5 THINGS SCHOOLS NEED TO TEACH ABOUT MONEY
I’m not going to be the first person to say that the education system in the US comes up short in several areas. Students graduate with the ability to solve for the angles of a triangle, but don’t know how to change a tire. They can name the elements of the periodic table, but don’t know how to start a business. They can discuss Russian literature, but don’t, know how to give a presentation. The lack of practical skills is overwhelmingly evident, and it is not new. In the face of what is now being labeled the student debt crisis, I want to offer some suggestions, that if taught, may help our young people avoid becoming part of the problem.
College Might Not Be Worth It
If you, like me went to high school in the 90’s or the 2000’s, there was one message that was pumped into our heads above all others. You HAVE to go to college. If you wanted to amount to anything, have a good life, be successful, and have a chance at happiness, you MUST go to college. It’s been a while since a was in high school, but I can now confirm for you, that their message was completely wrong.
As it turns out, many of my peers who dutifully earned college degrees, now live paycheck to paycheck, while being crushed by the burden of the student debt they took on. How could this happen? Let’s take a look at a couple of things you, like me, may have been told by guidance counselors that turned out to be terrible advice.
Study Your Passion
This one sure seems to work out better for the few students who’s passion was mechanical engineering, math, or accounting. It didn’t work out at all for the students who’s passion was trombone, or social work. The better advice, study something you enjoy, that can ALSO provide you with a good living.
Apply To Your Dream School
This is probably the single worst piece of advice guidance counselors gave. Would you believe that for most high schoolers, their dream school was either a small liberal arts college, a school in California, or a school with a great football team? Do you know what all of those schools have in common? They are way more expensive than a local in-state public school. Going to an in-state school can save literally tens and even hundreds of thousands of dollars. Under no circumstances is your dream school ever worth it.
Perhaps the biggest thing counselors need to start telling students is that you may not need to go to college at all. Ask the person from your class who now is a master electrician making 150k a year with zero student loans.
Compound Interest Can be Your Best Friend, Or Your Worst Enemy.
In 1789, one year prior to his death, Benjamin Franklin updated his will to leave the equivalent of $4,400 each to the cities of Philadelphia and Boston. The condition of the gift was that the cities would loan the money to young apprentices that had proven worthy of such a loan. After 100 years of such loans, the cities would have access to a portion of the funds and would have access to the remainder after 200 years.
The result? The money was responsible for helping thousands of tradesmen complete their training, launch businesses, and start life. It also grew. It grew a lot. At the end of the 200 years, the fund allocated to Boston had grown to over 5 million dollars, while the Philadelphia fund was worth about half that.
Benjamin Franklin did not get lucky. He was well aware of how this plan would work. He was simply taking advantage of the power of compounding interest. In his own words the concept of compound interest is described as follows. “Money makes money. And the money that money makes, makes money.”
Albert Einstein described compound interest as follows, “He who understands it, earns it. He who doesn’t, pays it”. Let us hope that more of our high school students learn to understand it.
There Is No Good Debt, Only Necessary Debt.
A lot of attention gets paid to the idea of good debt vs bad debt. Often times “good debt” includes things like mortgages, student loans, and car loans, while “bad” debt is limited to credit cards and payday loans. I want to work to change this paradigm. Good debt does not exist. Any loan you ever take out involves you paying interest to someone else. I cannot think of a situation in which that is a good thing. I can however think of situations where it is necessary, though admittedly my definition is much more strict. Mortgages, and student loans taken out for degrees with high earning potential. Those are the only two types of debt that should be seen as necessary. All other are unnecessary, and thus, in my opinion, bad debt. Calling any debt “good” debt is just a way to rationalize bad decisions.
Start Saving Early
This one really could be included with compound interest, but I wanted to make it its own section to highlight one thing. Highschool students are young. If there were any one asset that they can leverage far greater than the rest of us, it is time. By starting young, compound interest has far more time to work, and can often result in savings balances that are double what they could be had the individual started at age 25 instead of 18. We need to make sure our young people are well aware of the massive advantage this time gives them, and hope they can learn to put it to use.
Use The Tax Code To Your Advantage
For most, tax season involves simply delivering a pile of documents to an accountant, or diligently inputting their data into tax software, and then getting their result. There is so much to be gained by creating and following an active tax reduction strategy. Our young people need to be taught the simple things like how to use a Roth IRA, how to convert 401ks. They need to be taught the more nuanced things like timing their donations to charity. Unfortunately the tax code changes too fast for any of that to be taught.
I would instead propose that students are taught simply to be more diligent with their taxes. Understanding that working with a tax pro to create a strategy will ultimately save them so much more than it costs.