High school is one of the most influential, yet often squandered, times in life.
In high school, boys become men and girls become women. Everyone learns a few life lessons, like practice makes perfect, a team can accomplish more than one individual, and sometimes, you just have to kiss the girl.
Unfortunately, there are some things that get left out of high school lessons: how to file your taxes, how to change a flat tire, how to play blackjack and the odds of winning the lottery, to name a few.
But, perhaps, the most important subject missing from the average American high school curriculum is basic, personal, financial literacy.
I don’t have enough time to delve into the entire course, but here are five quick lessons that can greatly benefit anyone who never took Financial Literacy 101:
1. Pay Yourself First
The first thing you should do every time you get a paycheck is put a portion of it into savings. Why is this important?
1. It becomes impossible for you to live paycheck to paycheck.
2. When an emergency happens, you don’t have to run to credit cards; you will have ample money for those extra rainy days.
3. One day, you will want to buy something big, like a house or a kid’s college education, and this account will serve as the vessel to deliver you safely to your destination.
Out of sight and out of mind is the easiest way to accomplish this simple task. A 401(k) is a great solution because money is removed from your check before you have the opportunity to see it.
If you don’t have access to a 401(k), create an automatically recurring deposit from your checking to your savings on the day after you get paid every month.
2. Budget Every Dollar
After saving, you will have some bills to pay: rent or mortgage, electric, gas, water, cable, Internet, groceries, insurance — the list goes on and on. How much can you afford? Is a bigger apartment possible? Can you get NFL Red Zone this fall?
These are questions your budget should answer, not your gut. For every dollar coming in, you should know exactly where it will go. Rent was $500, $100 to pay electric and then $50 for personal spending.
A budget doesn’t have to be a bad thing; you can budget extra savings for your dream trip to Hawaii or spend more on the new TV.
As long as you know where your money is going, you will have a better chance to influence it when you need to.
A credit card has its place in a household’s financial arsenal. However, too many people rely on credit cards to pay the bills, which can turn into a dangerous cycle.
The first month you can’t pay off your credit card becomes the last month you are financially free (say hello to a new budget category: debt payoff).
A credit card should not be viewed as something you can use to purchase things you can’t afford. Rather, it should be viewed and used as a last-case scenario for an emergency or a tool to build your credit.
The easiest way to avoid a bad credit card scenario is by not getting into one.
4. Stock Market Demystified
People make investing hard and complicated, but it doesn’t have to be.
- A bond is like a loan. You give someone money and you'll get back that money plus some interest.
- A stock is like partnering with someone on a business; you both get to split the profits and the losses.
- Buying a bunch of stocks and bonds will protect you in the case one of your companies goes bankrupt.
The real secret to the stock market is that time is your friend. You won’t get rich tomorrow in the market, but you will get rich in 50 years. This won't be because your salary went up, but because your money has been working for you for longer.
The longer you leave your money in the stock market, the more likely you are to make more money. Teaching this lesson to someone young can only benefit.
5. The Largest Purchase You Will Ever Make
It’s not a car; it’s not a wedding ring; it’s not a house, and it’s not college. It’s retirement. You have to be able to pay yourself a salary from the day you retire until the day you die.
How will you do this? By starting to save early and often. The second you get a job, start saving for retirement. You may not retire for 45 more years, but if you start now, you won’t have to save much every month.
If you start in 35 years, you will have to save A LOT. Saving alone won’t get you there, though; you have to take some risk through investments.
Understand that the riskier the investment, the longer you need to leave your money in them, so take more risks while you're young and fewer when you are old.
There are at least 100 more financial topics that could benefit young adults, but these five are a solid foundation. In fact, these topics can benefit everyone, from your local fry cook to the town mayor.
With the local election season in full swing, I hope this is on someone’s mind. Worst-case scenario, you can all hire me (or someone just like me) to guide you on this journey.