It’s a well-known fact that America has a huge financial literacy problem. The causes of this lack of financial knowledge are often cited as a deficiency of personal finance education in schools or at home. Personally, I would love to see personal finance as a mandatory senior year high school course. I think it would reduce the rate of debt mismanagement in college – both credit card and student loan debt; start young adults on a path to good credit early; and decrease the anxiety of knowing how to handle money as young adults.
A Course in Personal Finance
Recently, I was asked to teach a personal finance class at a local college. I was thrilled for the opportunity and worked diligently on the syllabus, the curriculum, and the slides for the four summer classes. 16 students signed up for the course, 6 of whom need the credit for their MBA degree. The average age of the students is 28, and mostly women.
The most surprising aspect of my experience is the enthusiastic response from the students to the subject matter. The first class focused on personal budgeting and retirement plans. To get these young people thinking critically about their spending, I had them read an ebook I wrote called the Happiness Spreadsheet (a free copy can be downloaded from my website). The book espouses the idea that if you think consciously about the relationship between your spending, what you value, and your happiness, it is easier to create a budget that will stick. Many students had never looked at their spending habits in this way, and it inspired them to do the work.
Learning About Retirement Plans
When it came to retirement savings plans, I was less surprised by the elementary knowledge of the majority of the students. Earlier in the class, I asked them to rank their financial literacy from 1- 10. The average response was 5. I was encouraged when two of the students immediately acted and opened up Roth IRA’s the following week, and others expressed greater interest in how their 401(k) was invested.
In the second class, I focused on credit and debt.
Some of the students had already experienced credit woes. One woman misused credit cards in college but was able to dig herself out and rebuild her credit. She has a credit score over 700 now. Another got into credit trouble after a divorce. She managed to bring her score up from the low 600’s to 700 by diligently going through her credit report to get joint accounts paid off and closed. Another student has stellar credit with an over 800 score. Her goal is to buy a house and has asked for help in reaching this goal.
Future classes will focus on investments and retirement planning. In the end, I will be happy if the students learn 3 concepts from the course:
1. The tax benefits and flexibility of the Roth IRA.
2. The benefits of saving early and the power of compounding.
3. How important it is to build good credit.
Of course, there is so much more to having a successful financial life, but if acted upon, these three concepts will lay a great foundation.