Next gen personal finance

Personal finance in high school

I’ve spent a good many years in higher education, and during that time I have gotten to know a lot of younger people who are just starting out their careers and beginning to think more about their personal finances. I’m always struck by how the education system tends to ignore personal finance as a subject, since it’s something that everyone needs to deal with immediately in adulthood. When younger people leave the comfort of their parent’s homes, they are often inundated with a series of decisions that they haven’t been prepared for. How do I get my utilities and bills set-up? What is my tax withholding at work? What is a 401(k) and how do I make fund choices? Should I get a credit card? What is the interest rate on my student loan? How do I start saving for a house?

There is an endless list of questions that most people tend to fumble through in their early 20’s. But it really doesn’t have to be this way. Individual states should make a personal finance course a mandatory part of their state curriculum. At the college level, general education requirements for a bachelor’s degree often include history, math, science, art or music, social science, and physical education. But they almost never include a personal finance course, which is immediately relevant to almost everyone’s life! In the Fall of 2021 (hopefully after Covid is under control), I’m planning to teach a high school workshop called “Compound” to help students learn the basics of personal finance, since many schools don’t have this option in their classroom. The following is a list of subjects that I think most younger people would benefit from learning about.

Money management and budgeting

There are some core budget concepts younger people should learn so they develop good habits well into adulthood. Building a budget sounds easy on paper, but most people never get into the habit, and that tends to hurt them in the long run. Concepts like using separate “buckets” to pay for bills and entertainment or deciding how much to allocate to housing or debt each month are important. Everyone first starting out on their personal finance journey should really get some perspective on the history of money in society. How do interest rates work? What is a money market fund? Should I have an emergency fund and if so, how much?

Credit and Debt

This is a big one. I’ve seen so many people over the years get completely overrun by credit card and auto loan debt. Compound interest is great when you’re saving for retirement but works strongly against you when you take out loans. Young people will be feeling pressure to get nice cars when they first get a job, or even take out a credit card. When I was 18 years old at my college orientation, there were booths set-up in the student union giving college students $800 limit credit cards with insanely high APR’s. If you don’t know how the APR works on your credit card as an 18-year old, this can sabotage your efforts almost immediately.

 Student loan debt is another important consideration for teenagers and twenty-somethings. Most will follow the suggested route of paying the minimum balance each month, without realizing how much money they can save by overpaying each month (if financially feasible). The basics of maintaining a good credit score is another important concept that is important for anyone looking to own a home in the future.

Investing in yourself

Paying for college and building a career is probably on the mind of most students in 11th and 12th grade. The single best predictor of your financial success is having a stable salary, maintaining employment, and being a highly employable person with a desirable skillset.  Many young people don’t consider the financial implications of their college choices, and the possible salary ranges in different careers and employment trajectories.

Investing 101

After locking down that first job, many people are tasked with making investment decisions about their 401(k) or 403(b). If their career is really taking off, maybe even an IRA or taxable account. But I don’t know of any high school or gen ed requirement in college that teaches anything about their investment choices, or the tax implications of different accounts. Stocks, bonds, ETF’s, mutual funds, real estate, cryptocurrency are all investment options with their own tax rules, fee structures, and ways of generating income. The same applies for all the different account types, and many people are left with only a five-minute discussion with a benefits coordinator on their options. This should be taught to everyone from a young age!

Money and your life

There are so many nuances to navigating personal finance that we never formally teach high school or college-aged kids.  As adults we eventually get comfortable considering all these options, but it can be overwhelming to a person just starting out on their own. What types of insurance do I need? Liability or full coverage auto insurance? How much life insurance should I have? How do I get back my rent deposit? Can I get a mortgage with a poor credit history? Should I pay monthly installments or annually for subscriptions?