Schools’ money lessons are scary
Don’t teach kids how to be borrowers; teach them to spend less and save more
If you talk with people about money for more than two minutes, someone is going to unleash one of the most common financial phrases on the planet: “I wish they would have taught this stuff in school.” Yeah, me too. There are schools that focus on financial material. But most courses I’ve seen focus on showing students how to become borrowers, something that mortifies me to no end. We need less “how to borrow” information and more “how not to borrow” behavior modification.
Today we’re going to build a financial education course from the ground up. As a public service, here is my syllabus. Feel free to send it to your favorite educator. The last thing I want to do is to tell educators how to do their job. However, money is something that every person needs to fully comprehend in order to have a fruitful life.
Class is in session. WEEK 1 We begin our conversation about money with the single key to financial success: behavior. No, your financial life is not about money. It’s about behavior. Bad financial habits are hard to break. Prior to your first penny of income, establish healthy financial habits that will shape your behavior. WEEK 2 You’ll understand how income fuels your financial life. It pays off your debts, funds your life- style and provides for your future. If you don’t have enough with one income, get a second one. As your income rises over time, don’t proportionally increase your lifestyle. Before you know it, you’ll be dependent on more income. That’s bad.
Budgeting week is here. Income almost always summons expenses. Your budget divides your income up to handle them. Fixed expenses will account for a majority of your income. You must make wise decisions with the rest. A major part of budgeting is saving. Peel off at least 10% of your income for savings before anyone else gets paid. WEEK 4 You probably didn’t think goal setting would be part of your personal finance curriculum, but debt doesn’t pay off itself, nor does money save itself. Learn to set 30-day financial goals, and good financial behavior will follow. WEEK 5 I hope you had a Red Bull, because Week 5 is all about fixed bills and utilities. Yep, basic modern needs can eat up a lot of your budget. Many people ruin their financial lives via death by 1,000 paper cuts. Fifty dollars for this, $120 for that and $377 for this. Before you know it, you can no longer afford the “small monthly payment of ...” WEEK 6 Learn exactly how to become a millionaire: compounding.
When you invest money and your money earns a return, the next year your original investment, as well as your earnings, can earn an additional return. When this happens year after year, your investment compounds. Time is as important as money when it comes to compounding. If you understand compounding interest, you’ll understand that wasting time is worse than wasting money. WEEKS 7AND 8 Student loans. Yes, two weeks of student loans. At 18 years of age, you will be offered tens of thousands, if not hundreds of thousands, of dollars in loans. Typically, students understand about 2% of what they should understand about student loans. Learn why you should take out the least amount you can, and most important how your field of study will affect your ability to repay your loans. Let your parents see your course materials, too. WEEK 9 Learn that the student loan lesson of taking out the least amount of debt possible applies after you graduate, too. Somebody will lend you money for a car, a couch, a computer, a wedding, a vacation, a cat or anything else that tickles your fancy. Saving for a purchase almost always makes more sense than borrowing. WEEK 10 It’s housing week. Besides college, you will never feel more pressure to make a purchase you can’t objectively afford. Your home likely will be the most expensive purchase you ever make, and if purchased properly, it will allow you to have a comfortable retirement. WEEK 11 No one likes spending money on insurance, yet protecting yourself against the unknown is necessary. You’re not invincible, and neither is your stuff. WEEK 12 Someone is going to complain that I saved credit for the last week, but if you have good financial habits, your credit will take care of itself. Your goal is to have money, not the ability to borrow money.
Yep, this is everything you should have learned about money in school.
If you’re not addressing behavior in a financial course, the financial course is worthless.