Money Needs and the Family Life Cycle

When it comes to the future, many people wish they had a crystal ball, especially when money comes into the picture. Since crystal balls are hard to come by, University of Florida researchers say to look at the “family life cycle” to help predict future costs.

The family life cycle is a sequence of events that makes up a family’s pattern of development. It begins with marriage and includes other events such as the birth of children up to retirement. By knowing what usually occurs during various stages in the cycle, people can anticipate what their money will be used for and plan ahead.

The cycle begins with marriage, a time when couples need furnishings and household equipment, but have little income. Also, many couples begin to look at having a home of their own. When children come into the family, costs can also increase if one member of the couple takes time off of work to care for babies. Medical costs, along with insurance, can go up as well. Additionally, if one member of the couple stays home to raise children, there’s a loss of income. If both parents work, costs are incurred for day care. By this stage, families also usually have payments to make on a number of items, such as a home and cars.

Bigger changes still lie ahead as families put children through college and then adjust to their potentially empty nests and retirement. When families spend time talking about and planning for the financial responsibilities that are typical of each stage, they can make smarter financial decisions based on the needs of the family life cycle

How do cohabiting couples with children spend money?

More and more couples are choosing to cohabit at least some time in their adult lives, and researchers and policy makers are looking more closely at the costs and benefits of cohabitation for couples and children. A recent study in the Journal of Marriage and Family investigated whether cohabiting couples were similar or different than other family types in the way they spend their money.

Using data from over 45,000 U.S. families who took part in the consumer expenditure survey, researchers from Michigan State University and University of Chicago found differences in financial behaviors between cohabiting parent families and other families.

Compared to married couples, those who lived together spent less on health care and education and more on housing. This may be because cohabiting couples surveyed were younger, less educated, less likely to own their own homes, and had less earned income than married couples.

In addition, cohabiting couples were more likely to spend more on alcohol and tobacco than any other family type. The researchers could not actually determine whether cohabitors drank and smoked more, or whether they just bought more expensive products. The researchers question why cohabiting parent families seem to spend more on these adult goods and less on child-related goods, such as education. Different expectations, values, and lifestyle preferences may all contribute to spending motives that may be detrimental to child wellness, a concern in the growing discussion about cohabitation and families (DeLeire & Kalis, 2005).

Teaching Teens about Money

In 2002 teens spent over 170 billion dollars - an increase of almost 40% in five years. Nearly 50% of today’s college students have four or more credit cards. I remember when my oldest child got her first job. She was barely 16 years old, but the credit card offers came pouring in! Although teens are controlling more and more money, studies have shown they have less and less financial understanding. How can we help our teens be more money smart?


University of Florida researchers recommend that parents introduce pre-teens between the ages of 9 and 12 to spending plans, savings and bank accounts. A teen’s income sources might include allowances, gift and/or employment. If you chose to give an allowance to your kids, determine the amount of an allowance they will receive based on how much her or she actually needs for school or other expenses, and how much the teen can spend as he or she chooses.

Encourage them to open a savings or checking account to begin managing their own money. Once teens have experience managing a checking account, they should be introduced to debit cards or pre-paid checking cards. They gradually become ready for credit cards. As a parent, we need to teach them to keep track of their purchases and to pay off balances each month.

Begin planning for the future with 16 to 18 years olds. Explain taxes and other with-holding that appear on their paychecks. Also, encourage them to open an investment account, placing whatever money they can into the account each pay period. By teaching financial dos and don’ts at an early age, researchers say we can reverse the trend of over-extended college students and personal bankruptcies later in life.

Teaching Children about Money

In today’s society where the consumer is king, at what point do we address the spending habits of our children? Few schools offer financial education, but parents can teach their children about the importance of sound money management.

University of Florida researchers say children should be introduced to the concept of money between the ages of three and five. Have children handle money so they can see and understand it. Begin teaching them that two nickels equal a dime, five nickels equal a quarter, and more.

Children should not have allowances until the ages of six to eight. Researchers say the amount of an allowance should be based on maturity of the child and the budget of the family. Also, do not tie the allowance to household chores. Instead, offer children money in addition to their allowance for completing extra, age-appropriate activities around the home such as cleaning the garage or mowing the lawn.

During the pre-teen years, parents should help children develop a spending plan. Teach them how to save and spend allowances based on their plan. This is also a good time to open a savings account and show children that a dollar deposited today will be worth more in a year. They can begin to understand risks and rewards related to saving and investing.

Introducing children to money at an early age can help increase financial understanding, making the transition into teen years (when they will have control of their own money) easier.