J Money at Budgets Are Sexy wrote yesterday about why schools teach about the stock market. It got me thinking about my personal finance education.
During my senior year of high school, one of the school administrators came into our class and began to talk about finances. I didn’t realize it at the time, but what she was really talking about was personal finance.
She spoke about balancing our checkbook, not going overboard with purchases, and using credit wisely. Most of the advice she gave was vague (what does using credit wisely mean? I didn’t even know what mistakes I COULD make!), and parts of it didn’t apply (What is a checkbook??).
Back then, I was interested in saving my money instead of wasting it, but I didn’t realize exactly what college would be like. I didn’t know that eating out can get expensive, that going out, new clothes, and video games would all be coming out of MY bank account. None of that applied to me in high school, and this lecture didn’t help get me on the right track.
In college, I took three economics classes, two accounting classes, and one finance class. I remember very little from those classes, although I do remember learning about supply and demand. What I didn’t learn was how much money I would need, where that would be coming from, and that credit could be your best friend or your worst nightmare.
I didn’t know anything about student loans. I didn’t know the first thing about retirement, and I had no clue why I would be doing any long-term investing. I was focused on making $2,000 in the summer so I could survive the year without running out. And for me, running out meant running out. I didn’t even know how to get a credit card, and I’m glad, because I definitely didn’t know what 19% APR meant.
If I could speak to the high school class of 2010, I would say:
1. If your parents are going to be paying for any portion of your college tuition, go home and thank them. They spent a lot of time working so you could live a great life, and you should appreciate that, even if you don’t understand that they gave up vacations, a nicer house, and a fancy car.
2. Learn about credit. Here is a nice first resource: Credit Series. Try and build your credit throughout college if you can. If you skip that reading, at least know that you will hurt yourself if you open a credit card at a football game in order to get a free t-shirt.
3. Set up a budget. Figure out what is most important to you and spend your money on things that make you happy. You will quickly realize that you don’t have enough money for anything, but you can stretch your dollar enough to have money for what you really want.
For those in the 2010 college class, I would give them this advice:
1. If you choose to start work now, work to get out of debt quickly. Compound interest will hurt in a few years. But if you get out now, it will be your best friend and retiring at 45 could be a real possibility. If you hate doing homework now, think about how nice it would be to be able to stop working 20 years before everyone else.
2. Build a Budget – Find out how much money you will need to pay for necessities. Sign up for Mint.com, keep track of your finances, and make a budget in a few months. Save 20% for long-term goals and spend 10% on whatever you want (travel, video games, going out).
3. Open a Roth IRA. Don’t worry about trying to time the market or earn 20% a year. Doing that is like playing poker online. You COULD do great, but you could also lose your money quickly. You don’t want to risk your money like that.
I think it’s a big problem that students are forced to learn hard lessons on their own. While it’s nice to learn technical skills, it wouldn’t be hard to create a class where students learn the upsides and downsides of money and the basics of budgeting, credit, retirement, interest rates, and mortgages.
I found my accounting class extremely boring. I KNOW students would rather learn about topics that apply to their lives. Believe it or not, college students like gaining knowledge, and if they are provided with classes that interest them, they will be much better off in the future.