The lack of financial literacy among young people is a perenially hot topic. Who is responsible for teaching young adults the basics of earning, saving, and investing their money?
Some colleges are taking up the challenge. My cousin, who attends one of the Seven Sisters, told me that her school offers a week-long personal finance class during Spring Break. (Huzzah!). So instead of flying home, she is going to stay on campus and attend the class instead. I was so excited to hear this – personal finance is a sorely needed subject, but most colleges don’t cover this at all. I received an excellent education from my school and took several semesters of accounting, macro-economics, and micro-economics. When I graduated college, however, I knew NOTHING about credit card rates, basics of asset allocation for personal investing, where to set up my cash accounts, etc. And let’s be honest, not everyone has to learn about the Argentine peso crisis, but everyone needs to understand how to manage their own money.
Fortunately, I fell into the world of personal finance blogging. So my deer-in-the-headlights period wasn’t as long as it could have been. Still, it would have been helpful to have a personal finance class before graduation, as part of a comprehensive education to launch young adults into the real world. I’ve discussed in the past whether schools have a responsibility to teach money management to students, so I’m glad that my cousin’s school is taking proactive steps to address this issue.
So, what SHOULD be in a week-long personal finance class? Here are my suggestions:
- Setting up a budget and understanding real-life expenses. Or, a discussion of where does your gross pay actually goes to before you are left with your net paycheck, and then your discretionary income. Making $60,000 or doesn’t mean you HAVE $60,000 to spend. Sounds like a simple concept, but the first time I got my paycheck, I was shocked at the big discrepancy between my gross salary and my net income. I believe my reaction was along the lines of “Who is this FICA and WHY is he taking my money?”
- How to pay for car / transportation. This should include discussion of car loans, down payments, auto insurance, etc.
- How to handle student loans and possibly, prepare for graduate school financially. The class should talk about under what conditions can student loans be discharged (almost none), how long it will take you to pay off a student loan if you stay on a 10-year, 20-year, or 30-year payment plan, talk about the different types of student loan payment plans available and discuss the pros & cons of each, and map out what is the income you will need to earn to service your debts.
- How to use credit effectively and responsibly. Over the course of a lifetime, those with an established, strong credit history save tens of thousands of dollars thanks to lower interest rates on everything from a mortgage to car financing to private student loans. So no discussion of personal finance can be complete without talking about credit. I am a big believer that credit cards can (and should) be a part of one’s financial tool kit. I’d like to see a discussion on credit card interest rates, impact of minimum payments and effective interest paid, how to manage your credit score, where to get your free credit reports, etc.
- Investing for long-term goals and retirement (a thorough discussions of 401Ks / 403bs, Roth IRAs, IRAs, and SEP-IRAs, etc. would be very important here). Also, there should be a conversation on risk, rewards, fees, and impact on performance.
- Insurance needs – talk about disability insurance, life insurance, types of insurance and places to do more research.
- Teach them why personal finance is sexy. Seriously! What can be better than taking charge of your own financial life?
- Where to go if you need more information or help about personal finances. Books, nonprofit classes, etc.
