College marks the first time that most young adults have total control over their living situations, food, time and money.
Personally, I was lucky. My dad’s job revolves around the stock market, and my parents were transparent when it came to my questions about finances. After blowing out the candles on my 18th birthday cake, I filled out a credit card application and opened a brokerage account.
Because my dad has experience with money and investing, I learned money-management skills from him. However, not everyone’s parents have a finance-centric job, nor do many high schools require financial literacy classes. I know mine didn’t. If not for my dad, I wouldn’t have known where to start.
To set students up for success in college and the real world, high schools should mandate that all students enroll in a financial literacy course. Credit, budgeting and investing are three fundamental topics that everyone should understand before entering college or the job market.
Not only is credit the basic principle behind the credit cards most of us have in our wallets and purses, but it’s integral to student loans. According to Forbes, “More than half of students leave school with debt.” Understanding the implications of taking on that debt and knowing how to calculate interest (the percentage you owe the lender for borrowing money) are both important parts of money management. Repayment terms and how much money you are eligible to receive should also factor into your budget.
A study published by the Federal Reserve tracked young adults’ default rates and credit scores in three states with recently established mandatory personal finance classes and 25 control states without this requirement. In the three states with financial classes, young adults showed improved credit scores and reduced default rates, how often lenders had to write off outstanding loans. The surrounding states without the course requirement experienced no change.
By requiring high schoolers to learn about finances, students can take advantage of this knowledge early on in life by dipping their toes into the world of investing and watching their money grow. The World Economic Forum highlighted that only 33% of adults globally are considered financially literate, and many claimed that “confusion and unfamiliarity with the stock market” were their main reasons for not investing.
According to U.S. News & World Report, “The stock market is kindest to those who stay faithful to it longest.” Investing from a young age sets people up for success by leading to compounding. Essentially, even if you are only investing a small amount of money in the stock market, chances are that money will grow exponentially over time. Besides stock growth, some companies even pay their shareholders dividends, which are funds distributed regularly from a company’s profits based on the number of shares owned.
Financial literacy is also important for students entering the workforce. Many companies give its employees a 401(k) account, a special type of account where employees can save a set percentage of their pre-tax salaries for retirement and other needs, with the potential for an employer to match their savings up to a certain amount. Having the skills to read the financial jargon and understand the benefits your employer is offering is crucial in evaluating one job over another.
Of course, you could watch YouTube videos explaining these concepts. However, that means you need to know what questions to ask, which you may not know because nobody educated you on the topic. If no one ever discussed money and finances with you, what are the chances you actually think about its long-term implications?
“No one in my life until college talked about the stock market, budgeting or even how to pay my taxes,” sophomore health science major Addie Murphy said. “I was never taught about why getting a credit card was important, so I still don’t have one. If my high school mandated personal finance classes, I would’ve likely understood its value, and I probably would have a credit card today.”
My dad always emphasizes the importance of money, savings and financial planning, and how understanding the world of Wall Street gives me options which include saving for a house, traveling to new places, buying myself nice things, paying for an emergency and even quitting a job I don’t like. Learning financial literacy at a young age benefits individuals and the economy as a whole, and our education system should support this improvement.
While the thought of another required class might make some high schoolers grumble, the potential to grow money exponentially, save enough for a rewarding retirement and be financially independent should be more than enough motivation to get them to class. A financial literacy class is meant to teach skills about money, but its true impact is priceless.