America's high schools work so hard to prepare kids for life after graduation and (hopefully) onto college with a focus on academics and community service. But what is so often missing from the curriculum is teaching kids the basics of personal finance: the nuts and bolts of how to save money, live on a budget, properly manage credit, and so on. According to the President's Advisory Council on Financial Capability, only nine states have any sort of program to assess financial literacy
Most of the time it is left to the parents to impart this knowledge, and parents may not necessarily be the best personal financial mangers themselves! Some of slack is being picked up by Boys and Girls Clubs, Junior Achievement, and other local youth groups, but what percentage of high school students do these organizations reach, and how can we close the gap in financial preparedness for our high school students?
The Solution May Lie in a Textbook
Personal Finance is a textbook that can be used by teachers and even parents to provide core instruction on how to manage a paycheck (and understanding why a net check is SO different from the gross pay they had expected), how to balance a checkbook, and when they should and shouldn't apply for a credit card. It covers how to open a bank account, how to read a check, what to consider when choosing a checking and savings accounts, and why kids should avoid using check-cashing stores.
Investment and Risk, Understanding the Stock Market
The first chapter explains why kids should even care about managing their money in the first place by diving into the concept of "time value of money" and the power of compound interest as it applies to money saved. It also explains the concept of "opportunity costs" (i.e., by spending $15 to go to the movies with friends you are losing the opportunity to save that money towards the purchase of a new laptop). The book points out that there is no correct decision here — it is up to each individual, but every decision you make impacts your ability to make a different decision. Such a great lesson for high school students to learn!
Leaning From Today's Real Life Lessons
Personal Finance stays up-to-date and relevant by featuring excerpts from current newspaper articles that point out the realities of today's high unemployment rate for 20-year-olds (15.1% among 20-24 year olds) and how their lack of both financial planning and coping skills to learn to live more frugally has been very difficult for this generation of 20-somethings.
The book briefly touches on the long-term income benefit of going to college vs. beginning work right out of high school, based on financial statistics over a lifetime. It covers the basics of borrowing for college, alerting students to the fact that the average college graduate exits college with $20,098 in loans.
Personal Finance provides an overview of the different types of student loans available, but it fails to mention that newly graduated students often find themselves in a position where their college loans payment are their highest monthly expense — even greater than rent or car expense.
I think the book could have done a more thorough job of showing other financial paths to a college education, such as attending a less expensive college, living at home to reduce costs, or attending a community college for two years while working part time to save money and then transferring to a four-year school.
The Basics of Insurance
So often newly hired 20-somethings fail to take advantage of insurance benefits provided by their new employer because the employee's contribution seems too high of an expense. Personal Finance does a nice job of explaining the different types of personal insurance that is available, such as health, car, property, disability, and life, and why and when coverage is important to consider.
If your school system has not made personal financial literacy part of your student's curriculum, you might want to consider this a subject to "home school" before your child heads off to college. And I think there are many adults out there who would benefit from such a thorough review too!
Disclosure: This writer received a free copy of Personal Finance to review. This is her honest opinion of the book's content.