This is a great question. Americans are in a debt-death-role, borrowing more and more over time. The government debt is out the roof and there are no signs of it slowing down. The fed has maintained ultra low interest rates keeping it super cheap to borrow money and continue the trend. Could this be leading us to the “everything bubble”???? Who knows? Your guess is as good as mine but what are we doing to prevent it? How are we teaching our children to protect their financial futures?
Why Should We Be Concerned?
I want to circle back to our Money is Nothing, Time is Everything post that was inspired from the dumpster fire that was 2020. In that post, we emphasized our position that life/time are not tools to make money. Instead, money is a tool to to help live a fulfilled life. Are we teaching our kids to maximize their fulfillment in life or are we training them to be a cog in the machine called the US economy? Don’t get me wrong, I love the US economy. This is the system that is fueling all of our retirement and financial well being; however, what are we teaching our kids? Math, Science, History, Literature…all of these are important to their development so that they can function at the highest levels in society, but where are the 4 years of personal finance education???
We spend too much time training our kids how to be good employees in whatever specific field that we push them to, but to be honest, how much time in their life is dedicated to learning personal finance skills? 1% maybe? If they do not understand the basics of personal finance, how can they make the correct decisions to position themselves to live this fulfilled life?
This Could Also be a Selfish Goal
If everyone in society had been given a fundamental understanding of personal finance, then there would be more money flowing into the market every year as savings rates increased. This would result in further growth of equities and other investments. The increased savings could benefit everyone. On top of that, the risk of credit bubbles popping would be reduced as people become more savvy with the risks that they would be taking. More families would stay intact as the rate of financial fights leading to divorce would be reduced. Society would be more confident in its finances and probably boost entrepreneurial projects. These projects could lead to great companies because they would have a solid foundation to build from. Angel investing would also become more prominent as people would have more money to spend. The benefits seem almost limitless.
What Programs Are Out There?
Even as I write this, there are programs existing in the market; however, they have limited reach into schools and households. The depth of the content is also limited. Let’s be fair though, personal finance is complicated. With that said, how do you get a young adult up-to-speed before releasing them into the world to figure it out?
I guess this is the reason we are here. Schools are focused on educating children so that they can enter the workforce and get jobs. After that, it is up to the individual to take it to the next level.
You think I am wrong or being too harsh? Go ask a college student or high schooler what a 401K is? Can they describe how a mortgage payment is calculated? Ok bonus points time: Ask them what the difference in a Roth IRA and an IRA and how they would choose one over the other?
Let’s be honest, did you know everything that you needed to know about personal finance before you graduated? How confident are you that your neighbor, family members or friends would know? Who taught them?
We are releasing these kids and young adults into the world and they have to figure it out. They will learn from friends, coworkers, youtube, random “blogs” (yeah I get the irony). Whatever the case is, we are essentially leaving our kids’ foundation in personal finance up to chance once they enter the world.
OK I’m Wrong: You Have It Figured Out
Let’s pretend that you are the exception. Your kid went to a school that did offer personal finance. How in-depth did they get into strategies? Did they teach them the value of starting early and why they should make short term sacrifices for long term opportunities? Was the “Why” behind the importance of personal finance explained? Did they convince your children to give up the YOLO mindset their friends are living so that they could own their future and become Financially Independent in their late 20’s? Did it empower them?
My guess is that there are still plenty of “opportunities” for those fortunate kids to learn from.
How can we improve this? What would the syllabus look like?
We need to help our young generations determine what it is that they want to do with their lives, not what they want to do for a job. What are they passionate about? What will they wake up every morning and jump out of bed for? Once they understand their goals, we can begin to build them a roadmap to get there.
What We Should Teach Them: Intro to Personal Finance
1. The “Why”:
- Why should you care about personal finance?
- Begin with the end in mind: You should happen to life instead of letting life happen to you.
- Can you describe your dreams and aspirations?
- What makes you happy?
- What do you love doing?
- Understand the direction that you want to take your life.
- Time is your most valuable asset. And you cannot buy more time…
2. The Fundamentals:
- What is Money?
- How do you make money?
- Active income vs. Passive income
- What is debt and how is it calculated?
- What are taxes?
- Difference between stocks and bonds
- Other savings vehicles
- What is a credit score?
- What are credit cards?
- Compounding interest
- What are retirement accounts?
- What is an HSA?
What else needs to go into this curriculum? What did you not know when you were entering the world as an “adult” with the expectations that you would be able to “figure it out”?
3. How to Get From Here to There: Strategies in Personal Finance
This is the part where most programs drop off. It is good to know the fundamentals and what they mean but the next step is the execution. A solid personal finance program should include strategies for saving and investing. There should be deep dives into the pro’s and con’s of the different vehicles for saving money. Students should be able to see the risk in different types of debt and understand how to position themselves for different economic scenarios. There should be case studies with examples of people who successfully reached their goals and some that didn’t. They should be able to walk into a car dealership/Mortgage office/investment firm/insurance office and be able to stand their ground and not be reliant on learning from the person that is trying to sell them something. They should be armored with information.
I am sure if we really sat down and put together a strategy, we could come up with many more topics that we had to learn the hard way.
We should be demanding this in every school. Maybe it’s time we do something about it. After all, a financially literate culture is beneficial for everyone.
- Bubbles could be reduced and possibly even eliminated
- Risky debt could be reduced
- More money would be pointed at the markets and could result in increased growth
- The economy would stabilize
Let’s not blame it all on the schools though. Afterall, as parents we are the ones who are accountable for setting our children up for success in life. We may opt to allocate the responsibility to the schools, but this does not take the accountability off of us. If we find inadequacies in the education that our children are receiving, we should be pursuing alternative sources. Education begins in the home and we should create a nurturing environment when it comes to finances.
Here are some Action Steps:
- Don’t let the family finances be a taboo subject
- Explain the fundamentals to your children
- Ask them what their dreams are
- Help them understand how to achieve those goals
- Emphasize the value of saving and compound interest
- Show them how they can control their life if they start now
Many families do not talk about finances due the perceived stress that comes with them. We need to change this mindset so that we do not perpetuate the never-ending loop from generation to generation. This is the key to improving the future of our society.