Teaching Financial Skills Across Life Stages: Why Estate Planning Matters

Financial literacy is a vital skill that should be nurtured throughout a person’s life. By gradually introducing financial concepts as individuals grow, we help build a solid foundation for their financial future. One often overlooked yet crucial component of financial education is estate planning. While most people understand budgeting and saving, estate planning ensures that individuals and their families are financially secure in the long run. Here’s how financial education can be approached at different ages, with an emphasis on estate planning.

Childhood (Ages 5–12): Learning the Basics of Money

The sooner children learn about money, the better prepared they will be for managing finances in the future. During these early years, financial education should focus on fundamental concepts such as:

• Understanding Money: Introducing kids to coins and bills, and how money is used to buy things.
• Saving vs. Spending: Using piggy banks or jars to help children see how saving money works and its importance.
• Earning Money: Encouraging kids to do simple tasks around the house in exchange for an allowance, teaching them the value of hard work.
• Distinguishing Needs from Wants: Helping kids learn the difference between essential needs (like food) and non-essential desires (like toys).

While estate planning is a more advanced concept, children can be gently introduced to the idea of inheritance—how items can be passed down from one generation to the next.

Teenage Years (Ages 13–19): Managing Money and Understanding Credit

As teenagers begin to earn money and make financial decisions on their own, it’s critical to teach them about budgeting and the consequences of their financial choices. Key lessons should include:

• Budgeting: Teaching teens how to divide their money between spending, saving, and investing, and how to track their expenses.
• Opening Bank Accounts: Encouraging teens to open their own savings or checking account to understand basic banking transactions.
• Credit and Debt: Explaining the importance of credit, how credit scores work, and the dangers of accruing debt without responsibility.
• Basic Investing: Introducing the concept of investing in stocks, bonds, or mutual funds and explaining how investing can help grow wealth over time.

At this stage, teenagers can begin to understand the significance of estate planning, particularly in terms of wills and what it means to assign beneficiaries to assets.

Young Adulthood (Ages 20–35): Financial Independence and Building Wealth

This is the time when young adults start to make significant financial decisions that will affect their future. Important lessons at this stage should include:

• Building an Emergency Fund: Encouraging young adults to set aside money for unexpected situations, with the goal of having three to six months of living expenses saved.
• Retirement Planning: Teaching the importance of starting to save for retirement early, particularly through options like 401(k)s or IRAs.
• Debt Management: Helping individuals manage student loans, credit card debt, and other financial obligations, and offering strategies for paying them off efficiently.
• Saving for Homeownership: Introducing the idea of saving for a down payment and understanding mortgages and home ownership.
• Insurance Needs: Highlighting the importance of securing health, life, and disability insurance to protect themselves and their families.

This is also a good time for young adults to begin considering estate planning, including naming beneficiaries for their accounts and drafting a basic will to ensure their wishes are clear.

Midlife (Ages 36–55): Growing and Protecting Wealth

At this stage, individuals typically focus on securing their financial future and ensuring their wealth continues to grow. Financial education during midlife should focus on:

• Maximizing Retirement Contributions: Encouraging individuals to contribute as much as possible to retirement savings accounts, such as 401(k)s and IRAs.
• Investment Diversification: Emphasizing the importance of diversifying investments to minimize risk and maximize returns.
• College Savings Plans: Helping parents set up education savings plans, like 529 plans, to ensure their children can afford college.
• Comprehensive Estate Planning: Ensuring individuals have a well-structured will, trusts, and have named a power of attorney for financial and healthcare matters.

Estate planning is a critical focus at this stage to ensure assets are protected, and dependents are provided for, especially as individuals start planning for the transfer of wealth.

Retirement and Beyond (Ages 56+): Safeguarding Wealth and Leaving a Legacy

As individuals approach retirement, the focus shifts to preserving wealth and ensuring that financial resources last through retirement. Key considerations at this stage include:

• Retirement Withdrawal Strategies: Teaching retirees how to draw from retirement accounts without depleting them too quickly.
• Tax-Efficient Management: Helping retirees minimize taxes on their investments and retirement income.
• Healthcare Planning: Planning for potential long-term care needs, including medical expenses in later years.
• Estate Planning Updates: Ensuring that estate plans, such as wills and trusts, are up to date and that healthcare proxies are in place.

Conclusion

Financial literacy should be cultivated throughout a person’s life, with each stage of life presenting an opportunity to learn new skills and responsibilities. By incorporating estate planning into financial education at every age, individuals can ensure that their financial security is maintained not just for themselves, but for their families as well. A proactive approach to financial education and estate planning ensures a strong financial future and a lasting legacy.

Infographic provided by Brown & Company, a top place for estate planning in Denver CO