Educate your family on finances
Tim Ranzetta, co-founder of Next Gen Personal Finance, a nonprofit that has developed a personal finance curriculum used by more than 60,000 high school and middle school teachers, discusses finance education.
Q: South Carolina recently became the 15th state to require that high school students take personal finance classes before graduating. What’s driving this trend? A:
The pandemic has been an accelerant because it highlighted the precarious nature of family finances. In addition, state education departments are evaluating the skills students need to thrive in the 21st century, and financial skills are at the top of the list. I can’t think of anything more relevant to a young person’s life than how they’re going to pay for college or enter the workforce, manage credit cards, manage a FICO score or invest for retirement.
The pace of change in financial services is accelerating, and we had better arm students with the critical thinking skills to assess strategies that online retailers use to get us to buy more.
Q: Personal finance is a broad topic. What should be included in a personal finance curriculum? A:
We prefer the first topic taught in our curriculum to be behavioral economics — we call it “Money and Me.” With personal finance, a lot of this stuff seems like common sense — spend less than you make, invest for the long term, minimize your debt. Those are all great, but we have to understand our own relationship to money and how our attitudes and cognitive biases impact our decision-making. One example is overconfidence. Young investors are often overconfident in their ability to pick individual stocks, when even 80% to 90% of professional investors underperform a stock market index.
After that, we cover the basics: taxes, banking, paying for college, different types of credit, how to manage credit, investing, insurance and budgeting.
Q: When is the best time to teach students about personal finance? A:
While basic concepts can be covered in elementary and middle school, the main course should be delivered in 11th or 12th grade. Research shows that the closer students are to making financial decisions, the more motivated they are to learn.
Q: Inflation is at its highest level in 40 years. How can a personal finance course help young people understand what’s happening in the economy?
A: You can start by asking them how inflation is showing up in their lives and the lives of their families. Students notice this at the gas pump, the grocery store and the coffee shop. You might ask them how rising prices are impacting the spending decisions they are making today. You might also highlight the pernicious effect that inflation has on savings. When the average savings account is earning 0.5%, savers are losing about 8% when it comes to purchasing power.