Originally seen in USA Today and The Indianapolis Star
If you talk with a group of 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. Think how crazy it is that as a society, we are just now valuing the importance of teaching people about money. My best guess is that math used to do the job, but since credit is so readily available, math doesn’t quite seem to matter anymore. “I don’t have enough money to buy that.” Who cares? Buy it anyway.
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. Anecdotally, there’s a giant divide in the financial community on whether credit scores are overemphasized to the detriment of learners. I happen to think they are. We need less “how to borrow” information and more “how not to borrow” behavior modification
If you’re not addressing behavior in a financial course, the financial course is worthless. My gut tells me the perfect financial literacy class for students would be one part math, two parts behavior, then six gallons of counterculture financial decision making. It would be as much a psychology course as a business course.
Today we’re going to build a financial education from the ground up. I believe there’s something like 13 weeks in a semester. Therefore, as a public service, here is my personal finance syllabus for elementary school, middle school and high school students. Feel free to send it to your favorite educator. The absolute last thing I want to do is to tell educators how to do their job. However, money is something that every single person needs to fully comprehend in order to have a fruitful life. Don’t misinterpret this sentiment for one filled with greed and materialism. Instead, my assertion comes from a place of honesty. If you struggle with money, you will struggle in life. I wish it weren’t this way, but it is.
Class is in session.
Week one, 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. When you were a child, your parents would give you timeouts for poor behavior. Little did you know their discipline would provide you with what you need to be a financial success. Bad financial habits are hard to break, but so are good financial habits. Before your first penny of income, you should establish healthy financial habits that will shape your behavior.
As we begin week two, we’ll take a look at income. You’ll understand how income fuels your financial life. Your income pays off your debts, funds your lifestyle and provides for your future. If you don’t have enough with one income, get a second income. Do your best not to take on too many obligations, because it puts too much pressure on your income. As your income rises over time, don’t proportionally increase your lifestyle. Your income leads to expenses, and before you know it, you’ll be dependent on more income. That’s bad. You’ll be able to retire when you are no longer dependent on work income.
Week three brings us back to behavior. Nothing can create poor decisions quite like income without a plan. Increases in income over your career shouldn’t negatively impact your financial future. You can’t wait until you make “plenty of money” to start caring about habits. Your decisions on payday should be as good as your decisions on the day before you get paid.
You knew it was coming. Budgeting week is here. Did you notice how we didn’t make any major spending decisions until you had income? That was on purpose. But you gotta be careful. Income almost always summons expenses. Your budget will divide your income up to handle expenses. Your fixed expenses will account for a majority of your income, and you will have to make wise decisions with the rest of the income. A major part of budgeting is saving. You should peel off at least 10 percent of your income for savings, before anyone else gets paid.
You probably didn’t think goal setting would be part of your personal finance curriculum. Welcome to week five. Debt doesn’t pay off itself, nor does money save itself. Learn to set 30-day financial goals, and good financial behavior will follow.
I hope you had a Red Bull this morning, because week six is all about fixed bills and utilities. Yep, basic modern needs can eat up a lot of your budget. You wouldn’t believe how 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.”
During week seven you’re going to learn exactly how to become a millionaire. Once you understand compounding interest, all your excuses for why you can’t set money aside for the future right now begin to fade. When you invest money, and your money earns a return, the next year your original investment as well as your earnings are given a chance of 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.
For the next two weeks, we’re going to discuss student loans. Yes, two weeks of student loans. At 18 years of age, our society is going to tell you to borrow tens of thousands, if not hundreds of thousands, of dollars. I know, seems cruel, doesn’t it? Typically, students understand about 2 percent of what they should understand about student loans. During these two weeks, you’ll learn why you should take out the least amount of debt you can in order to complete your degree on time, and most importantly how your field of study will affect your ability to repay your loans. You need to let your parents see your course materials, too, because you don’t want them to lead you down the wrong path with student debt, as they often do.
Even if you have a complete understanding of student loans, you’re statistically likely to graduate college in debt. Your aim is to make sure you don’t pile other consumer debts on top of your student debt. Somebody will lend you money for a car, a couch, a computer, a ring, a wedding, a vacation, a cat or anything else that might tickle your fancy. Saving for a purchase almost always makes more sense than borrowing, especially on lower-price items.
Our 11th week may save your financial life. It’s housing week. Besides college, you will never feel more outside pressure to make a purchase you can’t objectively afford. Your home will likely be the most expensive purchase you ever make and, if purchased properly, will allow you to have a comfortable retirement. If you’re a passive party during the purchase process, prepare for regret. The sooner you separate housing from the American Dream, the better.
No one likes spending money on insurance, yet protecting yourself against the unknown is as prudent as it is necessary. That’s why it’s our focus for week 12. You’re not invincible, and neither is your stuff. Protect yourself and protect your stuff.
People always complain. There’s a bonus lesson for you. And in regards to our class syllabus, someone is going to complain that I saved credit for the last week of the semester. If you have good financial habits, your credit will take care of itself. You’re going to be tempted to manipulate your credit score by doing objectively silly things. Don’t fall prey to illogical financial decisions just to make an arbitrary score go up. Your goal is to have money, not the ability to borrow money.
Yep, this is everything you should have learned about money in school.
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