3579: [Part 1] 7 Personal Finance Lessons I Wish Everyone Learned in High School by Jeff Rose of Good Financial Cents

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[00:00:52] This is Optimal Finance Daily. 7 Personal Finance Lessons I Wish Everyone Learned in High School. Part 1 by Jeff Rose of GoodFinancialSense.com Imagine if what you know now, you knew way back in high school. How much better off would you be? When I was in high school, I didn't learn anything about money, budgeting, or investing. While I'm a financial planner now, I didn't learn most financial basics until my junior year of college.

[00:01:19] What's crazy is, I did take a financial basics course at one point. Unfortunately, it wasn't even remotely helpful. The course took place during my senior year of high school and they called it home economics. While I can't tell you a thing I learned during that class, I can tell you what I didn't learn. I didn't learn about investing, credit scores, calculating interest on debt, or the magic of compounding interest.

[00:01:44] That's right, I sat through a year of classes, yet I didn't learn a single money skill that could apply to my life. While I want to believe more money skills are being taught in schools than what I experienced back in the day, or not too long ago, what I'm hearing from parents is that not much has changed. While some schools offer a home economics class or something similar, they're still failing to impart a basic financial education that I believe is necessary for a successful, financially stable life outside of school.

[00:02:13] Here's a look at some of the essentials I wish I would have learned in high school, and I think we should be taught today. Number one, how credit cards and interest rates work. Since you can normally get your own credit card at around 18 years old, it seems like common sense to teach high school students about the intricacies of credit. As a financial advisor, I've seen far too many young people run up huge credit card balances even when they don't have a good understanding of how credit works. Heck, I was one of them.

[00:02:42] By the time I was in my early 20s, I had $20,000 in credit card debt. Fortunately, I learned more about credit cards as I aged and worked diligently to become a financial advisor. These days, I use credit regularly as a financial tool for things I know I can pay off quickly without incurring debt and interest. If we taught high school students a few basic lessons about credit cards and interest rates, we could potentially save many students from a lifetime of financial stress.

[00:03:09] Credit can be a useful tool when you're paying it back every month. However, interest on credit can work against you when you carry a heavy balance. The credit lessons we teach don't need to be overly complex either. At the very least, young people need to understand that A, you have to pay back every dollar you charge. B, credit card interest accrues daily when you carry a balance. And C, your interest rate can play a huge role in your monthly bill if you aren't paying your charges completely off each month.

[00:03:39] Lastly, high school students should understand that it's not a good idea to use credit to buy things they can't afford. Instead, they should save for what they want and aim to use credit only when it serves their interests. Young adults can use credit wisely to meet goals and build up a healthy credit profile, but it's key to ensure that when you use credit, you can pay it back. Understanding responsible use of credit from the moment a teen gets their first credit card can go a long way to building a solid financial future.

[00:04:08] While it's smarter to avoid debt in the first place, young people should be educated on the many tools they can use to rebound if they fall behind with their bills. Number two, how to balance a checkbook. While the days of writing checks for most bills are clearly over, young people should still learn how to balance a checkbook. Even if they stick to debit and credit, they could really benefit from learning how to manage their cash flow and outflow to avoid overdraft fees.

[00:04:35] I learned this the hard way when I bounced three checks when I was 19 years old. Ouch. It was the first time I was introduced to overdraft charges, and it wasn't pleasant. A lesson on online bill pay services might also help students who lean on technology to manage their money. And yes, students still need to learn check writing basics, such as how to fill checks out. At least for now. Sometimes people still need to write a check, believe it or not. Number three, budgeting basics.

[00:05:04] Budgeting is one of the most important skills anyone can learn, yet you'll barely hear a peep about it while you're in school. Unfortunately, not learning about budgeting can leave you at a disadvantage once you graduate high school and move out on your own. Without any knowledge of how to manage bills and separate wants from needs, many people may spend their lives enduring one financial hardship after another. At the very least, I think high school students should learn how to plan a lifestyle that actually jives with the income they earn.

[00:05:33] That may include knowing how to plan for and pay bills like rent, utilities, insurance, and car payments, while making sure there's money left for groceries, savings, etc. Here's the thing. I actually hate budgeting. I know it's necessary, but I don't like tracking every penny we spend. What we do instead is what I like to call tactical budgeting, as in we sit down to create a financial plan anytime a major life event is coming our way.

[00:05:59] This type of budgeting doesn't require you to watch every penny, but it can help you achieve your goals and spend less over time. Bottom line, it's important for young people to know how to create a financial plan for what they want. Number four, the power of compound interest. While young people may not reach their income potential for years, they have one major advantage over the rest of us when it comes to investing. Time.

[00:06:25] With time on their side, they can take advantage of the full potential of opening and adding to a savings account to tap into the power of compound interest. By putting even small amounts of money in a high interest savings account while they're young, high school students, graduates, and college students can start building wealth that will compound over and over again. Here's an awesome example. A few weeks ago, I spoke about investing at my alma mater.

[00:06:50] To show the crowd the power of compound interest, I introduced the magical penny concept. I asked the crowd one simple question. If you had a choice, would you rather have $2,000 cash or a penny that doubles in value every day? Not surprisingly, more than half of the class said they would rather have the cash, of course. The thing is, the magical penny would actually leave them much better off.

[00:07:15] Due to the magic of compound interest, a penny that doubles in value every day would be worth more than $10 million after only a month. We need students to not only understand the power of compounding, but to know how to take advantage when they can. Number five. Hear that on tomorrow's episode. You just listened to part one of the post titled, Seven Personal Finance Lessons I Wish Everyone Learned in High School.

[00:07:44] By Jeff Rose of GoodFinancialSense.com. Dell PCs with Intel inside are built for the moments that matter. For the moments you plan and the ones you don't. Built for the busy days that turn into all night study sessions. The moment you're working from a cafe and realize every outlet's taken. The times you're deep in your flow and the absolute last thing you need is an auto update throwing off your momentum. That's why Dell builds tech that adapts to the way you actually work.

[00:08:14] Built with long lasting batteries so you're not scrambling for the closest outlet. And built in intelligence that makes updates around your schedule, not in the middle of it. They don't build tech for tech's sake. They build it for you. Find technology built for the way you work at dell.com slash dellpcs. Built for you.

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[00:09:09] I have to agree with Jeff. I wish I would have learned this stuff too. Not understanding how compound interest worked, worked against me when it came to my credit card debt and led me to dig a pretty deep hole. But I do agree that there are ways to leverage debt smartly. When it comes to credit cards, never carry a balance and never pay interest. That's a pretty hard, fast rule that many of us learn the hard way. But not all debt should be avoided like the plague.

[00:09:36] I, for example, had a good experience in leveraging low interest debt when I bought my house. I had the 20% down payment, but it was pretty much all the cash I had on hand. And I didn't want to part with all of it for obvious reasons. So what I ended up doing was finding a bank that let me pay half my down payment with a home equity line of credit. And I did the math to see how fast I could pay that off and how much I could pay in interest.

[00:10:03] I ended up paying that off in six months and I only paid around $200 in interest. It was totally worth it for the peace of mind. So that being said, all debt isn't horrible as long as you have a plan for repayment and you understand the impact of interest. If you knew up front that you would end up paying $30 over time for that $10 lunch you just swiped on a credit card, you might think twice about if that purchase is worth it. Well, that should do it for today.

[00:10:32] Have a happy rest of your day and great weekend. And I'll catch you tomorrow where we'll finish up this post and where your optimal life awaits.