Kids learn a lot of important skills in school, even before heading off to college. But for some reason, personal finance usually isn’t one of them. Though knowing the Pythagorean theorem can certainly come in handy during adulthood, some argue that concepts such as saving money and managing debt are equally — if not more — useful.
But until these money concepts are part of the standard curriculum, it’s up to the adults in students’ lives to teach them. Wondering where to start? We reached out to money experts to find out which financial skills they believe every student should learn.
Knowing How Far a Paycheck Really Goes
Joining the real world as a newly independent adult can be a rude awakening for some. Until a person has worked to fully support themselves, it’s difficult to comprehend how expensive life really is.
“We tend to focus on the most visible expenses, like rent and food, and forget about the ‘invisible,’ like taxes and health insurance,” said David Weliver, founder of Money Under 30. “A useful exercise is for students to research what things actually cost and budget for the lifestyle they want to live, then look up actual salaries for various jobs and calculate what (if anything) they’ll be able to save after all expenses are paid.”
Some students might cringe at the “B” word, but teaching this concept in school can help take the stigma and emotion out of spending and saving, according to Kenny Senour, a CFP with Millennial Wealth Management. “Learning how to create an effective budget is especially important for high school students who will be entering their college years, which is often the first time they are faced with major financial decisions like taking on student loans, whether or not to have a part time job while in school, and managing their monthly food expenses,” he said.
Home School: A Parents’ Guide To Teaching Your Kids About Money
Leveraging Compound Interest
Most people — even kids — know that saving money is a good idea. But many don’t realize that stuffing their extra cash in a shoe box or piggy bank actually hurts them in the long run. To get the most out of savings, it needs to grow in an interest-bearing account. “Once students know how compounding interest works, they can see how having time on your side can maximize the future value of savings — and are more likely to start saving earlier,” said Sheila Walsh, a CFP and financial empowerment coach.
Where the Kids Are: The 10 Best Money Experts To Watch on TikTok
Investing For Long-Term Goals
Setting money aside in a savings account is a good start, but it isn’t enough when it comes to reaching long-term goals. “While saving money is an essential first step to gaining one’s financial footing, investing is the key to a lifetime of wealth-building,” said Logan Allec, a CPA and founder of personal finance site Money Done Right. “Schools should show students…how much simply contributing an extra few hundred dollars a month into the stock market could grow into over a million dollars over one’s lifetime.”
Saving Up For a Big Purchase
Once a student turns 18, they can expect to begin receiving credit card offers in the mail. That can seem like free money and an easy path to instant gratification for their “wants.” “This is why students should be clearly taught the benefits of building their savings before making a major purchase,” said Anna Barker, a personal finance expert and founder of LogicalDollar. By learning to save for big-ticket items, students can avoid starting off their adult lives with a ton of unnecessary debt.
Even though it’s important to avoid racking up credit card debt, it doesn’t mean credit should be avoided completely. Once a student goes off to college or leaves home, a credit card can be a helpful tool when used wisely, especially if there’s an opportunity to earn points or cash back on spending they have to do anyway. “Establishing credit is important because your ability to get the best rate on a loan, or even obtain a checking account or job, is dependent on it,” said Laura Sterling, vice president of marketing for Georgia’s Own Credit Union. Managing credit responsibly from an early age can help set yourself up for success later on.
More From GOBankingRates
Last updated: Sept. 15, 2021
This article originally appeared on GOBankingRates.com: 6 Most Important Financial Skills That Should Be Taught in School