marketing, business management, public administration, health services, and so on. Then, parents or teachers must go to Career Jeopardy online and start playing the game with students. It can be played with up to 3 teams at once. After the game, instructors should engage kids by asking what career model their ideal job fits into. The Nebraska Department of Education provides a variety of career exploration lesson plans for students.
  • Family Income Lesson Plan – This lesson plan was made to teach 5th grade students how to multiply multi-digit whole numbers. First, kids should calculate the annual total income of each family using the data on the worksheet. Then, after checking if their answers are correct, the instructor should engage students on how they feel about their own potential income in the future. It comes with a printable Family Income worksheet that kids can answer. Finance in the Classroom is resource by the state of Utah Board of Education, offering K-12 plans, worksheets and educational materials.

Credit, Debt, and Risk Management

  • Credit Cards and How They Work – This lesson plan was developed for students in the 4th to 6th grade. It teaches the concept of cash versus credit and introduces credit cards. It also comes with an exercise that explains the concept of interest and purchasing items on credit. The lesson also encourages parents and teachers to give situations when it's bad to use credit cards. The Money Instructor offers a variety of budget planning lessons and worksheets for children and adults.
  • Alexander's Coin Conundrum – Made for students in 3rd to 5th grade, this lesson plan requires kids to read or listen to a story called Alexander, Who Used to Be Rich Last Sunday by Judith Viorst. Afterwards, kids are taught computation techniques to find how Alexander spent all of his money in no time. The lesson impresses the value of budgeting and saving to avoid being broke. United States Mint provides games, activities, videos, and coloring pages that teach financial literacy. They have a helpful search feature that allows you to narrow down lesson plans by grade level from K-12.
  • Understanding and Managing Risks – For students in the 3rd to 5th grade, this lesson plan teaches concept of financial risk, liabilities, and insurance. It's designed to help kids identify risks faced by people in households, as well as how to protect their valuables. It helps kids understand how to reduce financial risk as they grow old. PwC is an acquisitions consulting firm that also provides a free financial literacy curriculum for students.

Saving and Investing

  • Fun for Kids Saving – This lesson plan teaches kids five simple saving tricks while learning how banks work. It helps children understand the concept of deposits and how interest can grow savings. The lesson emphasizes making savings goals, cutting expenses, and setting aside money first. The lesson plan also comes with an interactive saving calculator and a compounding calculator. is a financial education resource by Northwestern Mutual which provides teaching tools and advice for teachers and parents.
  • Exploring Cost and Savings Using Children's Literature – This lesson requires kids to read or listen to a story called A Chair for My Mother by Vera B. Williams. It encourages kids to explore saving for a specific purpose. The lesson will also compare the cost of different items. It also teaches kids how to set up their own savings plan and timeline. ReadWriteThink is an educational platform that provides lesson plans for different topics. They offer resources for kids in preschool to 12th grade.
  • Saving Strawberry Farm Lesson for Grades 3-5 – The lesson plan teaches how saving early is crucial, especially during unexpected economic downtimes. This requires kids to read Saving Strawberry Farm by Deborah Hopkinson. Kids will learn about scarcity of resources and high unemployment rates. It includes a bank run simulation to help kids understand how people with savings are affected by an economic crisis. The Federal Reserve Bank of St. Louis offers educational resources to teach personal finance and economics to adults and students in elementary, high school, and college.

Financial literacy resources for middle school, 6th to 8th grade:

Making Responsible Financial Choices

  • Planning a Budget, Grades 6-8 – This lesson reviews the concept of trade-offs and priorities to help kids practice how to prepare a budget. It also explains how savings earns interest the longer people save. Making budget planning a habit helps kids prioritize important purchases. This helps them become more responsible with their finances. The TD Bank WOW! Zone Financial Education Resources offers free financial lesson plans to help children and teens learn more about money management.
  • Consumer Awareness – Designed for kids in 7th to 8th grade, this lesson plan enforces decision-making methods before buying a product. It discusses real-world situations such as online shopping, internet scams, and how to handle consumer problems. The lesson also reviews the federal trade commission telemarketing sales rules. Finally, it encourages kids to track their spending and be more conscientious of what they buy. Practical Money Skills offers printable student activities and teacher's guides for important money and personal finance topics. They offer provide plans from Pre-K to College along with a special needs section.
  • 8th Grade Financial Literacy – This lesson plan is part of a webinar series which provides ideas for teaching different grade levels. For 8th grade, it focuses on developing financial and career goals, and creating a saving and spending plan. It also teaches kids how to analyze their credit and debit levels. They even learn how to evaluate savings and long-term investments. The course also explains how insurance may minimize personal financial risk. Dordt is a school based in Iowa which partnered with TS Institute Financial Literacy. They offer economics and financial literacy resources on their site.

Financial Planning and Money Management

  • Financial Goals: Making Them More Achievable – The lesson plan teaches kids in 7th to 12th grade how to identify long-term and short-term financial goals. It also introduces how to use the SMART goal setting method to build savings, as well as how to avoid and reduce debt. The University of Cincinnati Economics Center creates teaching materials and resources for financial and economic literacy. You can type in any financial topic to find a lesson plan for your child's grade level.
  • Shop ‘Til You Drop: Food for Thought – In this lesson plan, students are instructed to locate items on a virtual grocery store and calculate their price. The objective is to determine the best products on a limited budget, while planning a well-balanced meal. TeacherFirst Classroom Resources provides a wide range of lessons plans for K-12 students. Enter a topic and grade level to find a financial lesson plan for your child.
  • Financial Education Resources for Middle School – The Washington State Department of Financial Institutions (DFI) compiled a list of financial education curriculum sources for teachers and parents. While it includes paid resources, it mostly offers free access to lesson plans that teach basic money management for middle school children. For instance, it provides a link to, an interactive education program hosted by the University of Arizona, and, which is sponsored by the Utah State Board of Education, among others. The site provides a brief description that indicates the focus and features of each curriculum.

Income and Career Building

  • Create Your Own Business – This lesson plan teaches students how to create a business plan and understand the cost of acquiring a license. It explains the concept of capital and discusses issues relating to the kind of business they hope to build. The lesson will also help them identify the best method to sell their products and the cost of advertising. Education World is an online resource specially made for teachers and administrators. They provide thousands of classroom-ready lesson plans and worksheets.
  • Human Capital for Money – This lesson introduces kids to the concept of human capital, occupation, salary, and wages. It helps kids understand the relationship between levels of education and wages. It also encourages kids to learn about the concept of median income and the required education levels for different careers. The lesson should help kids reflect about knowledge and training they need to secure a stable job in the future.
  • Plan, Save, Succeed! – This is a fun online game from The Actuarial Foundation, which is hosted by Scholastic. Students are challenged to achieve career goals by making decisions on how they earn and spend money. As part of the coursework Scholastic offers budget planning printables.

Credit, Debt, and Risk Management

  • Credit Basics: Credit and Debt – This resource focuses on introducing kids to the concept of financing to secure major life purchases. It discusses how loans work and the importance of a good credit score. The lesson even allows kids to see a sample of an actual credit report. It impresses the importance of paying your bills, tracking your debt, and borrowing only what you can afford. Money Matters: Make it Count is a collection of teen financial education resources provided by the Boys & Girls Clubs of America in collaboration with Charles Schwab.
  • The Vault: Why Credit Matters – This resource is a video that teaches kids the importance of growing and protecting your money. It interviews a financial adviser who explains how credit scores impact people's ability to obtain loans. The speaker warns kids about the dangers of being irresponsible with your credit. This video is a good supplement for introducing debt and financial risk management to middle school children. All Choices Matter provides a collection of short video tutorials covering important financial concepts.
  • My New House – The lesson plan shows kids how to use an Excel program to calculate how much a house will cost. It shows them how to establish a monthly and yearly budget to pay a mortgage and maintain a standard of living. The lesson will help them understand the expensive cost of houses and the importance of being financially prepared to take this responsibility. Teachers.Net provides free lesson plans to help educators cover a wide array of topics. They offer resources for all grade levels, including college and adult education.

Saving and Investing

  • Debt Elimination: Power Tools for Building Wealth – This lesson plan teaches students different strategies to eliminate debt and strengthen their financial position. It helps kids understand that getting rid of debt is crucial in building savings. Once a person is debt-free, they have more income that can go toward investments. is a project of the FINRA Investor Education Foundation. They provide free financial literacy resources for students and adults.
  • Savings and Investments – This lesson plan teaches kids how to calculate simple and compound interest in relation to savings. It will also make them compare different savings options and assess their benefits. The lesson also explains different types of investments, such as stocks and bonds. Bright Hub Education provides lesson plans for teachers and parents handling kids in preschool to high school. They also offer special education resources.
  • Better Money Habits – This lesson plan focuses on helping kids differentiate between fixed expenses, flexible expenses, planned expenses, and unplanned expenses. Knowing these will help them reflect on the importance of having enough funds for sudden costs. The lesson will also teach them how to make a practical budget based on their own expenses in the household to set a savings goal. The Oklahoma Council on Economic Education trains K-12 teachers how to incorporate principles of economics and personal finance into the classroom curriculum.

Financial Lesson Plans: 9th Grade – 12th Grade

Once kids hit their teens between 13 to 18 years old, they like to explore and be more independent. This is the time when they start to get part-time jobs and experience earning money. They are also faced with more financial decisions such as choosing the right cellphone plan, buying a laptop, and managing their ‘social budget' (food, clothes, video games, watching movies, going to events, etc.).

Giving sound advice help teens gain confidence in making financial decisions. It's also a good time to encourage opening their own savings account to save a portion of their earnings. Make your teen feel comfortable about asking financial questions, whether it's about mortgage payments, handling credit card debt, or student loans for college. Open communication about financial concerns can also help strengthen your relationship.

The following are financial education resources appropriate for teens between 9th to 12th grade:

Making Responsible Financial Choices

  • Personal Banking – This guide helps teens understand how basic bank services can help you make financial decisions. It introduces the concept of credit versus debit, certificates of deposit, and checking accounts. The guide teaches teens how to manage their bank accounts, encouraging savings and limiting withdrawals. Better Money Habits is a collaborative multimedia educational content partnership between Bank of America and Khan Academy. They offer free financial literacy resources for teens, covering a wide range of topics.
  • CashCrunch 101 – A free online game that simulates real world cash transactions. It teaches teens how to manage their income, expenses, and net worth. The goal is to make sound financial decisions that will help increase their net worth within a given time. The game comes with a lesson plan and a list of other activities. This resource is provided by Jump$tart Clearinghouse, a searchable database of financial education resources for teachers, parents, caregivers and students.
  • 10 Free Financial Literacy Games for High School Students – is hosted by the George Lucas Educational Foundation, which was founded by the renowned filmmaker himself to help improve K-12 education. Edutopia compiled a list of free online games that teach personal finance and money management. For example, in the game called Payback, players are obliged to come up with strategic ways to succeed in college without incurring extra student debt. Another game called Spent challenges teens how to live paycheck to paycheck in poverty. These games encourage kids to apply practical solutions to common financial problems. Check out the entire list and see which games your teen enjoys.

Financial Planning and Money Management

  • NGPF Budgeting – This budgeting curriculum encourages teens to reflect on their spending habits while helping them determine their financial priorities. It also introduces the concept of net worth and how budgeting can help increase one's own net worth. The lesson includes different situations like finding an apartment, budgeting with roommates, and buying a car. The course aims to equip students with financial skills that will help them reach their long-term financial goals.
  • Money Skill Free Online Personal Finance Course – The American Financial Services Association Education Foundation (AFSAEF) aims to teach personal finance concepts to consumers of all ages. While they advocate financial literacy for adults, they also teach early money management to teens. They provide Money Skill, a free personal finance course that supplements or replaces lessons in math, social studies, and business courses. All you have to do is sign up to get access to the materials. They designed financial modules for teachers handling middle school, high school, and college students. Their course includes concepts like income, expenses, saving and investing, credit, and insurance. High school and college courses were developed to be part of business, math, and economics classes.
  • Financial Literacy for High School Students – is a personalized platform that helps students learn more about their chosen topics. To access the lessons in full, all you have to do it register to the site. The site features updated lesson plans written by professional educators. In particular, their financial literacy lesson plan was written by Sharon Linde, an instructor who has a Masters of Science in Mathematics and a Masters in Education. The lesson plan discusses key financial concepts such as budgeting, different types of taxes, and interest rates. Other lesson plans in the site discuss checking and savings accounts, how loans work, and debt management.

Income and Career Building

  • Classroom Activities That Teach Job Readiness Skills – This guide offers several classroom activities that encourage teens to explore careers and talk about different skills needed for employment. The activities also practice time management skills, critical thinking, and patience. It also encourages them to communicate and work well with their peers. WeAreTeachers is an online media brand and educational resource that publishes daily articles and videos to support teachers.
  • Barriers to Your Ideal Career Worksheet – By the time kids reach high school, they are more receptive to the kind of career they want to pursue in the future. Parents and teachers can use the ideal career worksheet to help teens think about factors that would affect their job choice. This activity can also be supplemented with the cost of training and development worksheet. Smart About Money offers a collection of PDF worksheets for high school students, with topics including budgeting, credit, investing, and housing costs.
  • Tax Audits – This Personal Finance Lab video introduces teens to the concept of taxes and tax audits. It explains why working citizens might get audited by the IRS, and how to be prepared. The lesson helps students understand how having higher income and complex sources of income can trigger a tax audit. Personal Finance Lab is a web-based education tool designed by Stock-Track, which aims to create engaging learning materials with portfolio simulations. Their website provides free video presentations on financial management. Other videos explain stocks, raising money for a start-up, IRAs and retirement accounts, and bankruptcy.

Credit, Debt, and Risk Management

  • The Smart Student's Guide to Managing Credit Cards – CashCourse provides a self-paced real life money guide for students, teachers, and non-school affiliated users. All you have to do is register for a free account to get practical money advice. In particular, they offer a financial guide to help teens become conscientious credit card users. The guide discusses pros and cons of credit card use, as well as how you can protect your identity. It highlights the importance of paying bills on time and paying off your balance each month.
  • Debt: The Good, the Bad, and the Ugly – This educational video helps teens understand that debt is a financing tool that has to be managed. It emphasizes the importance of financial planning, which means sticking to a monthly budget. The lesson helps reinforce the idea that people should not incur debt they cannot pay back. You can also access more videos explaining credit and debt hereBiz Kid$ offers financial literacy lesson plans, games and videos for middle school and high school. The coursework is available in English and Spanish.
  • Risky Business: What Every Teenager Needs to Know About Living Smart – This is an educational series that comes with workbooks and videos on how to make sound financial choices. Some of the topics include investing in yourself and being healthier and wealthier. It discusses things like how to protect your savings and how to analyze a credit report. The Council of Economic Education (CEE) provides economics and personal finance resources for K-12 students. They aim to help student make better financial choices for the families and communities.

Saving and Investing

  • Saving for a Rainy Day – This lesson plan teaches teens different methods for saving money, while identifying the pros and cons of each option. It introduces key financial concepts such as investing, stocks, bonds, and certificates of deposit. The lesson also comes with a video presentation explaining the power of compound interest. provides a plenty of financial literacy resources for high school teachers. They cover everything from saving and budgeting, including credit, debt, and financial risk management.
  • Intro to Insurance – The lesson helps students analyze conditions where it is appropriate for young adults to secure life, health, and disability insurance. It will also explain factors that impact insurance premiums and their relationship with out-of-pocket expenses. Next Gen Personal Finance (NGPF) is a nonprofit organization that partners with teachers. They provide free financial education lesson plans for middle school and high school students.
  • Investing – Money Working for You – The HSFPP curriculum page offers 6 free financial literacy modules. In particular, Module 4 focuses on how investing works and introducing different types of investment options. The lesson explores investment risks and the importance of imposing personal rules for investment. It will also teach teens how to set savings and investment goals. High School Financial Planning Program (HSFPP) is a turnkey financial literacy program which helps teens learn basic personal finance skills. The program was created by the National Endowment for Financial Education (NEFE).
  • HowTheMarketWorks - a free stock market simulation game which serves and educates over 350,000 users per year. They provide a guide to help teachers learn how to incorporate the game into their curriculum.

Financial Lesson Plans: Other Great Sources

While we put together a collection of our favorite curriculum in the above sections, many sites offer searchable databases which can help teach students important lessons which tie in with recent news themes. The following websites offer great financial plans for school children.

  • Next Gen Personal Finance - provides interactives, lesson plans, assessments and other resources for engaging students. Teachers can choose between specific units, a 9-week course and a full semester course.
  • EconEdLink - searchable resource created by the Council for Economic Education offering hundreds of free personal finance and economics lesson plans, videos, activities, tools, and more for K-12 teachers and their students.
  • Jump$tart Clearinghouse - searchable database of financial education resources for teachers, parents, caregivers and students.
  • Finance in the Classroom - resource by the state of Utah Board of Education offering K-12 plans, worksheets and materials.
  • United States Mint - They offer games, activities, videos and coloring pages along with a helpful search feature that allows you to narrow down lesson plans by grade level from K-12.
  • Practical Money Skills - Printable student activities and teacher's guides are available for important money and personal finance topics. They offer lesson plans from Pre-K to College along with a special needs section.
  • Better Money Habits - a collaborative multimedia educational content partnership between Bank of America and Khan Academy.
  • My Classroom Economy - Program offering experiential learning courses which teach children financial responsibility.
  • Money as You Learn - Free tools which help teachers integrate personal finance into the common core.
  • Take Charge America - Contains ten lesson plans for a complete unit of study at each grade level from first through fifth grade.
  • Smart About Money - Provides a collection of PDF worksheets around topics from budgeting to investing.
  • CashCourse - Self-paced real life money guide.
  • Money Instructor - contains budget planning lessons and worksheets for children and adults.
  • Money Matters: Make it Count - a collection of teen financial education resources provided by the Boys & Girls Clubs of America in collaboration with Charles Schwab.
  • Bureau of Engraving and Printing - Interactive guide detailing how money is design and made.
  • The Stock Market Game - A program of the SIFMA Foundation which helps students better understand the global economy by using virtual investing to drive real-world learning.
  • Biz Kid$ - Offers financial literacy lesson plans, games and videos for middle school and high school. Coursework is available in English and Spanish.
  • All Choices Matter - provides a collection of short video tutorials covering important financial concepts.
  • - Guide by Northwestern Mutual which provides teachers and parents with advice to teach kids and teens about money and personal finance.
  • Spent - game which simulates what it is like to live through the struggles of poverty living from paycheck to paycheck.
  • - resource created by Champlain College giving high school educators access to income, budgeting, credit, savings, and risk management resources to confidently and successfully teach financial literacy concepts in their classroom.

Planning for Major Financial Decisions

Once your kids grow up with their finances in order, it’s easier to prepare for major life purchases. Ideally, people should save in advance to pay for college education, buy a car, and own their first home. Aside from preparing enough savings, you have to make informed financial decisions before settling for just any loan deal. Before your kids go into the real world, you must teach them how to differentiate between a good or bad loan.

Good Debt vs. Bad Debt

Financial experts classify debt into two categories: Good debt and bad debt. Traditionally, good debt pertains to low-interest loans like residential mortgages and student loans. These are debts that help build income and increase wealth over time. Meanwhile, bad loans include high-interest debt like credit cards, personal loans, and payday loans. These debts do little to improve your financial history, and are likely tarnish your credit score.

The kind of debt you acquire, together with its quantity, length, and cost, can determine whether it’s a good or bad debt. In general, any loan with high interest that drags for years is considered a bad debt. This can happen with a buy here, pay here car loan, credit cards that roll over month to month for many years, or a high-interest private student loan.

For example, with student debt, some large post-graduate loans can run as long as 30 years (can apply if you do not qualify for public student loan forgiveness). For cars, if you end up with an upside-down deal, you’ll pay more for a vehicle with significantly less value.

Explaining Credit Score to Kids

Teach your child the concept of credit scores before they rack up debt. In a feature, Sascha Zuger’s 6-year-old son Nakoa took time to save for an expensive train set. But after months of saving, he was disappointed to find the train set was unavailable. Wishing there was a way to buy things and pay for them later, Sascha explained how credit cards worked to Nakoa.

By this time, Nakoa had been an eager saver, so Sascha improvised a credit rating system. If Nakoa maintained a score of 4, she would extend him credit if he liked a toy he couldn’t afford. But if his score was lower than 4, his mom didn’t lend him money. This taught Nakoa that his spending habits impacted his ability to borrow money.

In making major financial decisions, here’s some helpful advice you can use to manage your finances. Likewise, these are tips you can impart to your kids when they’re older and more aware of their financial options.

Preparing for College Education

In a 2018 Sallie Mae report, 90 percent of parents believe college education is a good investment for their child’s future. In the same study, over 8 out 10 said they were willing to stretch their finances to give their child the best opportunities.

Moreover, getting a college degree boosts your income. The National Association of Colleges and Employers (NACE) estimates that the average annual starting salary of college graduates in 2018 was around $50,005. Meanwhile, the average annual salary of a person with a high school diploma was around $35,256 in 2018. That’s a difference of $14,749 a year.

Invest in a 529 Education Savings Plan

Parents are encouraged to save early for their child’s college expenses by taking a 529 education savings plan. These are qualified tuition plans sponsored in most states in the country. 529 education plans allow you to open an investment account that covers your child’s college tuition, mandatory fees, as well as room and boarding costs. They can also be used in any college or university.

In the past, beneficiaries were only allowed 529 education plans when they reached 9 years old. But in recent years, there are no age restrictions for beneficiaries. As long as you provide your child’s name and Social Security Number or individual Taxpayer Identification Number, you can apply for a 529 education plan. You can withdraw tax-free from this account whenever you use it for your child’s qualified education needs. Parents are entitled to withdraw up to $10,000 a year for primary and secondary school tuition.

529 Plan Contribution Limits

There are maximum limits for 529 education plans, which vary per state. In 2020, this ranges between $235,000 to $529,000. According to federal law, 529 plan accounts cannot exceed the projected cost of a student’s qualified college expenses.

On the other hand, other families may not afford to pay for their child’s college tuition. When this happens, they have the option to take student loans. Student loans typically have low interest rates, specifically if you take a federal student loan. The general timeline for paying a student loan takes at least 10 years. This also depends on the size of the debt, with some taking as long as 20 years.

How Much Should You Borrow?

As a general rule, once your child graduates and works, student loan payment must not go beyond 10 percent of their estimated after-tax monthly income. If their annual salary is around $50,000, your child must not borrow more than $29,000 in student loans. Beyond this amount, your child might struggle to pay down their debt.

The graph below shows the average time it takes for people to repay their student loans in 2018. It’s classified according to the size of the loan balance.

2018 student loan average time

2018 Student Loans Average Repayment Time

Average repayment timeStudent loan balance
10 years$7,499
12 years$7,500 – $9,999
15 years$10,000 – $19,000
20 years$20,000 – $39,999
25 years$40,000 – $59,999
30 years$60,000 and up

Data from the U.S. Depart of Education

Student loan balances at $7,499 take an average of 10 years to pay back. This is the least amount of time required by student loan programs. Higher student loan balances take much longer to pay. Balances between $10,000 to $19,999 can take an average of 15 years to repay. Meanwhile, student loans at $60,000 and above take an average of 30 years to pay back. That’s just as long as most residential mortgages.

Since larger debt takes longer to pay back, avoid borrowing too much money for college. People who incur large student debt are more pressured to look for higher paying positions to pay off their loan.


Getting Ready to Buy a Car

Getting ready to buy a car.

In recent years, reports show that teens are no longer rushing to get their driver’s license like they did in the past. Back then, driving a car at 16 was considered a status symbol of freedom. But a 2019 WSJ article shows that more young people are delaying their driver’s license. They are also choosing to buy a car much later. In WSJ’s interview section, David Metzler comments on how his 16-year-old daughter June sees no urgency in getting a driver’s license.

"I went out and got it immediately… I wanted to get out of the house and go places. For her, getting a license is more like planning for the future."

David Metzler

Today, kids are growing up in the age of ride-hailing apps such as Lyft and Uber. Teens like June are also content with hanging out after school or inviting friends at home. Once they reach their 20s, young adults typically move to large cities with mass transportation. This further removes buying a car in their priorities. Though many teens drive today, their percentage has evidently decreased in the last three decades.

US licensed drivers by age groups

U.S. Licensed Drivers from Different Age Groups

YearAge 16Age 18Ages 20-24Ages 35-39

Data from Statista

Based on the data above, in 1983, approximately 46.3 percent of 16-year-olds had a driver’s license in America. In 2008, this decreased to 31.1 percent, and by 2018, the percentage dwindled to 25.6 percent. That’s a 20.6 percent difference from 1983.

Likewise, there were more 18-year-old drivers in 1983 at 80.4 percent. In 2008, this decreased to 65.4 percent, and by 2018, it went down to 60.9 percent. Young people seem to prefer getting their driver’s license between the age of 20 to 24, where 80.1 percent got their license in 2018. Though there’s a decreasing trend for young license holders, the percentage of adult drivers between 35 to 39 years did not decrease considerably.

Why do young people prefer to drive late? The major reason is because of rising vehicle prices. In April 2020, Edmunds reports that the average transaction price for a cheap new car is around $37,000, which is a big leap from previous years. According to WSJ, the average price of a new car in 2018 was $32,544. That’s an increase of around $7,000 from $25,490 in 2008.

In 2018, the average monthly payment for a new car was 10 percent of the median household income. This is an expensive cost most American families cannot afford to prioritize. Moreover, getting a driver’s license is becoming more expensive for teens. Because of state budget cuts, many public schools can no longer provide free driving lessons for students. Private driving lessons, on the other hand, usually cost over a $1,000. And when people choose to get their driver’s license late, they also buy a car much later in life.

Introducing Car Expenses to Preteens

At the age of 6 to 12, kids usually have a better grasp of values. The CFPB recommends engaging kids about purchasing cars at an early age. Show them your own car or check cars and prices online. Parents must reinforce the idea that cars come with many operating costs such as gas, insurance, maintenance repairs, parking, and more. You can also introduce car loans and how people borrow money from banks. And since frequent driving gets expensive, you can teach them alternative transport options like trains, buses, and carpooling.

With higher car prices, most young buyers in Generation Z are more likely to purchase used compact vehicles over SUVs. Next is a midsize car, followed by a compact SUV. Since this generation grew up during a financial crisis, and even witnessed the impact of the Covid-19 pandemic, young people tend to grow up more budget-conscious than their parents.

Below is a chart that shows the share of used vehicle sales purchased by Generation Z consumers in 2018.

2018 Used vehicle sales to Gen Z.

2018 Used Vehicle Sales to Generation Z Consumers

Vehicle Type% bought by Gen Z
Compact car25%
Midsize car19%
Compact SUV11%
Large pickup8%
Premium car8%
Midsize SUV6%
Sporty car5%
Small SUV5%

Data from The Wall Street Journal

How Much Should You Spend on a Car?

Keep car loan payments within 20% of your monthly take-home salary. Give this advice to your child before they jump into any car deal in the future. Amounts beyond the 20% range make it difficult for anyone, especially first-time car buyers, to keep up with payments and living expenses.

Ideally, a buyer should also provide a 20% down payment to reduce the car loan’s principal. A lower principal helps reduce interest costs. Next, tell them to keep the car’s loan term within 5 years. A longer loan means they will end up paying higher interest charges. Since cars depreciate fast, people shouldn’t pay more when it has significantly less value.

Our Pigly car calculators provide parents with detailed guides on buying and maximizing auto purchases:


Preparing to Purchase a House

Preparing to purchase a home.

Taking out a mortgage is one of the biggest financial decisions people make in their lives. It’s sign of financial stability and commitment to a long-term payment plan. The large expense is reason enough to get your finances in order. And by teaching kids early money management, you are preparing them to deal with this major life purchase in the future.

Just how expensive are houses? The cost of a home has drastically increased since the 1960s. Back in Q1 of 1963, the median sales price of a house in the U.S. was $17,800, based on data from the Federal Reserve Bank. In another report by Business Insider, using data from Zillow, the median price of a house in the 1960s was at $11,900. This is around $96,681 in 2019 when adjusted for inflation.

By Q1 of 2020, the median sales price of a house grew to $329,000. This is 18 times more expensive than median house prices in the ’60s. And if we compare Q1 of 2020 with Q1 of 2010, the median house price was $222,900 a decade ago. This means that median home prices increased by $106,100. So unless property values continue to decline in the next 10 years, future homebuyers must factor the rising cost to prepare for a mortgage.

Below is a graph showing how median home sale prices have changed in the U.S. between 1963 to 2020.

Median sales prices of homes in the US 1963-2020.

Median Sales Prices of Homes in the U.S., 1963-2020

YearQ1 Median Sales PriceYearQ1 Median Sales Price

Data from the Federal Reserve Bank of St. Louis

Location is an influential factor in housing prices. If you want a house near your workplace, grocery stores, and shopping malls, it’s usually more expensive. And for those looking for luxury homes, houses with scenic views overlooking lakes can easily cost a fortune.

Home prices vary per state, with houses in major cities and coastal areas costing more than those in less crowded suburbs. Business Insider reports that coastal states such as California and Massachusetts make up majority of the most expensive locations to purchase a house. On the other hand, Midwestern states like Mississippi, Ohio, and Iowa are some of the most affordable places to buy a home. For instance, in 2019, the median listing price for a house in West Virginia was $166,48, while the median listing price for a home in Massachusetts was more costly at $479,900.

Mortgage debt is generally regarded as one of the safest forms of good debt. This is because your monthly payments go toward building equity in your home. But as evidenced by the Great Depression (1929-1939) and subprime mortgage crisis (2007-2010), prices don’t always rise indefinitely. If you borrow more than you can afford, it is a huge risk. You can lose your home to foreclosure if you default on your loan. Plus, if house prices drop, you might pay a lot more for a home with significantly lower value. You can try to sell the house. But since the price has dropped, it may not cover your entire mortgage. So as a rule, it’s best to only borrow what you can afford.

What’s the Average Age of Homebuyers?

The rising prices also mean consumers are purchasing houses at a later age. In 2019, Bloomberg reported that young homebuyers have dwindled from the U.S. market. The median age for all buyers hit a record high of 47 years old in 2018. This is way above the median age for all buyers in 1981, which was 31 years old. Meanwhile, the median age for first-time homebuyers was 33 years old in 2019, which was 29 years old in 1981. Bloomberg gathered data from the National Association of Realtors.

The graph below shows how the median age for American homebuyers has changed from 1981 to 2019.

Median age for american homebuyers 1981-2019.

YearMedian age, all buyersFirst-time buyersRepeat buyers

Data from Bloomberg. No data for 1983 and 1999. The survey was done every other year prior to 2002.

Reducing Housing Costs

Where you live will automatically affect your expenses. Likewise, to decrease your housing costs, you can actively look for homes in low-cost locations. It can be a challenge to find an affordable home in the right place, but taking the time to compare prices from at least three listings can be well worth it.

Another way to save is to look for a reasonably sized home with energy-efficient features. Choosing an energy-efficient house will help you save on electricity bills. This is one of the reasons why tiny homes became popular in recent years. Smaller homes usually use less power and are environmentally friendly, with lower energy costs.

How Much Should You Spend on a House?

Ideally, mortgage payments must not exceed over 28% of your monthly salary. Paying beyond 28% will make it more challenging to budget living expenses and other debts. This puts you at higher risk of default. It also helps to save a 20% down payment before purchasing a house. This reduces your principal balance and gets rid of private mortgage insurance (PMI), which is required if you make a lower down payment.

Expensive monthly payments are a struggle for many consumers, so most homebuyers usually opt for a 30-year fixed mortgage. Longer mortgages have lower monthly payments than 15-year mortgages. But you can shorten your term later on by refinancing your mortgage and getting lower rate. Refinancing is taking out a new loan to replace your current one. If you cannot refinance, you can make extra payments to pay down your mortgage early. Remember: the shorter your loan, the less you’ll spend on interest charges.

For more practical advice on buying a home and managing housing costs, visit these guides on our calculators:


Investments and Retirement Planning

Apart from getting ready for emergencies and major purchases, saving ultimately prepares you for retirement. It is the key to achieving a comfortable life when you’re no longer working. Once you’re financially secure, your kids also don’t have to worry too much about your needs. They can focus on building their lives without having to financially support you throughout retirement.

In 2019, Forbes reported that close to 25 percent of all American adults have no retirement savings or pension at all. This is based on data from the U.S. Federal Reserve in May 2019. For those near retirement age, around 17 percent of people aged 45 to 59 had no retirement savings. Meanwhile, 13 percent of adults aged 60 and above also lacked retirement funds. The report showed that only 42 percent of adults between 45 to 59 years old felt prepared for retirement, while only 35 percent of adults aged 30 to 44 felt they were prepared to retire.

The chart below illustrates the share of Americans with no retirement savings in 2019. It’s based on respondents between ages 18 and 60 years old and above.

Share of americans with no retirement savings 2019.

Share of Americans with No Retirement Savings, 2019

Age groupPercentage

Data from the U.S. Federal Reserve

Lack of retirement savings is high among people at a young age. This is understandable, as young adults are still starting to save. Many of them are studying and looking for stable work to build savings. But if you teach your child to save early, they may have a little extra to start growing their emergency funds. Once they have emergency savings, they can start savings retirement funds earlier.

As people get older, they usually accumulate more income. By the age of 30 to 44, people should have a substantial amount of money set aside for retirement funds. Towards their 60s, people typically have more savings. However, it’s alarming to note that 13 percent of adults in retirement age still do not have savings in 2019.

Back then, more people aimed to achieve early retirement. But these days, more Americans are actually planning to work through retirement, even if some of them don’t need the money. Business Insider reported that a growing number of baby boomers and Gen Xers are not ready to stop working. Close to one-third of Americans over 40 said they would continue to work part time even after retiring. Among the respondents, Gen Xers, who are the most unprepared for retirement, were likely to say they would keep working to earn. Some adults are also expecting to fully retire by the age of 72.


Types of Retirement Plans

Investment and retirement planning.

There are different ways to set up retirement funds for your future. Retirement plans come with varied features. They also have limitations on the amount of money you can contribute annually. There may also be other restrictions that depend on your modified adjusted gross income.

The following are common types of retirement plans you can choose from:

401(k) Plans

Offered as an employee benefit, 401(k) plans are workplace retirement accounts that let you contribute a part of your pre-tax paycheck to tax-deferred investments. This lowers the amount of income you must pay taxes on within that year. For instance, if you earned $75,000 and contributed $5,000 to your 401(k) plan, you’d only be taxed for $70,000. Likewise, your investment gains are tax deferred until such time you withdraw money during retirement.

Contribution limits for 401(k) plans vary per year. In 2019, the Internal Revenue Service (IRS) set contribution limits at $19,000 and raised it to $19,500 in 2020. At the age of 50 and up, this grows to around $26,000. The low contribution limits can keep you from saving more.

Traditional 401(k) plans and IRAs require investors to begin taking withdrawals once they reach 70 1/2 years old.

Avoid the 401(k) Penalty

Beware of early withdrawals. If you withdraw money before turning 59 1/2, you might pay a 10 percent tax penalty. The withdrawn amount will also be taxed under federal and state laws. Do not touch your retirement funds until after the maturity date.

Individual Retirement Accounts (IRA)

Traditional IRAs are tax-favored investment accounts used for investing in bonds, mutual funds, stocks and exchange traded funds. This means you can purchase or sell investments using an IRA. You also don’t have to pay annual taxes on your investment gains. This allows your savings to grow faster. Moreover, you can deduct IRA contributions on your income tax if you do not have a 401(k) account. This also helps lower your taxable income for that year.

Consider taking an IRA if you’ve reached the limit on your 401(k) annual contributions, or if your company does not provide retirement plans.

Avoid the IRA Penalty

Refrain from early distribution, which is taking money from your IRA before the age of 59 1/2. Doing so may incur a 10 percent penalty fee. The money will also be subject to federal and state income taxes.

Roth IRA

Roth IRA contributions are comprised of after-tax dollars. The money generated in a Roth IRA account is never taxed again. Unlike 401(k) plans and traditional IRAs, you can withdraw from a Roth IRA before retirement age. However, you can only do so if 5 years has passed since your first contribution. Roth IRAs also do not require you to start withdrawing money once you reach a certain age.

Investors can contribute to both an IRA and Roth IRA as they please to maximize their savings. But take note: the total contributions for a year cannot be more than $6,000 as of 2020.

How Much Should You Save for Retirement?

Fidelity states that as a rule of thumb, you should save at least 15 percent of your pre-tax income each year for retirement. This includes any contributions you may receive from your employer. The research is based on an assumed retirement age of 67, where you ideally start saving 15% of your pre-tax income starting at the age of 25. This can potentially support a replacement annual income rate equivalent to 45% of your pre-retirement annual income, presuming you do not have pension.

But take note: The 45 percent income replacement target is based on retirement savings for people with a salary between $50,000 to $300,000. It also does not include Social Security or pension income. Thus, if your annual income does not fall within this range, the savings rate does not apply. You may still need to save more than 15% of your pre-tax income, depending on your lifestyle, desired retirement age, assets saved, and other factors.

The Federal Reserve 2019 report states that the median retirement savings is $60,000 for all adults. By retirement age, this figure should grow to a median of $228,900. It’s a small sum after 20 years, which means you definitely need to save more.

On average, the medical costs for senior couples during retirement is projected to be in the $200,000 range. Unless you save more, majority of your retirement funds are likely to go to healthcare expenses. This is also why it’s better to start saving early. If you let the magic of compound interest grow your savings, you’ll certainly have more funds for retirement.

To estimate how much retirement savings you need for your target age, you can use our retirement calculator.

Need more information on building retirement funds? The following are calculators with guides on our site that can help manage your retirement savings:


The Bottom Line: Saving for the Future

As early as now, it’s better to explain certain financial concepts to prepare kids for the future. Though saving and budgeting are concepts taught in school, it’s the parents task to guide them in making informed financial decisions.

As your child grows, they must deal with many financial choices in life. Debts can easily spiral out of control, especially if they’re faced with large emergency expenses. For this reason, the best way to protect your kids is to encourage saving emergency funds. There’s no better time to start saving than now.

Once your kid picks up good financial habits, they will be better equipped for major financial decisions as adults. This is a crucial skill that will help them recover from financial challenges, helping them build the life they want.

About The Author

Jose Abuyuan is a web content writer, fictionist, and digital artist hailing from Las Piñas City. He is a graduate of Communication and Media Studies at San Beda College Alabang, who took his internship in the weekly news magazine the Philippines Graphic. He has authored works professionally for over a decade.

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