Primary schools in the United States rarely teach anything about personal finance, but those are core skills everyone needs to get through life. If you are a parent of a high school student or a high schooler yourself, ensuring these skills are well understood and engrained will help any young person better succeed in personal finance. If you are an adult and don’t feel mastery over these concepts, it is never too late! Dive in and build your experience and knowledge in these areas for dividends that will continue to pay off for a lifetime.
Bank account basics
How do checking and savings accounts work? A large portion of the population doesn’t have a bank account at all, which limits their access to many low-cost financial services and forces them into more expensive ones. Think of money orders instead of checks, payday loans instead of credit cards and lower cost loans, and other expensive financial products.
You really can’t reach further levels of financial success without a checking account acting as a nerve center for your money. If you don’t manage it well, you’ll end up with high cost overdraft fees. But if you use it the right way, your checking account is free, easy-to-use, and a gateway to the rest of your financial life.
Intro to credit and loans
When I went to college, I was met with a swarm of credit card companies and banks offering new accounts in exchange for a pizza, frisbee, t-shirt, and other junk that cost them less than $10. What credit card company wouldn’t want to sign up a new customer for a $10 cost? After all, just buy one expensive electronic and pay interest for a couple of months and they have earned back that pizza and then some.
Laws around giving out credit cards to college students have made this type of sales a little tougher, but nonetheless every 18 year old should understand the power of their signature to open up the door to credit cards and loans that can be used for good, but if mismanaged can leave your finances in ruins. Young people need to know how loan work, that you really do have to pay back your credit cards, and if you pay your full balance or make early payments it can help you save on interest, if not eliminate it completely. With over $1 trillion in outstanding credit card debt in the United States, many Americans could use this lesson.
How credit scores work
High school students are intimately familiar with the the grade point average, a system that measures your entire high school experience with a single number between 0 and 4. Credit scores work similarly, summing up someone’s last decade of credit and lending activity in one number. The most popular credit score is the FICO score, which offers score ranges from 300 to 850. A 300 is considered an absolutely terrible score, where an 850 is seen as perfect, pristine credit. However, most people fall somewhere in the middle.
Students need to understand that one missed payment on a credit card or student loan can damage their score, while high balances and a pattern of late and missed payments sends your score into the gutter. On the other hand, just paying on-time every month and keeping credit card balances low consistently over time can lead to a great credit score. It isn’t that difficult, but without someone teaching it students can’t be expected to have mastery over this vital topic.
Investing for retirement
Social Security is an important social safety net to prevent retired individuals from sinking into poverty, but if you want to keep the same standard of living in retirement that you enjoy today, you’ll need more savings than Social Security. Most experts suggest you save at least 10% to 15% of your gross income at minimum to maintain the same standard of living.
That means investing in a 401(k), an IRA or Roth IRA, and making decisions about where to point those investment dollars. While students don’t need a Phd. level education on investments, they should understand what a stock and bond are, how mutual funds and ETFs work, how investment companies make money, and how to choose basic, relatively safe investments like an S&P 500 index fund in a retirement account. It isn’t rocket science, but it does need to be taught. Even Warren Buffett started somewhere.
How budgets work
On a Kanye West album, he rapped about a fictional fraternity called “Broke Phi Broke.” To avoid an honorary membership, high schoolers should get a basic schooling in budgeting. While you won’t get rich from budgeting, it can help you from making big mistakes, wasting money, and living paycheck to paycheck. Even a basic budget is better than no budget. And when high school students get their first jobs and eventually move out on their own, these skills are incredibly important.
Budgeting is a real-life application of math skills, so it could easily be tied into a math curriculum. And what happened to home economics? Maybe they should focus more on household budgeting, the “economics” side of home economics. It doesn’t really matter how it gets added, what is important is that young people understand how to budget so they can establish themselves with a good footing as adults.
Get back to basics and shore up your finances
Even financial veterans can use a brush up on personal finance skills every once in a while. Whether you are in high school or out, following a few personal finance blogs and picking up an occasional personal finance book could do you a lot of good. You’ll learn something new, improve your money skills, and grow your wealth along the way. With so much to gain and nothing to lose, students of all ages can improve their money skills and personal finances.