There was a really interesting article in the New York Times last weekend about having courses on personal finance for kids in K-12. I think that this is definitely something schools should look into, even if it is not tested. Out of all the courses one takes in primary and secondary schools, a practical course like personal finance can really do some good – especially today.
I never took a formal personal course when I was in school; it wasn’t offered. The closest we came to it was when I was in seventh grade and I was in a “Home and Careers” class. It wasn’t really heavy on the economics; it was more about how to cook basic meals, sew, and the like. We had a unit on caring for a family. We were paired off into husbands and wives, and we had to care for a fake egg. The fake egg was a baby, and we were randomly chosen to have particular careers in different locations, salaries, etc. We had to budget for our home and raise the egg, er, I mean child.
I think I passed, but it didn’t really teach me much about personal finance. We all would fudge the numbers and concoct dream scenarios to ensure we would have enough money to survive. The real world doesn’t let one concoct dream scenarios. It has a penchant to just slap you in the face.
With that said, I gave some thought as to what kind of personal finance course I think would do a great deal of good. Check out this site for actual assignments and courses one organization, the National Endowment for Financial Education, put together for schools that want to take the plunge into personal finance courses.
After the jump, check out my personal finance curriculum.
Personal Finance Curriculum
First Course: So How Much Are You Really Worth?
This would teach children about what constitutes assets (what you own/possess) and liabilities (what you owe/debt). You can’t do anything else worth anything with your personal finances if you don’t know what you’re truly worth. I’d break down a sample scenario for the children and show them what I mean.
For example, assets:
- Checking account: $5,000
- Savings account: $10,000
- Home: $100,000
- Bonds: $1,000
- College loans: $35,000
- Mortgage: $50,000
- Car Loan: $6,500
- Credit Card Debt: $1,000
Besides just teaching the different types of assets and liabilities, this course would also explain what it means to either be “in the black” or “in the red”. Especially when people are younger, it’s OK for them to technically have a net worth in the negative. The idea is that you will gain more worth as you get older, work more, and make more money. In a perfect world, you’re net worth will generally improve as you age.
Not sure what some of those terms mean, kids? I thought so. Instead of quizzing kids on basic terms, I would provide them with a sheet with terms and definitions they can refer to at all times. This isn’t a course set up to trick you. Rather, it’s a course to give you the resources and skills to craft a personal finance plan you can use and tweak intelligently the rest of your life.
Second: Hopes, Dreams, and Goals on Paper
Once kids know how much they are truly worth, whether they have a personal net worth of $25,000 or -$15,000, they can then start to create realistic goals for themselves. It’s important to break down goals into short, medium, and long-term ones, and this course would explain the differences between all of them.
Third: Good Debt, Bad Debt: What’s the Difference?
There are some types of debt classified as “good”: education and mortgages for a home come to mind. Others, not so good. Credit card debt … woof.
This course would talk about why some debt is OK, and why some isn’t good to have. I’d explain the snowball strategy to paying off debt, because whether it’s good or bad, you don’t want it the rest of your life.
Fourth: Can I Really Afford That?
Now that you know what net worth is all about, your personal finance goals, and what good/bad debt entails, you can now look at how much money you have coming in each month, your bills, and how you can intelligently route your cash flow to pay your bills, loans, and work toward your savings goals.
Smart budgeting and planning will be discussed.
Fifth: Credit is a Tool, Not a Crutch
Many financial gurus will have you scared to ever get a credit card. Yes, if used improperly, credit cards can get you in trouble quickly. However, when used intelligently, they can not only open the door to lower interest rates for loans and mortgages, you can get rewards.
A basic look at how to use credit cards, charge cards, and debit cards will be discussed.
Sixth: Buy Low, Sell High
A practical, high-level primer on investing will be discussed here. Essentially, I’d try to drive home the importance of having a broad portfolio of stocks, bonds, and other funds. It’s high level because I don’t have a deep knowledge here. My main lesson would be to make sure you are setting aside for your bills and loans first, then an emergency fund, then max out company-sponsored retirement plans before you begin dabbling in individual stocks.
Seventh: Use Your Money … Wisely
If you hoard all your money for a rainy day that could never come, and struggle unnecessarily, you will hate your finances and eventually blow it all in one shot. It’s like crash dieting – if you eat strictly all the time without allowing for some cheating here and there, you will probably stop the regime all together and go back to your unhealthy ways whole hog (pun slightly intended).
The same can be said for money. You need to splurge within reason, and go about it intelligently so that you do not ruin other savings goals. This course would discuss saving to use your money, not saving purely for the sake of saving.
I’ve probably missed a few vital courses here, but that’s for you all to decide. Which courses do you believe are best for young people? What topic not mentioned here do you believe should be discussed, and why?