Imagine if what you know now, you knew way back in high school. How much better off would you be?
When I was in high school, I didn't learn anything about money, budgeting, or investing.
While I'm a financial planner now, I didn't learn most financial basics until my junior year of college.
What's crazy is, I did take a financial basics course at one point. Unfortunately, it wasn't even remotely helpful.
The course took place during my senior year of high school, and they called it "home economics." While I can't tell you a thing I learned during that class, I can tell you what I didn't learn.
I didn't learn about investing, credit scores, calculating interest on debt, or the magic of compounding interest.
While I want to believe more money skills are being taught in schools than what I experienced back in the day (er, not too long ago), what I'm hearing from parents is that not much has changed.
While some schools offer a home economics class or something similar, they're still failing to impart a basic financial education that I believe is necessary for a successful, financial stable life outside school.
Here's a look at some of the essentials I wish I would have learned in high school and I think should be taught today:
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1. How credit cards and interest rates work
Since you can normally get your own credit card at around 18 years old, it seems like common sense to teach high school students about the intricacies of credit. As a financial advisor, I've seen far too many young people run up huge credit card balances early when they don't have a good understanding of how credit works.
Heck, I was once one of them! By the time I was in my early twenties, I had $20,000 in credit card debt. Fortunately, I learned more about credit as I aged and worked diligently to become a financial advisor.
If we taught high school students a few basic lessons about credit cards and interest rates, we could potentially save many students from a lifetime of financial stress. Credit can be a useful tool when you're paying it back every month. However, interest on credit can work against you when you carry a heavy balance.
The credit lessons we teach don't need to be overly complex, either. At the very least, young people need to understand that
a) you have to pay back every dollar you charge
b) credit card interest accrues daily when you carry a balance and
c) your interest rate can play a huge role in your monthly bill if you aren't paying your charges completely off each month.
Lastly, high school students should understand that it's not a good idea to use credit to buy things they can't afford. Instead, they should save for what they want, and aim to use credit only when it serves their interests.
Young adults can use credit wisely to meet goals and build up a healthy credit profile, but it's key to ensure that when you use credit that you can pay it back. Understanding responsible use of credit, from the moment a teen gets their first credit card, can go a long way to building a solid financial future.
They should also know how to reduce and consolidate debt in the event they do get behind on credit card payments and need to lower their interest rate or monthly bill. With a debt consolidation loan from a personal loan lender, for example, young people can potentially save money on interest and pay down debt faster.
While it's smarter to avoid debt in the first place, young people should be educated on the many tools they can use to rebound if they fall behind with their bills.
2. How to balance a checkbook
While the days of writing checks for most bills are clearly over, young people still should learn how to balance a checkbook. Even if they stick to debit and credit, they could really benefit from learning how to manage their cash flow and outflow to avoid overdraft fees.
I learned this the hard way when I bounced three checks when I was 19 years-old. Ouch! It was the first time I was introduced to "overdraft charges" and it wasn't pleasant.
A lesson on online bill pay services might also help students who lean on technology to manage their money. And yes, students still need to learn check-writing basics such as how to fill checks out – at least for now. Sometimes people still need to write a check, believe it or not.
3. Budgeting basics
Budgeting is one of the most important skills anyone can learn, yet you'll barely hear a peep about it while you're in school. Unfortunately, not learning about budgeting can leave you at a disadvantage once you graduate high school and move out on your own.
At the very least, I think high school students should learn how to plan a lifestyle that actually jives with the income they earn. That may include knowing how to plan for – and pay – bills like rent, utilities, insurance, and car payments, while making sure there is money left for groceries, savings, etc.
Here's the thing: I actually hate budgeting. I know it's necessary, but I don't like tracking every penny we spend.
What we do instead is what I like to call "tactical budgeting"– as in, we sit down to create a financial plan any time a major life event is coming our way. This type of budgeting doesn't require you to watch every penny, but it can help you achieve your goals and spend less over time.
Bottom line: it's important for young people to know how to create a financial plan for what they want.
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