Please teach your kid personal finance. The school system barely does.
I have not dissected anything since high school. I have not used calculus. Trigonometry and Geometry have added no value to anything in my life. But I have borrowed money, saved money, made money, spent money, and invested money. We all do these things to different degrees. But very few of us dissect frogs.
So much of what I was taught in high school is wasted. Schools do not teach kids how to learn, they teach kids to know what other kids know. This isn’t wholly useful. Kids should be taught to ask why, not to answer what. Figuring out problems is what we need to survive. Finding the answer is important. Knowing the answer isn’t.
Personal Finance is so important. Kids should learn:
- How to balance a check book: This is fundamental. It’s a life lesson that is greater than how to balance a checkbook. This teaches the child how important it is to produce more than you consume. If you consume more than you produce you are atrophying. You’re dying.
- What is interest: You either loan or you own. The people that own make money from the people that loan. Interest is the penalty for not owning. Interest can be a great thing though. If interest is respected, and you understand balance, you can borrow and pay interest (leverage) to make money. There is nothing wrong with borrowing if you are making more money than you are losing. Understand your risk profile when borrowing.
- The value of a dollar
- Rent vs Buy decisions
- What is Satisfice: You don’t need to maximize accumulation. Having just enough to make you happy leads to more happiness than having more than you need to make you happy. If your belly is full of delicious pizza, eating more pizza won’t make you happier. Spend what makes you happy, and no more.
- How does a credit card work? Credit cards are great. If you use it to track your spending. Credit cards are horrible if you pay interest. You do not need to pay interest as long as you pay the balance off in full each month. Do not carry a balance. Spend less than your income. If you can’t afford something with cash, then you can’t afford it. Think that way with a credit card too. Just because you are approved for a certain amount, does not mean you have that amount.
- How does a mortgage works? Did you know that mortgage translates to “until death?” That is literally what the word means. But it doesn’t need to mean that to you. You do not need a 30 year mortgage. (Older) kids can benefit from understanding amortization and the basics of a mortgage. It’s more expensive to have a 30 year mortgage than a shorter mortgage. It is expensive to keep refinancing a mortgage. Mortgages are intentionally structured to penalize you for refinancing it.
- College isn’t necessary. You can make money doing things that do not require a college degree. Always learn. But do not feel you need to go to college to make money. You don’t. You just need to understand this post to make money! Plus, as we all know now, be careful and smart about taking out a loan to pay for college. The return may not be worth the debt. I have two college degrees. They didn’t do much for me. I also am a Chartered Financial Analyst (aka CFA). It cost me $3k and doubled my salary. That seems smarter than college. It was also more interesting. The rate of return on certificates and licenses is much higher than that of degrees.
- Basics of business: Look this one is simple. Every business is a lemonade stand. Something that is worth less has value added to it and is sold for more. Simple. Make more money than you spend. Keep doing it.
- Basics of investment products: They do not need to be an expert, but understanding what a stock, bond, mutual fund, and exchange traded fund are will help your child understand that investing isn’t a mystery
- Basics of investment vehicles: e.g. 401k and IRA. Your child doesn’t need to understand what a trust, 529 plan, or HSA is, but they should understand 401k’s and IRAs. Understanding the benefits of investing now in tax advantaged accounts will lead to less financial regrets later.
- Be a good role model! The child is watching and learning from you. Make good decisions.
- Bonus round: Teach your child the concept of time horizon and risk tolerance. These are powerful.
Bottom line: Teach your kid personal finance
The school system does not teach kids this. Less people would struggle financially if it did. But you are the dad. You can teach your kids how to be better with money. You’re on this site because you care about Trying to be a better dad and you care about retiring early. Please teach your kid personal finance.
Even if the school system did teach personal finance they do not teach something you can. Be a good role model. Be smart with your money.