After graduating from high school, teenagers enter a world of adulthood where they are expected to make important financial decisions that will affect the rest of their lives. Every aspect of their life will be affected by their understanding of personal finances: college, debt, first jobs, travel, hobbies, rent, buying a house, starting a family, changing careers, etc. Although a necessary life skill, a personal finance course is only required for graduation in 23 states. This means that most high school students enter their adult life unequipped to make these kinds of financial decisions.
While there has been progress in including finance in high school curricula over the years, it is not enough and changing state requirements takes time. Every student should graduate with a financial education. This is where teachers (high school, middle school, and even elementary!) have the opportunity to have a huge impact on the future success of their students by incorporating finance into their current lessons and courses. Depending on the field, here are 4 easy ways to bring financial education into the classroom.
Values and objectives: Financial education is not just about understanding the numbers. Money is a necessary tool to help you achieve your goals and live your best life. Show teens the importance of smart money management when it comes to their goals and dreams.
Ask your students to list their short and long term goals. The short term corresponds to the next 3 to 5 years: buying a car or a bicycle, going to university, leaving their parents’ house or traveling for spring break. Long-term goals are 5+ years: start a video game company, travel the world as an adult, start a family, start a nonprofit, buy a house in a nice neighborhood, or become an actor to the. Ask them to brainstorm and list everything they need to achieve their goal. Then ask them to create a specific step-by-step plan on how to achieve those goals starting today. Most of these goals will require some type of savings or investments. Help students create a savings plan to meet the amount needed in their schedule. This activity not only shows them the importance of smart money management throughout your life, but also shows that if you start early enough and have a plan, their dreams are achievable.
Career development: According to a recent article by Education Week (Klein, 2020), only 52% of students feel ready to enter the job market after high school. The responsibility for career planning seems to lie with school guidance specialists or guidance counsellors. However, teachers can incorporate career education into the classroom to show students different career options and help them better prepare for adulthood.
One way to do this is to incorporate specific career opportunities into weekly lessons. In science class, discuss the career path and role of a biologist or forensic specialist. This allows students to make the essential link to the school curriculum that helps build a path to a future career. Students could interview professionals in the field to learn about day-to-day responsibilities, the benefits of their jobs, and how they got into the field. Teachers could also bring professionals into the classroom to talk about the specific field of study, but also discuss aspects of their personal career. Teachers can also encourage students to incorporate career exploration into writing assignments.
Compound interest: When learning problem solving or algebra, compound interest can be incorporated into several types of problems. Compound interest is when you earn interest on both the money you’ve saved and the interest you earn. It is one of the most powerful tools for building wealth, and time is the most important factor.
For example, you invest $1,000 (your principal) and it earns 10% (interest rate) once a year. After the first year, you would have $1,100 – your original capital, plus 10% or $100. In the second year, you would have $1,210. This is because the next interest payment is 10% of $1,100, or $110.
If a student saves $100 at age 16, at 10% interest, in 5 years he will have $161. That’s $61 in pure winnings. However, if they wait 20 years, their total investment will increase to $673. That’s more than 6 times their initial investment. Teenagers who start saving early will have a huge advantage as adults, and that saving can mean a down payment on a house, the ability to travel or start their own business.
A simple way to teach this to students is to provide several scenarios and have them calculated for different factors.
- Start with $100. How long would it take to earn $1000 with 10% interest?
- If you invest for 20 years at 10% interest and have $50,000 after 20 years, how much did you start with?
- You want to buy a new car in 5 years. You can invest $100/month and earn 10% interest. How much can you spend in 5 years?
Budgets: Another potential mathematical incorporation, budgeting can also take the form of problem solving and algebra. Teach teens early on that a budget doesn’t have to be a form of torture. A budget is simply a way to organize your finances and track the money you earn and spend. This is one of the most important concepts to understand in money management because it teaches responsibility and responsible spending. Having a budget allows you to track and understand your spending, make adjustments as needed, and create a savings plan.
Begin by having students create a real (or hypothetical) budget. Using a spreadsheet, determine how much money they earn each month (Income). This can be through odd jobs, PT jobs, allowances, or birthday gift money. Then list everything they spend money on (expenses). It can be movies, dinners with friends, clothes, shoes, hair products, books, etc. Ask them to separate expenses into two categories: what they need to buy and what they want to buy (fixed vs. discretionary expenses). The “need to buy” includes food, clothing and school supplies. ‘Want to buy’ are things like entertainment, jewelry and games. The final step is to subtract their expenses from their income to determine if they have a surplus or a shortage. If they have a surplus, congratulations! This means they don’t overspend and have more to save. If they have a shortage, they will need to review their discretionary spending and see where they can cut spending.
Although there is progress in requiring personal finance in schools, we cannot afford to wait. Every year, more and more adults get into debt and face major financial difficulties because they never learned the basics of finance. Parents, teachers, schools and business leaders all have a responsibility to raise financially literate children and give them the opportunity to become financially successful adults.