After high school graduation, teens enter a world of adulthood where they are expected to make major financial decisions that will affect the rest of their lives. Every part of their lives will be affected by their understanding of personal finance: college, debt, first jobs, travel, entertainment, rent, buying a home, starting a family, changing careers, etc. Although this is a necessary life skill, shockingly a personal finance course is only required to graduate in 23 states. This means most high schoolers enter their adult lives not equipped to make these types of financial decisions.
While there has been progress in including finance in high school curriculum over the years, it’s not enough and changing state requirements takes time. Every student needs to graduate with a financial education. This is where teachers (high school, middle school and even elementary!) have the opportunity to make a huge impact in their students future success by incorporating finance in their current lessons and classes. Depending on the subject area, below are 4 simple ways to bring financial education to the classroom.
Values and Goals: Financial education is not just about understanding the numbers. Money is a necessary tool to help you reach your goals and live your best life. Show teens the importance of smart money management as it relates to their goals and dreams.
Have your students list out their short and long term goals. Short term is the next 3 -5 years: buy a car or bike, go to college, move out of their parents home or travel for spring break. Long term goals are 5+ years: start a gaming company, travel the world as an adult, have a family, create a non-profit, buy a home in a nice neighborhood or become an actor in LA. Ask them to brainstorm and list out everything they need to make their goal happen. Then have them create a specific step by step plan on how to reach these goals starting today. Most of these goals will require some type of savings or investments. Help the students create a savings plan to reach the amount needed in their timeframe. This activity shows them not only the importance of smart money management throughout your life, but also shows if you start early enough and have a plan, their dreams are attainable.
Career Development: According to a recent article in Education Week (Klein, 2020), only 52 percent of students feel ready to enter the workforce after high school. The responsibility of career planning seems to fall on the school career specialists or guidance counselors. However teachers can integrate career education in 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 in the weekly lessons. In Science class discuss the career path and role of a Biologist or Forensic Specialist. This allows students to make the critical link to the school curriculum that helps to forge a path to a future career. Students could interview professionals in the field to learn more about the day-to-day responsibilities, the benefits of their job 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 in writing assignments.
Compound interest: When learning problem solving or algebra, compound interest can be incorporated in multiple types of problems. Compound interest is when you earn interest on both the money you’ve saved and the interest you earn. This is one of the most powerful tools in building wealth, and time is the most important factor.
For example, you invest $1,000 (your principal) and it earns 10 percent (interest rate) once a year. After the first year, you would have $1,100 – your original principal, plus 10% or $100. The second year, you would have $1,210. That’s because the next interest payment equals 10 percent of $1,100, or $110.
If a student saves $100 at the age of 16, at a 10% interest rate, in 5 years they will have $161. That’s $61 in pure earnings. However, if they wait for 20 years their total investment will grow to $673. That’s more than 6x their original investment. Teens who start saving early will have a huge advantage as an adult, and that savings can mean a downpayment on a home, ability to travel or start their own business.
A simple way to teach this to students is to provide multiple scenarios and have them calculate for different factors.
- Start with $100. How long would it take to make $1000 at a 10% interest?
- If you invest for 20 years at a 10% interest rate and have $50,000 at the end of 20 years, how much did you start with?
- You want to buy a new car in 5 years. You can invest $100/month and make 10% interest. How much can you spend in 5 years?
Budgets: Another potential math 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 how much money you make and spend. This is one of the most important concepts to understand in money management because it teaches accountability and responsible spending. Having a budget allows you to track and understand your spending, make adjustments when needed and create a savings plan.
Start 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 work, allowance or birthday gift money. Then list everything they spend money on (Expenses). This can be movies, dinners with friends, clothes, shoes, hair products, books, etc. Ask them to separate the expenses in two categories: what they need to buy and what they want to buy (Fixed vs Discretionary Expenses). ‘Need to buy’ includes food, clothes and school supplies. ‘Want to buy’ are things like entertainment, jewelry and games. The final step is subtracting their expenses from their income to determine if they have a surplus or shortage. If they have a surplus, congrats! This means they are not overspending and have extra to save. If they have a shortage, they will need to review their discretionary expenses and see where they can reduce spending.
Although there is progress in requiring personal finance in schools, we can’t afford to wait around. Every year more and more adults get into debt and face major money hardships because they were never taught the financial basics. Parents, teachers, schools and business leaders all have a responsibility to raise financial literate kids and give them the opportunity to become a financial successful adult.