I’ve never had a formal class about finances; if I had I wouldn’t have made many of the financial decisions that cost me my credit rating, and sent me to court a few times to fight the creditors I owed money to. If a course about finances had been taught to me in high school I would have had the knowledge I needed to make sounder financial decisions, and I wouldn’t have been caught in the credit trap that finally ruined my ability to secure a much needed loan at a fair affordable interest rate.
My parents never discussed their finances with me, and if they had I would have at least gained a general knowledge of what it takes to own and maintain a home and automobile, pay utilities, buy groceries and clothing, and still have enough money left over for any incidental needs before the next pay check rolls in.
It’s for these reasons that all high schools need to develop and offer lessons in personal finances to seniors before they graduate.
An outline of topics that need to be taught are:
• How to balance a checkbook
By the time most seniors graduate they’re going to need to establish a checking account, especially if they plan to attend college. Without this knowledge, many of them aren’t going to be able to manage their money effectivly enough, and they’ll end up overdrafting their accounts and paying high fees associated with it. They need to understand that they can’t spend money they don’t have, and once they’re on their own, they may not be able to rely on mommy and daddy to bail them out.
• Your gross paycheck, deductions, and net pay
Chances are that most of them have never had to work a paying job in their entire life. They need to learn about paychecks and all of the deductions the federal and state governments withhold from them. If they don’t understand withholdings of federal and state taxes, social security, medicare etc., they’re going to receive a real shock when that first pay check is handed to them. They need to understand that just because they will be grossing a certain amount based on hourly or salery pay, the amount of money they actually receive will be far less than they anticipated.
• Total monthly income minus set expenses equals disposable income
This block of instruction will be the most important towards understanding the complete relationship between earnings, expenses and disposable income. By the time they’re given a total earnings statement and they subtract their rent or mortgage, utilities, loan payments etc., they’ll be able to see the larger picture and begin to understand why their parents often told them they couldn’t afford to buy a certain item or go to a certain place.
• Credit cards, minimum payments and interest rates; the do’s and don’ts
Most kids don’t understand the relationship between credit cards and money. They understand that credit cards are a form of money but they don’t realize the trouble these cards present when used freely and unwisely. By showing the students just how much one credit card will cost them extra over a one year period, and how much of their disposable income they’ll have to apply to paying on that one card, they’ll soon realize that having more than one card will substantially impact what they have left to live on.
• Home, automobile and personal loans
High school students need to be shown what happens during any loan application process, and they need to realize what the true cost of any loan will be to them. They don’t know that by the time they finish paying for a home loan, they will have paid three to four times more for the house than what the negotiated price was. They’ll have a good understanding of all the fees associated with home, auto and personal loans, and will finally realize the true cost associated with them.
• Educational student loans for college
Loans to go to college can come back to haunt a student when they finally earn their degree and get that first job. With the rising costs of college tuition, and the state of the economy, many college graduates can’t find work in their fields of study, and wind up taking jobs elsewhere when available. These jobs often don’t pay what they were expecting, and many student loans go unpaid. High school students need to see how this can impact their disposable income from any job, and understand what it may mean to their quality of life.
• Living within a structured budget
This is perhaps the most important lesson high school students will need to learn. Most of them have never had to live on a budget before. They asked their parents for money and got it, then spent it without regard to any future consequences. Taking all of the earlier lessons and bringing them together under this lesson will teach everyone how to live within their means so that they’ll be able to pay all of their legal debts every month, put food on the table and still have money left when they receive their next paycheck.
Somebody has to teach high school students about finances. If we could do a survey with the parents of all high school kids in the nation and ask them how much they teach their children about finances, it would be no surprise as to why we’ve been experiencing so many problems in the failure to repay loans on the credit market. High school is the best place to begin educating our future adults in financial responsibility, and it needs to start now, before it’s too late.