After 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 part of their life is influenced by their understanding of personal finance: college, debt, first jobs, travel, entertainment, rent, buying a home, starting a family, changing careers, etc. Although shockingly a necessary life skill, a personal finance course is only available in 23 states required to graduate. This means that most high schoolers enter their adult lives unequipped to make these types of financial decisions.
While there has been progress over the years in incorporating finance into the high school curriculum, it is not enough and changing state requirements takes time. Every student must complete a financial education. Here, teachers (high school, middle school, and even elementary school!) have the opportunity to have a major impact on their students’ future success by incorporating finance into their current classroom and instruction. Depending on your subject area, below are 4 easy ways to bring financial literacy into the classroom.
Values and Goals: Financial literacy is not just about understanding the numbers. Money is a necessary tool to help you achieve your goals and live your best life. Show teenagers the importance of smart money management in relation to their goals and dreams.
Have your students list their short-term and long-term goals. In the short term, the next 3-5 years are: buying a car or bicycle, going to university, moving out of the parental home or going on spring break. Long-term goals are 5+ years: start a gaming company, travel the world as an adult, start a family, start a nonprofit, buy a house in a nice neighborhood, or become an actor in LA. Ask them to brainstorm and list everything they need to achieve their goal. Then have them create a concrete, step-by-step plan for how to achieve those goals starting today. Most of these goals require some kind of savings or investment. Help students create a savings plan to reach the amount needed in their time frame. Not only does this activity show them how important smart money management is to your whole life, but it also shows that their dreams are achievable if you start early enough and have a plan.
Career development: According to a recent article in education week (Klein, 2020), only 52 percent of students feel ready to start their careers after high school. Responsibility for career planning seems to lie with school career specialists or careers advisers. However, teachers can integrate vocational education into the classroom to introduce students to different career options and help them better prepare for adult life.
One way to do this is to include concrete career opportunities in weekly classes. In science class, discuss the career path and role of a biologist or forensic scientist. This allows students to make the crucial connection to the school’s curriculum that will help pave the way to a future career. Students were able to interview professionals in the field to learn about their day-to-day responsibilities, the benefits of their job, and how they got started in the field. Teachers could also bring in professionals to talk about the specific field of study, but also to discuss aspects of their personal careers. Teachers may also encourage students to incorporate career exploration into assignment writing.
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 have saved and the interest you earn. This is one of the most powerful tools in wealth building and time is the most important factor.
For example, you invest $1,000 (your capital) and earn 10 percent (interest rate) once a year. After the first year you would have $1,100 – your original equity plus 10% or $100. The second year you would have $1,210. That’s because the next interest payment is 10 percent of $1,100, or $110.
If a student at age 16 saves $100 at a 10% interest rate, in 5 years he will have $161. That’s $61 in raw earnings. However, if they wait 20 years, their total investment increases to $673. That’s more than 6 times your original investment. Teens who start saving early have a huge advantage as adults, and that savings can mean a down payment on a home, the opportunity to travel or start your own business.
An easy way to teach students this is to provide multiple scenarios and have them calculate them for different factors.
- Start with $100. How long would it take to make $1000 at 10% interest?
- If you invest at 10% interest for 20 years and end 20 years with $50,000, how much did you start with?
- You want to buy a new car in 5 years. You can invest $100/month and get 10% interest. How much can you spend in 5 years?
Budgets: Another potential mathematical inclusion, Budgeting can also take the form of problem solving and algebra. Teach teenagers early on that a budget doesn’t have to be 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 in managing money as it teaches accountability and responsible spending. With a budget, you can track and understand your spending, make adjustments if needed, and create a savings plan.
Begin by having students create a real (or hypothetical) budget. Using a table, find out how much money they make each month (income). This can be through odd jobs, PT work, pocket money, 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 break spending into two categories: what they need to buy and what they want to buy (fixed vs. discretionary spending). “Purchases” includes groceries, 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 deficit. If they have a surplus, congratulations! That means they don’t have to overspend and save extra. If they have a shortage, they need to review their discretionary spending and see where they can cut back on spending.
While there is progress in demanding personal finance in schools, we cannot afford to wait. Every year, more and more adults go into debt and find themselves in great financial distress because they were never taught 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 grow into financially successful adults.