I recently came across this post on reddit: Why Aren’t High Schoolers Taught How to File Taxes.
It made me think about what American children are taught in school, and whether that education actually prepares them to become adults. (I grew up in Los Angeles, so your K-12 education may have been different than mine.)
One of the most important things that Americans need to deal with – personal finances – is rarely taught in school. Why do we trust someone to just “figure things out” as they go along? I spent a long time in school, and when I got my first job, I still didn’t know much about topics like taxes and mortgages.
It turns out that Americans are pretty bad at finances (e.g., building up personal savings). My own parents didn’t understand how to manage credit card debt and car loans, so I wouldn’t expect that the average American has good enough financial habits to pass on to their children.
Why aren’t we doing something about this? Here are some topics that should be mandatory in K-12 education:
How to build up savings in a bank account. Make sure you earn more than you spend, and that your bank account statement generally goes up. This topic can be addressed after the child has a firm grasp of addition and subtraction. We can also show children this great skit from SNL: Don’t Buy Stuff You Can’t Afford.
How to use credit cards properly. Learn the devastating power of compounding interest, and why you should avoid credit card debt if you can. This can be taught after students have mastered multiplication and percentages. It can be revisited after students learn about exponentiation.
What are taxes? How do I file them? You can’t avoid taxes, so you might as well learn about them.
Mortgages and auto loans. Learn about monthly payments, compounding interest, and amortization schedules. Did you know that on a 30-year loan for a house, you could pay two times the cost of your house over the lifetime of the loan? That is, for a 30-year $400,000 loan at 4.5% interest, you would end up paying ~$330,000 of interest on top of your principal, for a total of $730,000!
I actually learned more about finances from video games than I ever did in school. SimCity taught me how to manage a budget and take on / repay debt. A-Train, a sim game where you set up a railway system, had a mini game where you could invest in stocks. I would buy stocks and try to sell right before a crash. If I ever messed up, I could always reload a previous save file…. but I know this is not possible in real life. :-)
I will definitely teach my children good financial habits. But I would be much happier if all American kids were prepared for the moment they “grow up” and receive their first credit card offer in the mail (0% APR for your first 12 months!!!).