Understanding the financial life cycle - Part 1

What stage are you at in the financial lifecycle?

At the beginning of the year, I wrote an article on setting financial goals (kindly check my blog to read the article).  We are approaching mid-year and therefore it is a good time to review the financial goals you set at the beginning of the year to determine your progress to date. Please do give yourself a treat if you have achieved or exceeded your goals. If you haven’t, do not despair, find out what went wrong and make the necessary adjustments as you still have about 6 months to make amends.

As we all know, financial goals are essential to create a sound financial plan, however financial planning is influenced by your lifecycle needs and conditions.

A lifecycle can be defined as a series of stages an individual passes during his or her lifetime. There are different theories on the number of stages in a financial life cycle, however, for simplicity; I have divided it into 5 phases or stages.

Stage 1: Childhood

This is typically between ages 0-12. At this stage we begin to understand the value of money i.e. N200 can buy more sweets than N100. We begin to have conversations like 

Kid: “Mum why can’t we buy a bicycle? Mum: “Because we do not have enough money at the moment”. Kid: “But mum what about the money in my piggy bank, I have a lot of money in my piggy bank”. Mum: “Honey, N500 is not enough to buy a bicycle”.  

Generally, we believe that money is to be used to buy junk food and also to buy toys. If we have parents that are financially intelligent, at this stage we would learn the basics of savings via a piggy bank or a kids’ account. We would also learn the concept of earning money by being paid for household chores as well as through mini businesses such as making and selling lemonade or bracelets etc.

Stage 2 : Teenage

This is typically between ages 13-19. At this stage we develop a better understanding of money. We understand that it is not everything you want that you can get. We also start earning money via jobs like baby-sitting, internships etc. In developed economies, at this stage teenagers are sent to work in fast food restaurants or retail clothing stores to earn some money. Needs include buying top-up cards for mobile phones etc. When you get to university you begin to understand the importance of managing your finances.

                                                                                                        
                                                                                                                     …….To be continued