I’m a student who made the high school counselors flee! Completing the International Baccalaureate program in addition to participating in choir, dance, music theory, piano, creative writing, computer science, and film AND all the things they require like economics and speech was not a task attempted often. It’s not that I’m some overachiever; my interests are just varied. However, when I see my parents and extended family members struggle with finances- even those who I know make decent amounts of money- I think that I’d give up just about any of my non-required classes to learn about finances. I think a lot of my peers would have done the same. College is both intimidating and expensive, and then comes “the real world,” and those of us without good examples to follow need someone else to go to.
For these students, subprime loans and an inability to balance checkbooks are probably the least of their worries.
There’s more to personal finance than just personal responsibility. Parents can teach responsibility, they not necessarily qualified to teach about:
- the vast array of investments available and which are best for which purpose
- how to assess a variety of loan terms
- the best strategy for paying down loans
- how to avoid fees and tricky loan arrangements
- what financial instruments are very high cost that should be avoided (payday loans/check cashing) and why
- issues around high credit card debt, potential pitfalls, and how to see them ahead of time
Putting these and other financial issues into their own course lends the topic a bit of gravitas that it will not have if it’s just a small part of other courses. Knowledge of these topics becomes part of the kid’s toolkit, so that decisions are not made in ignorance, that is what school is for.
But there are some parents who don’t know much more than the kids do about how personal finance actually works. And there are other parents who, for whatever reasons, don’t want to discuss household finances with their kids. Money, like sex, isn’t an easy topic for some people to discuss.
But they won’t be once those kids are grown up and have to deal with their own money. As Cheesesteak pointed out, it’s very unlikely that someone will lose their car or their home because they don’t know who was president in 1837, but entirely possible for those things to happen as a result of not knowing how to handle money.
Exactly… this is my family. They claim to consider me “older than my age” when it comes to handling lots of things, but refuse to tell me anything of how their finances work. That part, I could possibly understand, but they won’t even discuss finances in general and I am confused.
Cheesesteak, I’m not singling you out, several posters have said this particular statement in one form or another and I just grabbed yours as the closest.
I’m not sure that anything about investing should be taught in high school. Especially anything about “which are best”. Investing is a complex issue that changes with time. What is true this year may not be true next year. I’m sure there were some people that would have taught that Enron was a good buy at one point. As for putting all your 401K into the company you work for rather than diversifying…that also is dependant on a particular circumstance. You cannot make black and white decisions about investment or about several other issues that have to do with financial responsibility. Teachers have a difficult enough time trying to make every parent happy with the curiculum. Adding in how some curriculum developer believes to be the best way to manage money is going to make a hell of a lot of parents unhappy.
Living paycheck to negitive balance to paycheck? I’m willing to bet that there are a large percentage of people that do that when they are young and have their first jobs. It’s not always that they’re living beyond their means…but that they’re getting paid piddly wages…so while you learn how to manage money better as you grow older, you also make more. Which I’m willing to bet makes it a hell of a lot easier to be ‘responsible’.
Look, it’s not that I don’t think these topics should be introduced at some point…if nothing else, I think it would prompt kids to go home and ask their parents about how they manage money. I just don’t think it should be a sit-down full on class. Especially a mandatory class.
I’ll disagree. The basics of investing are ALWAYS the same. Spend less then you earn. Put the money aside. Diversify. Understand risk.
I don’t think anyone is suggesting that we teach people that the Fidelity Corporate Bond Fund is where they should put 20% of their money, and the Vangard S&P Index Fund is where they should put 80%. But, they should understand that stock is more risky short term, but more profitable long term than bonds, diversification is less risky than holding all your assets in one place (i.e. Enron), the value of compound interest, and why none of this makes any difference if you spend more than you earn.
Probably, its more vital to kids to understand that if they get out of college and make $40k a year, it doesn’t go nearly as far as they think it will - that there is no guarentee that if they hang out they’ll make $150k a year in ten years (and that it is, in fact RARE, to do so). That deciding to buy a latte every day for a month should be deciding NOT to buy those cute new shoes (i.e. opportunity cost). And that Mom and Dad won’t be around forever to bail you out when you wreck your car and have a $1000 deductible and no savings.
Everything on his list is about the basics of investing, and I think all of it, and more, are valuable.
Many of the financial issues important today didn’t exist when I went to school, so I don’t think you can expect every parent to teach them. There are other issues that are important when starting out, but not significant once you are established. I don’t have to worry about establishing credit, for instance. I cetainly agree that a teacher touting specific stocks would be improper, but teaching how to read a balance sheet and the meaning of the numbers isn’t.
This is certainly not something to teach to only your best students. Who is more likely to have to analyze a subprime loan - someone headed for Harvard, or someone headed for the fast food store?
BTW, can you tell me a case where it is better to put all your 401K money into your company’s stock rather than a diversified portfolio? I put half my 401K money into AT&T stock when I worked for AT&T, and got really lucky, in that it outperformed the more diversified half when I left. I’ll never make that mistake again, and I know some old IBMers who got clobbered for doing this. I’d think diversification is a universal.
Excellent list snipped. How about the impact of financial decisions on your credit record?
Behavioral economists have found lots of things that people do that make no sense. Explicitly pointing these out (like holding onto sinking investments) might possibly help in lettting people see what they’re doing.
But it’s also not something to teach only to the slower students. A bright kid headed for Harvard can also get into trouble financially, especially if they’re taking out student loans and planning on a career that isn’t especially lucrative (such as planning to become a professor, especially in the liberal arts).
I’d be fine with it being a part of some other mandatory class. I think it might be a good idea to stop teaching sewing in home economics, and teach personal finance instead. I don’t really think it should be part of a math class, just because there are so many different levels of math classes that kids take. Personal finance isn’t really relevant in a more advanced math class like trigonometry or calculus, but the kids who are taking those advanced math classes still need to learn this stuff. You can’t assume that, just because a kid knows how to do math problems involving exponents, that they automatically understand all the implications of compound interest.
That one hasn’t changed since Charles Dickens wrote David Copperfield in 1849:
Absolutely agree, and I never intended to imply otherwise!
I make at least 15K more yearly now than I did my first years out of HS. However because of the choices I made then I still struggle financially. Just because you make more money doesn’t mean that your financial habits improve. More money also doesn’t mean that you learn how it all works magiclly. I think the worst thing someone who was in my situation could do is get a CC, of course I did and that’s a large part of what I am trying to fix now.
Barrels
And, you make more, but you also want more…most people eventually have kids (not everyone) and those are expensive little suckers. Most people want to own a home (also expensive). At some point you think “matching furniture - grown ups have matching furniture.” Getting behind the eight ball when you first get out of school means its going to be that much harder when you want the additional “features” of grown up life. If you can’t live cheap when you are 22 and fresh out of college, its not going to get any easier.
Plus, there isn’t any guarantee in this day and age that you will make more - a lot of companies have done little other than give out cost of living increases - some have been making employees take wage cuts. Sometimes you get a great job out of college, but for a less than stable firm - and two years later have taken a 20% paycut after getting laid off and looking for work for six months and are wondering how you are going to make payments on your Honda Civic and credit cards.
I saw compound interest in calculus class in high school. We started with simple compunding, moved to monthly, daily, per-second compounding, and then went on to define e in the process of calculating the limit of continuous compounding.
I did that in Algebra III. What we didn’t discuss in that class was the implications that the mathematics of compound interest has for credit card debt and saving for retirement.
I think it should be a mandatory separate class (with a focus on the stupid mistakes everyone makes like Voyager said) but I think you should be allowed to test out.
I never knew how much my parents made but we still talked about credit cards, saving, investing, and mortgages.
I also had a job as a bank teller in high school - now that should be required. It is a low-skilled job that still puts you in the “professional” world. In addition to money management I learned so much about corporate culture, how to dress, how to act in an office.
Just like babysitting is the best motivator to use birth control, dealing with customers stressed out from living so close to the edge of financial disaster convinced me that I was always going to live below my means.
Why do we send our kids to school? Why is it worthwhile to have public schools? Because society is better when all it’s members are able to contribute to the best of their abilities. Schools should teach kids how to be responsible and productive adults. Understanding personal finances, in theory and in practice, is a very big part of this. It’s a critical skill.
Understanding e as the limit of continuous exponentiation is one thing (and I’m not knocking it, obviously, as my member name is based on the mathematical constant), but understanding that buying some neat toy on credit at 19% is going to cramp your style is another. And really understanding that frequent credit spending you can’t pay off right away will sooner or later become downright painful, well, that’s a lesson many people have a hard time learning. With the laws as they’ve become, one screw up can ruin the rest of a person’s life. Does that make for a better society?
I feel our system of education is failing us all. The reforms I’d favor would certainly be unpopular. As the OP sugested, more practical life skills subjects, even at the cost of cutting back on art and extracurricular athletics. How many students will base their adult income on sports? Not many. Students who can’t read shouldn’t move ahead. More goal oriented grading, not teaching to a standardized test. Education should be a full time job for students - school should last eleven or twelve months a year – we’re no longer a nation of farmers and don’t have to give kids the summer off so they can help with the harvest. The school day can be gradually lengthened until high schoolers put in an eight hour day. Good teachers should be paid what they’re worth.
This is what it may take to compete in the global economy. Failure should not be an option.
The examples that we did were a savings account and 30-year mortgage payoff. We didn’t explicitly talk about credit cards, but how much hand-holding is necessary for the smart kids? If I can make money in a savings account, then they can make that money loaning it to me.
Kids in advanced classes are also disproportionately from well-off families; they’re more likely to get financial instruction from their parents.
Not only should personal finance be taught in school it should start in 2nd grade and continue in every grade level.
Those are exactly the things I wish were covered more completely. And, I believe it should start in middle or junior high school.
I think this type of education is crucial. Trying to figure this stuff out by trial and error can be damned painful.