I believe personal finance should be taught in every high school in the country.
Correct that. I believe it should be mandatory to graduate.
Whatever the decision may be after high school, every student needs personal finance skills. The downside is that many students are not prepared to make the major financial choices with their decision.
Do you want to go to college? You need to know how to save.
Do you want to enter the workforce, or start your own business? You need to know how to budget properly to achieve your goals.
Do you want to move out? You need to know how to pay bills and build a rainy day fund.
Do you want to retire? This is probably a question you haven’t even thought about. But you should.
Adding personal finance courses can ease the move from high school to adulthood. In turn, the questions above become a lot easier to plan out. So why don’t all schools offer these courses?
If I don’t have you convinced, here are the biggest benefits to learning personal finances while still in high school.
Learn to Budget When Budgeting is Easy
Budgeting is a large piece of financial success. However, budgets can be intimidating when your list of expenses is longer than your outstanding homework.
It is very easy to overspend your earnings. I had that same problem as a high school student. Luckily, setting up a budget while you’re still young is very easy to do and can be rewarding.
Most students do not have a large list of expenses. In fact, many will find that their only real expenses are ones that are within their control. I find it amazing to see how much money students spend on fast food and impulse purchases. It is a lot easier to limit or eliminate these expenses than many students will think.
By limiting snacking, bringing lunch from home, and having a bit of self control when out with friends, high school students can start saving real money. This will allow them to develop a stronger hold on their personal finances at an early age. Also, many of these disciplines will carry on with them through their lifetime. This will allow students to set financial goals and meet them with more ease now and in the future.
This budgeting tool is a good starting point for students unfamiliar with it.
Compound Interest – The Good
Compound interest can be your best friend. Developing an understanding of how compound interest works and how to take advantage of it from an early age can set you up for long-term success.
Once students understand how compound interest works with a savings account, they may be more likely to start socking away money instead of spending it.
Using a compound interest calculator, the benefit of saving money in a savings account can be realized. For example, if a 15 year old started putting $20 away every two weeks, they would save $20,800 when they are 55 years old. At an annual interest rate of 3% which compounds monthly, your savings will be $40,156.24. The interest alone almost doubles your cash investment!
a $20 bi-weekly investment may be tough for a 15 year old. However, once a student gets a part-time job, $20 will seem like nothing. Additionally, once that student starts earning more money, the bi-weekly investment can increase. Putting more money away will make that final number grow!
Compound Interest – The Bad
On the other side, compound interest can also financially throttle you. Understanding how interest works with loans and credit cards can help students think twice about how they go about using these tools.
Using a similar compound interest calculator, you can see how impactful your interest payments will have on your ability to pay off outstanding debts. For example, a credit card with a $1000 balance would normally take 4 years and 2 months to pay off if you paid $20/month. However, at an interest rate of 19.9%, the timeframe increases to 9 years. Additionally, the amount you would pay over those 9 years increases to $2148.82!
I preach the benefits of credit cards to my students for the purpose of building a credit score. However, that also requires a lot of discipline with your credit spending. By overspending on your credit card, your finances can quickly spiral out of control.
Establish Credit While You Are Young
Your credit score will follow you forever. It will also play a major role in your ability to make major purchases, such as vehicles or property. In that case, why don’t students try to build that score up as high as they can while they are still young?
As I mentioned above, I encourage all of my students to get a credit card as soon as they are 18. I also spend a lot of time talking about the importance of using it properly. There are many purchases students regularly make, such as gasoline, food, or phone bills. Putting the purchase on a credit card and paying it off immediately will start to build up credit score. This will make those larger purchases later in life a lot easier to achieve.
Additionally, on time payments for a vehicle, apartment or phone bill will also help build up credit score. These are things that have to be paid for, so why not use them to your advantage?
Emergency Funds are for Everyone
It is impossible to know what will happen in the future. Events can occur that will require someone to need money right away. If you don’t plan for that, it can be tough to accomplish some of the necessary things.
Emergency funds are a necessity to overcome these events. However, without planning for an emergency fund, students will find it hard to start setting it up.
Major events may be small while students are young. There may be situations later in life, such as losing your job, that will require some savings to get by. A good rule of thumb is to start putting away money in small increments now, and ramp that up when your earnings increase. Ideally, a full year’s income to fall back on can keep you afloat until you resolve whatever the issue may be.
Understanding Personal Finance Topics for After High School
There are many personal finance-related topics that require a decent level of understanding for your adult years, but many students will not use them while still in high school.
Having a basic understanding of investments will benefit students on making smart financial decisions in the future. Cryptocurrency and marijuana may seem like smart investments, but knowing the market and what to look for will help them determine whether or not they should push all of their savings into these stocks.
Additionally, understanding that cars are not a smart investment will help with what will probably be a student’s first major purchase.
Knowledge on insurance can be a major help once a student graduates high school. Currently, most students are probably covered under a parent or guardians health and dental insurance. That will not always be the case. Knowing how these insurances work, and where to obtain them, will ensure that students have proper coverage when they need it.
Renter’s insurance is also something students should know about. There have been many horror stories of people losing all of their belongings in an apartment fire or a theft. Renter’s insurance will assist them in these situations.
By no means do I consider myself a personal finance expert.
Many important personal finance lessons, such as a basic understanding of banking and how to develop a personal budget, had to be learned on the fly. I eventually figured it out, but it took a a lot of motivation to learn on my own.
By providing personal finance classes to high school students, we can set up future generations for success. If these students feel more financially stable, they may be more likely to take a risk on what could be a major breakthrough in whatever field of study they specialize in.
We still do not offer a personal finance class in my school. Due to this, I combine a lot of these lessons with other courses, and encourage students to use them in their everyday life.
Once our school takes the risk to introduce this course, I believe it will be a game changer for all students.
Thanks for reading! I would love to hear your experiences (both as a teacher or student) with personal finance courses in your high school, whether or not it is mandatory, and the types of enrolment in those courses!