I recently discussed with the local college president how they might distinguish themselves from other schools. The discussion centered around consumer debt, college debt, and managing or mismanaging personal finances. My position is that our high schools and colleges do such a poor job of teaching just the basics of finance that many students enter the workforce without knowing how money works or how to manage it. I also believe that parents and students will see value in and gravitate toward schools where they know their children will learn financial basics.
Starting At A Very Young Age
I have a strange perspective on stocks and investing related to my first stock exposure. When I was about eleven or twelve, a friend and I decided to get involved in the stock market. I am still trying to remember why, but we did. One of the local stockbrokers was the father of a schoolmate and did the trade for us. As I remember, we each purchased one share of a real estate investment company in Atlanta that was building the Hyatt Regency Hotel. Our total investment was about $10.00, representing our savings at that age.
After a few months, we discovered they were having a Board of Directors meeting, and we decided to go. Our parents dressed us in coats and ties, put us on a Greyhound Bus, and sent us to Atlanta for the meeting. The Capital City Club was only a few blocks from the bus station.
When we arrived, we asked for the meeting room and were directed up the elevator. We had no idea what to expect, but we marched up to the door and walked in. About a dozen men were sitting around a table, and as I remember, the room was full of cigar smoke. We proudly announced that we were there for the shareholder’s meeting. To our surprise, they were thrilled and treated us like royalty. When the meeting was over, we walked away with lots of financial information we could not understand, but proudly, some three-dimensional popup hotel brochures.
The next step was a short walk back to the bus station and the ride home. Our introduction to the world of high finance was brief but enjoyable. Sixty-four years later, the trip and the meeting are still burned into my memory. Our investment venture started a lifetime of fascination with business more so than markets.
A Personal Lesson in Financial Education
In college, I took a course that forever changed my understanding of finances. Finance 101 was a required course for all Arts and Sciences majors at UGA. But it was taught differently in those days, and I think better. The course made such an impression on me that I know the instructor’s name, where it was taught, and most importantly, how it was taught.
Our instructor was not a professor but a local attorney interested in teaching financial basics. Every morning, he showed up to class with about a dozen copies of the Wall Street Journal and, for an hour, poured over it with us. We learned about prices, PE ratios, dividends, and how news affected changes in stock prices. By the end of the course, we had learned the basics of reading a balance sheet and an income statement.
We also learned about dividends and interest and how long-term investing pays off through compounding and reinvestment. We discussed actions by the Fed and the Treasury and followed those through to the bond market. By studying how corporations use debt, lessons for our lives began to sink in.
These lessons were followed by a brief introduction to corporate governance and the structures of the companies studied. We learned the role of a Board of Directors and their responsibilities. This is the one class I remember most because it was the most practical.
It Is More Difficult Today
When I first became involved with stocks, it was a more tangible process. We would go to the brokerage office and sit for an hour or so, waiting for the ticker symbol and price of our stock to scroll by on the ticker. There was a tangible connection between our money, the brokerage, and the stock market. With the internet, online brokerages, and instant access to research that connection has been broken.
We must encourage parents to share ideas and experience managing money when appropriate. Some can share successes; many can share failures. With record levels of consumer debt, we may have a lost generation of investors between the Millennials and Gen-X. These two generations are the first to experience money as an abstract concept. The convenience of electronic purchases and transfers removes the understanding of money for those not involved in that transition.
For today’s children, money may always be an abstraction unless we invest the time and energy to teach the fundamentals to the next generation. Organizations like Junior Achievement, Intuit, and EVERFI are working to bridge this gap, but it is, first and foremost, a parental challenge. We can only encourage all readers to know what is happening in your local schools to bridge this gap.
Parents can help by making money tangible for their children. Rather than seeing money as plastic or just an internet phenomenon, let them manage their money with hard, cold cash for a few months. There is nothing like handing a clerk a ten-dollar bill and getting change to drive home the reality of the concepts. For children, there may be little difference between using a debit card and a credit card; it is all plastic.
It Must Start In High School (or earlier)
The things we learned in my most memorable finance class should be taught at the high school level. The topic is not complex once you get into it, and today, high school students are faced with different decisions related to further education. Financial literacy is just as crucial for those who choose not to attend college. While their potential is the same, students need money management skills earlier to succeed.
Financial lessons can be difficult for those who enter the workforce immediately after high school. Some will become successful entrepreneurs and start businesses, but most will become employees who must learn to live on a salary. Some will see value in entering a technical college and will pursue some specialty education. However, financial success is not dependent on a single path but is open to everyone who can learn, save, and invest.
For those who choose to go to college, having the skills to evaluate universities and the value of degrees is necessary. In recent years, we have seen what happens when students are seduced into majors, which create debt without the possibility of repayment. Students need to understand the job market, potential salaries, and whether the major they seek is economically viable. One or two classes focused on student financial literacy will pay dividends for them and society.
We have grandchildren approaching their post-high school decisions now. They need to have the financial skills to analyze not just where they want to go and what they want to do, but also the financial implications of their decisions.
What Happens When We Are Financially Illiterate?
We now know this is a generational problem because parents often need help advising their children on avoiding these pitfalls. One would think that a parent saddled with debt from their college days would send their children down a different path. However, this knowledge transfer is not happening since student debt keeps growing.
“. . . levels of financial literacy are remarkably low, even in countries with well-developed financial markets and in which individuals actively participate in financial markets.”
When we are financially illiterate, bad things happen to individuals and society.
- If you do not understand money, you probably do not understand investing.
- People who cannot manage money become overly dependent on the government and lose self-esteem.
- They also fall for credit card schemes, student debt, and buy-now-pay-later loans.
- They develop bad spending habits that last a lifetime.
The most dangerous is when they rise within the government and do not understand finance. For some unknown reason, voters have no problem sending people to Washington who cannot manage their household finances, giving them control over billions of tax dollars.
We see this drama play out daily through embarrassing Congressional hearings where elected officials try to confront Fed, Treasury, or business leaders and cannot ask intelligent questions. The few who can understand are often shouted down by those who cannot.
The nature of the national discussions we face today ranges from financing wars to universal basic income, financing deficits, digital currencies, and debating social programs. Our lack of literacy shows at all levels of government and is revealed most often in deficit and inflation discussions. There is no more glaring example than the “Inflation Reduction Act,” which most in Congress have neither read nor understood. Good financial literacy makes facing these challenges possible.
What Happens When We Are Financially Literate?
When we become financially literate, the mechanisms for success open for all of us at all levels of society. This alone should be a reason for our schools at all levels to teach it. In America, the processes by which we lift ourselves out of poverty are open to all, but recognizing and understanding them is not. In America and other developed nations, there are many paths to personal success, but all these paths must include some aspects of financial literacy. For minorities and others just starting on the path to success, the importance of financial literacy is evident.
I often hear that the “American Dream” is dead, but if it is, it is because we have chosen to make it so through poor financial education and a lack of goals. A recent Wealth-X and Fidelity Investments study found that even today, two-thirds of all millionaires did not inherit wealth but built it. They have shared traits such as goal setting, living within their means, seeking mentors, and learning to take calculated risks. Many have never had a credit card balance.
Many self-made millionaires make less than $100,000 annually; they are just disciplined in managing their finances. Many, if not most, have 401K plans and IRAs, indicating an understanding of long-term financial goals.
Where to Start
I am starting with local colleges and high schools, working to get administrators to understand the necessity of teaching students the basics of money management. This is not always met with a warm welcome, but it is a journey. Many see the need, but budgets and curriculum restraints make squeezing in classes difficult.
Resources
2024 Cost of Raising Children Report, By Erin El Issa and Courtney Neidel, nerdwallet, nerdwallet.com, February 29, 2024.
79% Of Millionaires Are Self-Made — Lessons From Those Who Built Wealth Without Inheritance, By Jeannine Mancini, yahoo!finance, yahoofinance.com, May 8, 2023.
Birth Rates Are Plummeting in Most Nations, And The World Isn’t Prepared, By Jess Cockerill, Science Alert, sciencealert.com, March 30, 2024.
BofA Private Bank Study of Wealthy Americans Finds Generational Divide in Investing, Giving and Preserving Wealth, By Bank of America Private Bank, newsroom.bankofamerica.com, June 18, 2024.
Comprehensive Financial Literacy Lessons, EVERFI From Blackbaud, learn.everfi.com, Last Accessed September 30, 2024.
Financial Literacy: What It Is, and Why It Is So Important To Teach Teens, By Jason Fernando, Pamela Rodriguez, and Kristen Rohrs Schmitt, Investopedia, Investopedia.com, June 29, 2024.
Gen Z and Money: Essential Financial Skills for the Next Generation, By Marketplace Contributor, San Francisco Weekly, sfweekly.com, September 28, 2024.
Gen Z Has the Lowest Financial Literacy Levels — Experts Explain Why, By Justice Petersen, GoBankRates, yahoo!finance.com, April 25, 2024.
Gen Z’s unique money mindset and approach to financial wellness, By Rene Bennett and Brian Beers, Bankrate, bankrate.com, August 17, 2023.
How much does it cost to raise a child in 2024? Things for prospective parents to consider., By Brad Hanson, creditkarma, creditcarma.com, June 27, 2024.
I’m a Self-Made Millionaire: Here’s the First Thing I Do With Every Paycheck, By Martin Dasko, GoBankingRates, gobankingrates.com, April 6, 2024.
Intuit For Education, Intuit, education.intuit.com, Last accessed September 30, 2024.
JA Financial Literacy, Junior Achievement USA, jausa.ja.org, Last accessed September 30, 2024.
The importance of financial literacy and its impact on financial wellbeing, By Annamaria Lusardi and Flore-Anne Messy, Cambridge University Press, cambridge.org, June 12, 2023.
The Largest Study of Millionaires Ever Done — Here’s What It Revealed, By Talia Diaz, Medium, themakingofamillionaire.com, August 9, 2022.
The National Study of Millionaires: The American Dream is Alive and Available, By Ramsey Solutions, ramseysolutions.net, June 11, 2024.
