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What’s the Absolute Minimum High School Kids Should Know About Personal Finance?
By JLP | August 25, 2008
I need your help.
I would like to come up with a list of what you think is the absolute minimum that high school students should know about personal finance. Here’s a few things that I can think of off the top of my head (in no particular order):
1. An understanding of the time value of money and how compound interest works.
2. How to calculate the payment on a loan and what a loan amortization looks like.
3. What goes into a good credit score.
4. How to use and manage credit cards (and STAY OUT OF TROUBLE!).
5. How to set up a budget.
6. How to calculate net worth and put together a net worth statement.
7. How to measure your financial progress using various ratios.
8. The difference between active and passive investing.
9. What a 401(k) is and how to use one.
10. The difference between a Traditional and Roth IRA.
11. How to set goals and measure them properly.
12. The basics of asset allocation.
13. The costs/benefits of a college degree.
14. The importance of living within your means.
15. The best time of year to buy certain things (meaning, how to take advantage of end-of-season sales).
16. How to balance a checkbook.
17. How interest is charged on a credit card.
18. The purpose of insurance.
19. How little decisions can have big consequences (another time value of money example). The real cost of that latte.
20. How to research the job market.
21. The importance of networking.
22. The importance of that summer job.
Okay, those are some of the important points I can think of. If you have any to add, please leave a comment and I’ll add them to this list.
SPECIAL NOTE: If you’re a blogger and you have written a post about any of the above topics and would like me to link to your post, please send me a link via EMAIL (JLP – at – AllFinancialMatters – dot – com) and I’ll add it to the list. Please realize that I reserve the right to choose whether or not to use your link.
Topics: Blogging | 19 Comments »
August 25th, 2008 at 2:35 pm
How the central banks work, and how inflation is controlled/it’s effects.
August 25th, 2008 at 2:37 pm
Traciatim,
Is this your way of saying my list is too big? LOL!
August 25th, 2008 at 2:53 pm
Pretty long list. Maybe by college graduation. A simpler list could include:
1. Figure take home pay from an hourly wage job. Show how tax effects their paycheck (Fed., FICA, Medicare).
2. Understand a checking account. Interest, float, balancing.
3. Understand a credit and debit card.
4. Undestand a loan amortization. Show how it effects a credit card balance and then a standard 30 year home mortgage.
5. Understand a savings account and time value of money.
6. Intro. into investing. Explain stocks, bonds, mutual funds and ETFs.
I’m not sure going past this list for high school could be accomplished for the majority of young folks. I think getting and keeping their interest would be a challenge. My brother teaches Math in High School. I’ll get his input.
August 25th, 2008 at 3:17 pm
The list that you have is a good list. I agree that it is a little long, but the number one thing that they need is toknow how to set up and use a budget. This would have been incredibly helpful to me when I got out of school. It is just too bad that they didn’t offer it then and they sure won’t now because it doesn’t fit in to the standardized test.
August 25th, 2008 at 3:17 pm
I second all of your list ideas and would also add:
1. The concept of depreciation, especially involving real-world examples like cars. Examine the differences between leasing a new car, purchasing a new car with financing, and purchasing a used car with cash and how the choice of purchase impacts a budget.
2. The concept of immediate vs. delayed gratification and ultimate satisfaction level. How to get a a person to stop and think critically before they make a purchase.
3. The concept of “reading the fine print” and how marketing can create “bait and switch” scenarios.
4. Real life examples of how to shop for a mortgage responsibly. Examine the cost/beneift analysis of renting vs. owning. Explain WHY the subprime mortgage meltdown occurred and how it affects everyone in the country.
5. When discussing 401K and 403b plans, emphasize the benefit of employee matching funds. It is essentially “free money” and many people never take advantage of it.
6. In the banking lesson, explain in detail how people can get easily overwhelmed by fees such as late fees, interest charges, bounced check fees, low balance fees, atm fees, etc. Explain why to avoid payday lenders.
D.F.
August 25th, 2008 at 3:28 pm
I think knowing how to calculate the payment on a loan is a bit much. I’m a math teacher, and the formula is not trivial to derive. So I’m guessing I’m the only one at this blog who could tell you.
I suppose you could argue that the formula is available from books. Swell, one more thing to memorize without understanding.
How to use credit cards might be a bit early since most people can’t easily get a card until the are 18 and legally of age to enter contracts. A 401(k) might be lacking context at that age as well.
Better to focus on the simpler things in your list. Compound interest, balancing checkbook, budget, that money spend off a credit card or from a checking account is essentially the same as out of your pocket (but more convenient).
August 25th, 2008 at 3:44 pm
Don,
Good points, all of them. That’s why I opened this up for discussion.
Maybe knowing how a loan payment is calculated would be a better idea—not necessarily the formula. Heck, I’m not even sure I know the formula off the top of my head. But, I do at least know where to go to find the information.
Thanks for the input.
BTW – do you teach financial math to your students?
August 25th, 2008 at 3:57 pm
23. The market value of a variety of drugs.
The problem is even if people know better. The culture is to keep up with the Joneses regardless and they’ll lease/buy/etc. etc.
August 25th, 2008 at 4:04 pm
The list is pretty comprehensive. I would expand on setting financial goals to include prioritizing your goals. Very few young people have sufficient income to do everything they have been taught to do from save a few months of income for emergencies, fund your 401(k), pay off debt, etc., much less have a little fun and enjoy being young. I frequently come across people who are antsy to fund their 401(k) so they can save on taxes even though they are paying huge amounts of interest every month on revolving credit balances.
August 25th, 2008 at 4:33 pm
JLP,
Indeed a very good list of topics.
I was wondering if you did any searching to see if there were any studies done to compare how students who were knowledgeable about these subjects did in life later on, than the students who may not know much about finances.
Cheers
Cleric
August 25th, 2008 at 9:53 pm
Wow, I wish I knew a quarter of that list in high school but knowing myself, 80% of that would have gone in one ear and out the other. Sadly, my high school taught me none of the things on your list. Seriously, none of it.
I would say it’s OK to teach this stuff but emphasize the simple stuff like budgets and credit cards. You don’t want the kid to tune you out.
If I could add anything it would be to trust few businesses intentions. They are all out to make a profit and will do just about anything to get it. Maybe if the kid know this they can step back and look at something for what it really is, not how it was sold to you.
August 26th, 2008 at 7:51 am
JLP,
In my area, 5th graders begin learning about finances. They are taught to balance and maintain a check book. As the year goes on, the teacher gives them ‘money’ based on a variety of tasks (teacher assistance, good papers, etc.). Then, at the end of each month, they hold an auction and they can purchase items (pop, suckers, pencils, etc.) based on their available funds.
Not only do I believe that high school students should be exposed to everything on your list, I believe they should start with the basics (budgeting, interest, savings) early on – in elementary school. Then, by the time they reach high school, they’d be more likely to understand the real life scenerios like mortgages, 401K’s, etc. (It’s also our responsibility, as parents, to teach them and show them how important finances are in their lives – the good and bad.)
August 26th, 2008 at 9:54 am
This is a good list. It should be on every high school curriculum.
August 26th, 2008 at 11:20 am
Adding to the list ..
0) The value of money vs the value of things vs the value of time.
1) That the world they grow up in prefers to exchange time for stuff — That they spend 8 hour work days in exchange for money and that it prefers that they spend the money on trinkets and baubles.
2) That happiness is not necessarily a function of trinkets and baubles.
3) That they do not need to work all their life for money. That there are alternatives other than “dropping out”.
4) That getting a mortgage means paying for their house twice over in interest and that they will be working for the next 30 years.
5) That solely using a tax-advantaged retirement plan means they will be working for the next 30 years.
– Essentially I think they should be taught what they are getting into if they continue down that path.
August 26th, 2008 at 5:18 pm
Most memorable thing from my college insurance class was a computer simulation to show how delaying certain “events” made you wealthier down the road…one of which was starting your family after having your education and home….and having adequate insurance!
Re-read Your Money or Your Life by Peter Dominguez–how many hours you have to work to acquire the things you want. That teaches delayed gratification, which of course, we ignored when buying our last home!
August 28th, 2008 at 9:38 am
Uh, I don’t know how to balance a chequebook and I’m 41! Of course I write 1 cheque a year. Kids today are way more comfortable using electronic means to pay bills and manage their finances than us old foggies.
September 1st, 2008 at 10:14 am
What about balancing the cost of education against their chosen profession? Or the realistic costs of moving out of home and living on their own?
I asked a group of middle schoolers once what they consider to be a good living income. The average response was about $15k. Now I would assume high school kids would raise that a bit, my experience shows that kids really have no idea what a ‘good’ income is, nor that they should limit their student loans if they plan on a lower-paying income (teaching, for example). Don’t go to a $30k a year school if you plan on making only $25k a year working.
Also, how much does it cost to establish your first place? Add up the spoons and pots and towels and utility deposits and sheets and kitchen tables… Sure, some of that is usually hand-me-downs or freecycle finds, but it still adds up!
September 11th, 2008 at 7:22 pm
Wow that is a long list!
Schools face so much pressure due to test scores that unless these topics come up on a standardized test, don’t expect them to start teaching it.
If I could show high school kids one thing, I would stress how interest works, both as a borrower, and a lender.
January 11th, 2009 at 2:51 pm
I agree the list is really good if not a little long