Financial Literacy for Families

Let’s face it: Family finances can be complicated. Understanding how to manage money wisely, from creating and maintaining an accurate budget to saving for long-term goals, can help your family navigate even the most complex situations. What better time to focus on these financial skills than April, which is Financial Literacy Month?

Celebrate the power of knowledge by teaching your family about financial essentials and honing your own financial literacy at the same time. Delve into the main components of financial literacy and how they can be game-changers for your family’s finances.

The Core Components of Financial Education

Most financial topics and products can be sorted into one of four categories: earning, borrowing, spending and saving, and financial decision-making. It’s essential to understand these core concepts and their significance in order to lay a firm foundation for future financial knowledge and have productive conversations about money.

1. Earning. Knowing how money is earned within a household is vital for fruitful family discussions. Whether you’re a parent, partner, or caregiver, understanding this aspect sets the stage for financial awareness.
2. Borrowing. Although debt is best avoided, borrowing money can become a recurring event in life. Understanding borrowing and the responsibility of debt management, whether it’s for small purchases as a child or significant investments as an adult, contributes to overall financial health.
3. Spending and saving. Achieving financial well-being means being able to balance expenses and savings. Paying for necessities and desires requires proper financial planning and a clear understanding of the connection between the two.
4. Financial decision-making. Making wise financial choices, like researching significant purchases or adhering to prudent savings strategies, can have a profound impact on the entire family. Share how you make certain financial decisions to model responsible financial behavior for your children.

Prioritizing Savings

In 2022, roughly 18% of American families didn’t have enough savings to cover an expense larger than $100, and 51% actively reduced their savings in response to rising prices.*

Saving money, even in small amounts, holds immense significance for families. Here’s why it matters:

• Emergency fund. Life happens, and having savings set aside for unexpected expenses, like car repairs or medical emergencies, can keep you from turning to debt during difficult times.
• Short-term goals. Committing to saving for short-term goals, like travel or home improvements, enhances your overall quality of life and financial security. 
• Long-term goals. Saving lays the foundation for achieving long-term objectives, such as buying a home or a car. Understanding the different types of savings accounts and choosing the one that’s best for your goals is also vital.
• Retirement planning. Retirement planning should start early. Saving a substantial portion of your income over the long term is essential to ensure a comfortable retirement, and various strategies can help achieve this goal.

Creating a Family Budget

Budgeting can help you save more each month and be more aware of your spending habits so you can keep them in check. The 60-20-20 rule is a popular budgeting method that divides income as follows:

• 60% for living expenses. Housing, transportation, food, and other essentials are considered living expenses—the costs associated with basic daily living and health. Remember to factor in necessary expenses that you may pay only quarterly or annually, like insurance, as well as any outstanding debt you need to pay off. Set aside 60% of your monthly take-home income to pay for these expenses.
• 20% for savings. This category includes money that you set aside to create an emergency fund, invest, or save for future purchases like a home or car. Set aside 20% of your monthly income to meet this goal.
• 20% for fun. Fun or miscellaneous expenses are things you enjoy but can live without. Eating at restaurants, going to concerts or shows, and buying new clothes are all examples of costs that fall into this category. Plan to use only 20% of your monthly income here.

These amounts are easy to adjust to fit your unique situation. For example, if you have a large amount of credit card debt to pay off, you may want to reduce your fun category by 5% in order to put that money toward your balance until the debt is gone.

Tracking Your Expenses

To understand how much money you should budget for wants and needs, you need to track your expenses. There are several ways to do this, including:

• Notebook and pencil. Write down expenses manually for a traditional and reliable way to track your spending.
• Spreadsheet. Use ready-made budgeting spreadsheets or create a personalized one with built-in formulas for easy calculations.
• Online software or app. Try trusted, customizable tools that may sync with your accounts to manage spending and savings efficiently.
• Envelope method. Allocate cash for each expense category in labeled envelopes, limiting spending to the available cash in each envelope. Put your receipts for each category in the appropriate envelope, too, so you can review your purchases at the end of the month.
• Budgeting tools. Explore various online budgeting tools that suit your lifestyle and make it easy to track your expenses, such as Suffolk Credit Union’s Personal Financial Management tool available in online banking.

Knowledge Is Empowering.

Understanding the four core components of financial education, embracing a sound budgeting method, and taking advantage of free resources and tools available to you are the first steps in achieving financial well-being for your family.

Suffolk Credit Union is here to help make complicated financial topics clearer. We offer several online resources to empower your family’s financial future, including calculators to inform big financial decisions, informative articles to build your knowledge, and easy-to-follow financial workshops. For guidance tailored specifically to your family’s needs, reach out to us today.