5 Lessons About Money You Didn’t Learn in School

April is Financial Literacy Month and the purpose is to bring awareness to basic principles of personal finance. American children and adults routinely fail basic financial literacy questions and personal finance is not a part of the vast majority of schools’ curriculum.
This month, however, we encourage you to take a step back and consider on a high level why financial literacy matters more now than ever. If you can understand the big picture why you need to be diligent about your dollars, then getting into the weeds is not as daunting. Here are 5 lessons about money you didn’t learn in school.

1. Your finances impact nearly every aspect of your life

Money shouldn’t be worshipped, but rather respected. Respecting money means understanding how it works and how it impacts your life. Money is simply a resource and you must utilize that resource wisely. The decisions you make with your money directly impact your family, friends, your home, your health and your job.
Some of our most important decisions in life are made by age 35 (level of education, career, marriage, kids, first home purchase, investment decisions). If you make these decisions without fully understanding the financial implications, it can seriously impact your ability to build wealth.

2. The American Dream can easily turn into a debt nightmare

Many of us were sold a 20th century model of ‘making it’ in America. The formula included – get good grades, go to a great school, get a good job, buy a car, get married, buy a house, have kids. That advice worked well for previous generations, but let’s look at what that formula may cost you today.

  • Undergraduate College Degree (Tuition, Fees, Room & Board, and Books)
    • In-State Public college averages $25,290/year = $100K+ for 4 years
    • Private College average $50,900/year = $200K+ for 4 years
  • Average starting salary for college graduates – $50,359
  • Average cost of a new car: $33,560
  • Average cost of a wedding: $35,329
  • Median home cost: $199,200
  • Cost of raising a child (Birth to 17): $233,610 or about $14K/year

These numbers are not intended to scare you or to imply it’s impossible (although the fact these numbers represent averages is pretty scary). It is possible to do all of these things, however, if you don’t fully understand the financial implications of these decisions, your American dream can easily turn into a debt nightmare.

3. You’re on your own financially, no employer or government will save you

If you’re under the age of 50, you likely don’t have a pension and Social Security is not guaranteed. A pension is basically a financial arrangement with a company which would fund your retirement (as a percentage of salary) in exchange for a certain number of years of service. That’s where the “get a good job with benefits” advice came from. Except for a limited number of government jobs, pensions are practically extinct, so you are on your own for retirement. There is also no such thing as a secure or guaranteed job, so you need to prepare for that as well. You’re working for 40 years (ages 25-65) to fund not working for 30 years (ages 65-95). You need to find a way to save 30 years’ worth of income in 40 working years. Don’t wait until your 40’s to start thinking about retirement investing. Also, don’t assume you can work into your 70’s either, your health may not accommodate it.

4. Delayed gratification can change your financial future

Personal finance is much more about behavior and mindset than money and math. It takes self-awareness and discipline to walk into Target and only purchase the one item we went there for. We are not rational when it comes to money and we must understand ourselves well enough to counteract it. The principle of delayed gratification is very important to be savvy with money. We live in a fast transacting world where we can have nearly anything in 24 hours, but building real wealth is still a slow methodical process. Even though you may want something now and pull out the credit card, it’s almost always a better idea to wait and pay cash. People who build up their delayed gratification muscles and sacrifice immediate wants for the long-term benefit are the true winners when it comes to money.

5. College education has not adapted to the 21st-century economy

The cost of college has risen over 200% in the past 30 years, however, the value of the education is not twice as valuable as it was in the 90’s. While the economy has changed dramatically in the past 30 years, college curriculums haven’t. This does NOT mean college education isn’t worthwhile, however, if you believe your college education is all you need to be prepared for a 21st-century economy, you may be sorely disappointed. Here are just a few vital 21st-century skills needed regardless of major.

  • Financial literacy – Budgeting, saving, credit, debt, investing
  • Entrepreneurship –Building formal structures and processes to create value for others
  • Communication – Public speaking, Writing, Storytelling

Your education shouldn’t end with a diploma. If you want to be successful in any area of life, you should be a continuous life-long learner. Understanding how money works and how to maximize your financial resources to live your life on your terms should be near the top of the learning list. Financial literacy is simply learning to be a good steward of your financial resources.

4 Reasons Financial Literacy is Essential 

April is Financial Literacy Month! The purpose of Financial Literacy Month is to bring awareness to and promote the importance of establishing and maintaining financial healthy habits. Unfortunately, in our country, financial literacy has not been prioritized as an essential topic of learning in Public K-12 or higher education. Too many are left to fend for themselves when it comes to managing money.

“College graduates spent 16 years gaining skills that will help them command a higher salary; yet little or no time is spent helping them save, invest and grow their money.”
Vince Shorb, CEO, National Financial Educators Council

1. Personal Finance is 20% knowledge and 80% behavior

There’s a big misconception that personal finance is about math. Some people will shy away from financial topics because “they’re not a math person.” This could not be further from the reality. Avoiding personal finance because you’re not a math person, is like avoiding learning to drive because you’re not a car person. You don’t need to know how to rebuild an engine to get a license and become a safe driver.
Personal finance is much more about the habits and behaviors utilized with our limited resources. Some of these are so ingrained that you may not even see them as habits.

  • Do you use cash or debit/credit cards?
  • Do you have a written budget monthly or do you just pay bills as they come?
  • How often do you check your financial accounts? Do you use an aggregator like Mint?
  • How often do you check your credit score? Credit reports?

Many of our personal finance habits are learned when we’re children. In many ways, we model what we see from our parents and older siblings. If you grew up in a household of spenders or if you grew up in a frugal household, you’ll likely carry some of those same habits today. In order to change those habits, we have to have the requisite knowledge of how to properly manage our finances, but knowledge alone isn’t enough. Much like weight loss, knowing which foods are healthy and how to workout is only the first step. Making the behavior changes into consistent habits is what makes the difference.

2. Some of the most important financial decisions you make are when you’re young

Another reason financial literacy is so important is because there’s another big misconception:  ‘We can deal with the financial stuff when we’re older.’ If you talk to just about anyone over the age of 50 about money, they will tell you they wish they had learned about managing their money when they were younger. The chief financial complaint of older Americans is that they didn’t start saving or investing early enough.

40% of Americans are counting on the lottery, sweepstakes, getting married, or an inheritance to fund their retirement
– Money Magazine

Money Management should be a required curriculum in Junior High, High School and College in every school in America. If the purpose of school is to train you to prepare you for the real world, it doesn’t get much more real that how you manage your money.
Decisions such as your level of completed education, financing higher education, choice of career, location, marriage, children, first home purchase are all decisions that can have a serious impact on your long-term finances and for many are decisions made while relatively young. Don’t make the mistake of waiting until you’re “all grown” up to take responsibility for your finances, you’re already making important financial decisions.

3. Companies are providing fewer guaranteed benefits and shifting risk to employees

We’ll spare you the history lesson, but companies used to guarantee retirement benefits in exchange for years of service. They’re called pensions and they are extremely rare today. Essentially, if you worked for a company for, say 25 years, the company would fund a percentage of your salary in retirement until death. It was completely managed and paid for by the employer.

46% of Americans have less than $10,000 saved for retirement.
Employment Benefit Research Institute

Today, you are totally responsible for your own retirement. Which means you have to save enough money so that you live off your savings. If you participate in your employer’s 401(k), you might get some help from your employer in the form of a 401(k) match, but that’s optional.  You choose what to invest in, how much to invest or whether to invest at all. You have to fund your own account and none of the investments are guaranteed, so all the risk and responsibility of funding your retirement is on your shoulders.
If that wasn’t depressing enough, the safety net of Social Security will likely not be enough to live on for anyone under the age of 50 today, if it exists at all. It is essential that we fund and properly invest early and often to manage that big responsibility.

4. Consumer debt is devastating wealth

Another reason it is vital to learn and master your personal finances is that it has never been easier in to spend money we don’t have. We live in a consumerism culture and our natural inclination is to acquire more stuff. In generations past, cash was the major option. If you wanted to purchase something that you didn’t have cash to purchase, you had to physically walk into a bank, convince the banker for a personal loan and fill out loads of paperwork, and/or put up collateral.

60% of Americans spend about equal to or more than their income.
– FINRA Investor Education Study

Today, in order to spend money you don’t have, you can use a piece of plastic in your wallet or swipe your phone. You may never have to physically walk into a bank. Financial products like credit cards, leasing, payday loans, student loans, interest-only mortgages, adjustable rate mortgages are all products created in the last 30 or so years which allow more and more people access to credit. The downside of having access to credit is that if not used responsibly, it reduces the ability to save and leads to crushing debt. We only have to look at the most recent economic recession of 2009 to see the impact of having too much debt.
From a financial standpoint, it’s not at all a rosy picture. There’s no sugarcoating the fact that 76% of US Citizens are living paycheck-to-paycheck. 20% of them earning more than $100K per year. That means more than 3 out of every 4 Americans are essentially broke. This is why financial literacy is essential in order to avoid the traps that many Americans find themselves in. Again, financial literacy is essential, but it’s just the first step. One has to use that knowledge to change their mindset and their behaviors in order to be truly successful. Finally, financial literacy is a continuous process, it’s not one course, it’s not one topic, it’s ongoing. We hope you take the first of many steps in that ongoing journey.

Financial literacy is not an absolute state; it is a continuum of abilities that is subject to variables such as age, family, culture, and residence. Financial literacy refers to an evolving state of competency that enables each individual to respond effectively to ever-changing personal and economic circumstances.
– Jump$tart