1. How Credit Cards and Interest Rates Work
Since you can normally get your own credit card at around 18 years old, it seems like common sense to teach high school students about the intricacies of credit. I’ve seen far too many young people run up huge credit card balances early when they don’t have a good understanding of how credit works.
If we taught high school students a few basic lessons about credit cards and interest rates, we could potentially save many students from a lifetime of financial stress. Credit can be a useful tool when you’re paying it back every month. However, interest on credit can work against you when you carry a heavy balance. The credit lessons we teach don’t need to be overly complex, either. At the very least, young people need to understand that:
• You have to pay back every dollar you charge
• Credit card interest accrues daily when you carry a balance
• Your interest rate can play a huge role in your monthly bill if you aren’t paying your charges completely off each month
Lastly, high school students should understand that it’s not a good idea to use credit to buy things they can’t afford. Instead, they should save for what they want and aim to use credit only when it serves their interests. Young adults can use credit wisely to meet goals and build up a healthy credit profile, but it’s key to ensure that when you use credit, you can pay it back.
Understanding responsible use of credit from the moment a teen gets their first credit card can go a long way to building a solid financial future. While it’s smarter to avoid debt in the first place, young people should be educated on the many tools they can use to rebound if they fall behind with their bills.
2. How to Balance a Check book?
While the days of writing checks for most bills are clearly over, young people still should learn how to balance a check book. Even if they stick to debit and credit, they could really benefit from learning how to manage their cash flow and outflow to avoid overdraft fees.
A lesson on online bill pay services might also help students who lean on technology to manage their money. And yes, students still need to learn check-writing basics, such as how to fill checks out at least for now. Sometimes, people still need to write a check, believe it or not.
3. Budgeting Basics
Budgeting is one of the most important skills anyone can learn, yet you’ll barely hear a peep about it while you’re in school. Unfortunately, not learning about budgeting can leave you at a disadvantage once you graduate high school and move out on your own.
Without any knowledge of how to manage bills and separate “wants” from “needs,” many people may spend their lives enduring one financial hardship after another. At the very least, I think high school students should learn how to plan a lifestyle that actually jives with the income they earn. That may include knowing how to plan for and pay bills like rent, utilities, insurance, and car payments while making sure there is money left for groceries, savings, etc.
Here’s the thing: I actually hate budgeting. I know it’s necessary, but I don’t like tracking every penny we spend. What I do instead is what I like to call “tactical budgeting” as in, I sit down to create a financial plan any time a major life event is coming my way. This type of budgeting doesn’t require you to watch every penny, but it can help you achieve your goals and spend less over time.
4. The Power of Compound Interest
While young people may not reach their income potential for years, they have one major advantage over the rest of us when it comes to investing, time. With time on their side, they can take advantage of the full potential of opening and adding to a savings account to tap into the power of compound interest.
By putting even small sums of money in a high-interest savings account while they’re young, high school students, graduates, and college students can start building wealth that will compound over and over again. We need students to not only understand the power of compounding but to know how to take advantage when they can.
5. How to Build Credit
Your credit score is an important part of your overall financial health, and it can make a huge difference in how you manage your finances as an adult. With good credit on your side, it’s a lot easier to buy a house or qualify for an apartment. With bad credit (or no credit), on the other hand, most of life’s biggest milestones can be harder to reach.
Students need to know why credit is important, but also how to build credit while they’re young. Most of the time, getting a basic student credit card or student loan, for example, can provide an introduction to building credit for students who need to get started. But that doesn’t mean building credit is easy. Sometimes, it’s difficult for young people to get approved for a credit card or any type of loan.
6. Investing and Stock Market Basics
I meet with many full-fledged adults who don’t know the first thing about the stock market or investing in general. While we can’t do anything about that now, we can help young people start their own lives with a basic understanding of how investing works.
While we probably want to avoid overwhelming students with too many details, I recommend that we introduce them to investing concepts they can rely on as they get older. They need to understand what the stock market is and how investors make (and lose) money. And yes, I think they need to understand how investing could make them rich. It would be a shame for young people to miss out on building wealth with stocks, especially since you don’t need to invest a lot of money if you start early enough.
On the other hand, it’s important for students to know the difference between safe investing and investing scams. While investing with a reputable company can be smart, young people need to know to choose reputable firms when investing their money. It pays to research any company you plan to invest with, read reviews, and make sure you know what you’re getting into.
I’d also say that it’s important for students to know how much risk they are willing to take with their money. Investing in a start-up company with lower stock share prices, for instance, could eventually reap big returns but also could be more likely to fail, with the stock value dropping. This is called a higher risk, higher reward.
Those students looking for a more conservative investment option should consider investing in established companies or a compound of companies called a mutual fund. This is a longer-term investment strategy that could grow money over the decades consistently.
7. How to Start a Business?
I understand that starting a business might be A LOT for any high schooler to take in, but what better opportunity to get an introduction? I didn’t come from a family that had business-building expertise. And neither did my friends. Thankfully, someone put books in front of me like Rich Dad, Poor Dad that at least gave me a basic intro to these concepts.
The Bottom Line
Personal finance is such an important part of life that I can’t believe we don’t teach students more about money in school. When you really think about it, it’s no wonder household debt levels are at all-time highs.
When people don’t know better, they don’t do better.
Let’s try to make a positive difference in our students’ financial futures now by teaching our children financial basics and to advocate for more financial education in schools.
1. How Credit Cards and Interest Rates Work