A Financial Literacy Handbook for All Life Stages

Making smart financial decisions is important whether you're a high school student, a recent college graduate, a first-time homeowner or a midlife worker. But learning how to spend, save and invest wisely doesn't have to be intimidating. Being financially literate is a matter of understanding some basic principles that you apply to different decisions in your life, whether it's trimming your spending, stashing savings to buy a home or building funds for your child's education or your own retirement.

This guide will:

• Show what you can expect to spend money on based on your age
• Provide you with strategies for managing your money
• Teach you the basics of navigating life's major expenses

At each life stage, you will encounter different financial decisions and challenges. To establish a reliable and consistent money management plan throughout your life, consider these four basic money principles. These guiding principles can help you be financially-secured well into your retirement.

• CalcXML's Emergency Fund Calculator: Use this calculator to help you determine how much money to set aside for an emergency based on your monthly expenses, income, and other factors.

• Easy Guide to Budgeting: This comprehensive guide shows you what a budget looks like, includes expert advice from a financial planner and a free downloadable budget worksheet.

• Saving for Retirement Expense Calculator: Our free calculator provides an estimate of what your annual retirement expenses will be, in tomorrow's dollars.

Understanding how to manage money effectively is essential no matter what age you are. As with everything, the financial decisions you make now have ripple effects as you move through life. So taking steps to improve your financial literacy will set you up for success.

Shannon McLay, the founder of personal financial services company, The Financial Gym, agrees. "Financial literacy is empowering, and it's something that everyone should have. We all are impacted by money. We spend little time in this country educating our kids on this topic, and I think it has to be viewed as equally important as any other part of your education."

Read on for a review of some of the most critical areas to focus on when brushing up your financial literacy skills in your teens, 20s, 30s and beyond.

Setting good financial habits early in life can help you manage debt responsibly and lay the groundwork for financial security later on. For young adults, learn to distinguish between wants versus needs. Do you need those designer jeans or you just want them because you saw a celebrity wearing them? You can still buy things that you want but you must understand that an impulse buy now means you may not have money for gas or textbooks later.

While teens generally can't qualify for a credit card until age 21, you can be added as an authorized user to your parents' account, which would help to build your credit history. Your goal is to ultimately achieve an excellent credit score (anything above 720 is considered excellent). Lenders, credit card issuers, insurance companies, and others use your credit score to judge how responsibly you handle money. If your parents add you as an authorized user, you should discuss when it's appropriate to use the credit card and whether you'll be responsible for repaying your portion of the bill. Credit cards also come with spending limits. If you exceed that limit, your card could be declined or you could get hit with a fee.

≫ More: Best First-Time Credit Cards to Build Credit

Even if you can't qualify for your own credit card, you may be able to get a debit card instead. A debit card pulls money directly from your checking account, while a credit card creates a separate bill that you have to pay each month. Consumer protections that are offered to credit card purchases aren't always provided for debit card purchases, so remember to ask about returns and warranties.

A part-time job can be a smart way to earn extra money and gain job skills. Depending on how much you earn, you may need to file an income tax return with the Internal Revenue Service and your state.

Here's a look at common sections on a paycheck so you can understand where your money is going.

Employee Earnings
This will indicate the number of hours worked, the pay per hour, and the total wages for that pay period. Gross income refers to the full amount you earn before taxes, while net income refers to your take-home pay after taxes. Your paycheck may also indicate your year-to-date (YTD) pay, which is a running tally of all your earnings from that employer in the current calendar year.

Deductions
Your employer will typically withhold money from each paycheck for state and federal income taxes, as well as FICA contributions. FICA covers Social Security tax and Medicare. Your employer pays half of what you owe for FICA and withholds the other half from your paycheck.

Although there are none on this sample paycheck, if you had any reimbursement expenses for your job (for travel, uniform, or something else) these will be included on your paycheck, too.

• College Savings Plan Guide
• First Credit Card
• First Share of Stock
• Get a Free Credit Score
• Guide to Debt Reduction
• Guide to Graduating Debt-Free
• Student Credit Cards
• Take Charge of Your Finances: A Guide for Students
• Ultimate Guide to FAFSA

If you're not yet financially independent, you're probably getting close. Making money management decisions on your own can be exhilarating and scary at the same time.

Start by crafting a budget. To make sure you're not overspending, create a weekly or monthly budget and track your spending. You could do this using an app, a spreadsheet, or pen and paper. Once you see where your money goes, you may be inspired to be resourceful — bringing your lunch to work, for instance.

In addition to necessities like rent, car payments and food, and discretionary expenses like weekend travel or entertainment, your budget should also include saving for short-term goals such as a car, mid-term goals like a down payment for a home, and long-term goals such as retirement.

As soon as you get your first job, make sure you participate in your employer's retirement savings plan, even if retirement feels light years away. Some employers offer matching funds if you contribute to a 401(k), which is free money and compound interest (earning interest on interest you've earned previously). The incredible power of time and compound interest helps your money grow more quickly but you have to start early. For younger investors, it's the quickest way to build a nest egg for retirement.

Now that you're a responsible adult, it's time to think about health insurance. If you're under age 26, you may qualify for coverage under your parent's health care plan. Otherwise, consider coverage through your employer or your state's health insurance exchange. Going without health insurance could mean penalties come tax time, not to mention big bills if you become sick or injured.

So you need a car but can't afford to pay for one outright. A car loan allows you to finance the purchase over time. The longer the term of the loan, the lower the payment each month. But in some cases, that could mean your loan will be underwater (you owe more than the vehicle is actually worth) for a good chunk of the term. In the end, though, you'll own the car free and clear.

If you're planning to finance a vehicle, get pre-approved for a car loan from a bank or credit union before you walk into a dealership. Having your own financing might help you negotiate dealer financing at a lower interest rate. Alternatively, dealers often offer incentives on a car purchase like steep discounts on the price or free upgrades, but to get the incentives, you must take advantage of dealer financing. If this is the case, and the incentives are worth it, go ahead and finance the purchase through the dealer. Then in the next month, use your credit union or bank to refinance that car loan at a lower interest rate.

Leasing a car is an alternative to buying. Leasing is like renting, where you pay a set amount each month for the car, typically subject to mileage surcharges if you exceed 12,000 miles per year (about 1,000 miles a month) and damage fees for excessive wear on the car. This can be a good option if you don't have enough money upfront for purchasing or don't want to drum up a loan, but, on the downside, at the end of the lease you won't have a vehicle to trade in for a newer set of wheels.

• A Young Person's Guide to Social Security
• Financial Literacy 101 Podcast Episodes
• Saving for Retirement Guide
• Student Loan Forgiveness and Cancellation Guide

You may meet more responsibilities in your 30s — whether you're earning more, taking on a mortgage, combining finances with a partner, or all of the above.

If you choose to live with a partner, it's especially important to reflect on your financial goals and how you prefer to spend your money because your partner's goals and preferences may not be the same. Communicating about financial priorities can help address any discrepancies. Start by making a joint list of your shared financial responsibilities (rent or mortgage, car insurance, pet care, etc.). Next, create separate lists of what each of you likes to spend money on, in order of priority. Here are some suggestions for priority categories:

• Experiences (travel, concerts, cooking classes, dinners out)
• Material Things (for home, cars, clothing, etc)
• Family (higher education fund for kids, family get-togethers)
• Savings (emergency, retirement, and other goals)
• Everyday Luxuries (beauty/barber, vintage wine, brand-new electronics, etc)

Couples who open a joint checking account have equal access to bank funds. This enables you both to see how much money is being withdrawn from the account and for what kinds of expenses. Communication and trust are key to maintaining a joint account. So make sure you both discuss financial priorities before setting up a joint account.

Some couples opt for the best of both worlds: they use a joint account for shared expenses, yet each partner keeps some money in a separate account so they can maintain some financial autonomy. This may be particularly important to people who had become accustomed to managing their own money. However, having three bank accounts can make it difficult to track spending and identify where a household budget could be improved.

Before joining finances, be sure to discuss if you'll contribute to shared expenses 50/50 or in proportion to your incomes. That way, both partners feel like they're pulling their weight financially even if they have disparate incomes.

• Best Big Cities to Make a Living
• Best Mid-Sized Cities to Make a Living
• Best Small Cities to Make a Living
• First Time Homebuyer's Guide
• Get Financially Naked
• Rent vs. Buy Guide
• Starting a Household on Solid Ground Financially

All mortgages are home loans, but not all home loans are mortgages.

A first mortgage (a loan that can finance your purchase of a home) may be among the biggest debts you ever take on, so it's important to consider all its facets—everything from the deposit to total loan amount to the loan features, fees, and fine print.

Because homeowners rarely keep a first mortgage until it's paid off, many refinance their home loans—meaning they get a new mortgage to replace the original mortgage. If you sell your home, you'll use the sale proceeds to pay off your mortgage.

But there are other types of home loans, too, including loans taken out for home improvement or loans taken out to create a line of credit (home equity loans).

• First-Time Homebuyer Guide
• Introduction to Mortgages
• Introduction to Refinancing
• Refinance Calculator

Budgeting for yourself and a partner can be plenty challenging: adding children to the mix is a whole different ballgame. Let's look at strategies for stretching your dollars when you have kids.

Especially if your child doesn't have older siblings or cousins to inherit from, buying used can be a huge asset. Kids outgrow clothing so quickly there's no need to buy new. The same goes for books and toys. Shop yard sales, thrift shops, and online retailers to find gently used kids' items at a deep discount off the retail price. Another strategy is swapping with other parents when your kids outgrow their clothes and belongings. If you are buying new, learn to become a comparison shopper. Use online shopping tools and coupon sites to find the best price on everything you buy.

Some families choose to have one parent stay home while the children are young because of the skyrocketing costs for child care. Child care costs are higher than college tuition and rent in some regions.

According to the Economic Policy Institute, monthly child care costs for a household with one child (a 4-year-old) can range from $500 in rural South Carolina to $1,593 in Washington, D.C. One of their studies even found that child care costs exceed rent for families with two children (a 4-year-old and an 8-year-old) in a majority of American communities.

Every situation is different, and not all families have the choice to keep one parent out of the workforce instead of earning an income. But for those families that do have this choice, here are some pros and cons of returning to the workforce rather than staying home with kids.

Financial Planning for Blended Families

Many families decide to have one parent stay home if that parent's income would have been awash with childcare costs. However, they may be overlooking the hidden cost of lower future earnings. After all, studies have shown that women's earnings typically take a substantial hit after having kids. Women who work outside the home, however, are more likely to have higher wages and supervisory roles. Having both parents working and paying into Social Security also means a higher payout in retirement.

While there are obvious financial benefits, there are equally drawbacks. Less paid child support is needed when one parent stays home. The stress of juggling work and family obligations may be diminished with one parent able to hold down the fort while the other works.

The decision for a stay-home parent to return to a traditional workplace is immensely personal, not to be taken lightly. Discussing possible outcomes with your partner and making a sample budget for each alternative can provide inroads towards making a positive decision for your family.

• Child Care and Development Fund
• Guide to Budgeting

As you get older and progress in your career, you will likely have more money than you did in your youth but also more financial obligations.

If you're planning to support your child's higher education, even in part, the costs can become extraordinary. Maybe you've been putting away money since the day your child was born and maybe you haven't — either way, you have options.

Including your child in the financial process can be a healthy first step, so they're not confusing "FAFSA" with an international trade agreement. Fill out the grant or loan application together. Creating a monthly budget together is also a productive exercise, especially if your child plans on working a part-time job. By filling out the FAFSA, parents of dependent children can choose to apply for Federal PLUS Loans on their children's behalf.

Setting limits is important, too. If you have budgeted or agreed to assist with four years of tuition, your child should know that, so any time in school beyond four years is their own financial responsibility.

It's never too late to build your nest egg, however modest it may be to start. One way to start is by upping your retirement contributions. When your children leave the nest, bolster your own nest egg, whether this means maxing out your contributions to an Employer-Sponsored Retirement Plan or IRA or putting more into a CD, Money Market or regular Savings Account. If you do invest as part of your catch-up strategy, beware advisory fees. To paraphrase John Bogle, Founder of the Vanguard Group, one certainty of the stock market is that the middle man wins (a.k.a. the investment banker). Look out for financial advisors who will capitalize on your fear and try to charge you for their "assistance."

The last thing you want to do in retirement is make mortgage payments. Sacrifice your yearly family vacation or the vintage car purchase you've been contemplating to get paying off your mortgage out of the way: you'll thank yourself for it.

Another way to take care of your home without breaking the bank—reduce your energy bills by asking your energy provider for an audit. Recommendations might include adding insulation or a programmable thermostat or upgrading your windows. Some energy-efficient updates to your home may have tax credits available.

Performing regular home maintenance might seem trivial in the moment, but the benefit adds up. Tasks like replacing the filters in your heating and cooling system, vacuuming electric baseboard heaters, and checking faucets for signs of dripping can keep your home running efficiently and help you avoid costly repairs.

• College Savings Plan Guide
• Guide to Encore Careers
• Owning a Home
• Retirement Guide

Many seniors choose to downsize (move from a large home into a smaller one) once the kids move out and they retire. This can reduce or do away with housing costs altogether. But to make sure that downsizing is the right move, consider other factors. For example, if you're moving to a condo, you may be able to pay for the unit outright, or need just a small mortgage, but pricey condo fees may offset some of those savings. Some seniors choose to rent so they'll have more flexibility and liquidity in their budget.

Once you reach your 60s, you'll need to decide when to claim your Social Security retirement benefit. You can take your benefit as early as age 62. But if you wait until your full retirement age (66 or 67, depending on the year you were born), or until you reach age 70, your benefit will be larger. When you are within three months of age 65, even if you haven't claimed your Social Security benefit, you should sign up for Medicare to avoid a late sign-up penalty charge.

• Guide to Preventing Elder Financial Abuse
• Guide to Social Security
• Using your House for Income in Retirement

In today's American households, women are often heads of the household, primary breadwinners, or primary spending decision-makers. And because women live longer than men on average, they'll likely have more years in retirement to fund.

Sadly, women often lag behind men in financial literacy. Some reports have found them to consistently score lower than men on financial literacy tests. Poor financial literacy can take a toll especially when women without a developed knowledge around their finances grow dependent on male partners or family members who then pass away. The toll is significant too, for women without a male partner or guardian, who may choose to pay huge fees to financial managers.

Learning about money management from an early age can make a difference. Because basic financial literacy is not always incorporated in school curriculums and tutelage often occurs ad hoc in the home, parents can make progress by encouraging all their children to learn about money in a nondiscriminate way. The more mothers know and are willing to learn themselves, the better an example they can serve for their daughters — and for their sons, who may have daughters of their own.

• Guide to Financial Independence for Women