Quite a few students will be able to correctly answer questions related to history or science. However, if you were to ask simple questions relating to personal finance, you might find them struggling to come up with the right answer. It is indeed ironic that students know a lot about the past, the present, and the future yet hardly possess any answers to a topic they will be dealing with every single day of their adult lives.
It is worth noting that currently only 17 U.S. states require students to take a personal finance course before graduating from high school. Of these, only six require students to clear the test. Unsurprisingly then, students today often do not know how to manage their finances. Consequently, they often end up making poor money decisions and developing bad financial habits. This is why teaching students personal finance is a necessity.
Money No Object—The State of Financial Literacy in America
In a recent survey of financial literacy conducted among teenagers worldwide, the United States stood at ninth position. It had an average score of 492, which is eight points behind the overall average. China, Belgium and Estonia emerged as the top three countries in the Organization for Economic Co-operation and Development (OECD) survey. The survey assessed about 29,000 students in 18 countries.
The survey comprised simple questions covering basic financial literacy skills. It asked respondents to compare the price per unit or recognize the purpose of an invoice. It also included some complex questions pertaining to reviewing and selecting the better of two loan proposals.
The results in the OECD survey are not surprising at all. As mentioned earlier, many students step into their adulthood without having a clue about how to manage their finances effectively. When their ignorance leads them into financial difficulties, it could take a long time to extricate themselves from the mess.
Money Talks—Making Personal Finance Class Interesting for Students
Not many students will demonstrate an active interest in learning about subjects like personal finance. They might find the topic dry and uninteresting. Therefore, you will need to take a different approach. Make the classes lively by personalizing the subject. Icebreakers are a good way to enhance the comfort levels in a class. Here’s a list of questions you could consider using as icebreakers while educating your students on the subject of personal finance.
Q: What was the last money mistake you made and why?
Nearly everyone makes one money mistake or another. From purchasing something that you felt was a good bargain at the time to indulging in the “urge to splurge,” everyone should have at least one poor purchase or investment to narrate or share. The importance of this question lies in realizing the mistake and taking the appropriate lessons.
The second part of this question will reveal how the students view their money mistakes. Their reasons and opinions could reveal the causes or underlying reasons behind their behavior. It could help you assess whether they have learned anything from their mistakes. Sharing experiences and drawing the appropriate lesson from the experiences of their peers could provide a lasting lesson.
Q: How much money is in your emergency fund?
Financial experts suggest that everyone must have an emergency fund. The fund must comprise about three to six months of their monthly earnings. Emergencies occur without advance notice. You might fall sick and be unable to attend work. Or, you might lose your job and have no income for some time. Having an emergency fund in this situation could help you meet your living expenses without dipping into your savings. This fund could help keep you away from debt too.
This question will help your students do a reality check on their levels of preparedness. At the same time, it could teach them the value of saving some cash away each month to avoid encountering financial adversities.
Q: Are you on course for meeting a savings target that will enable you to retire when you want to?
When people are young, retirement is something that is years down the line. Consequently, they keep deferring the plan to save for their retirement. This eventually costs them their plans of having a comfortable retirement.
This question will help your students understand the importance of planning. Talking in the air about hypothetical situations is easy. However, breaking down the future into cold facts can be an eye-opening experience. Therefore, ask your students to put down an age when they would want to retire. Let them jot down their monthly expenses. Adjust the expenses with the appropriate rate of inflation. Then, have them calculate the amount they would need to have for a comfortable retirement.
Putting pen to paper and working out the monthly savings they need to have a comfortable retirement will emphasize the efforts they need to put in. Some of your students might find that they need to work longer than they had initially planned to.
Q: How do you plan to pay for tuition and college for your children?
Student loans have become the largest figure of debt in the U.S., apart from mortgages. Researchers have highlighted that the cost of tuition and fees have skyrocketed in recent years. In this scenario, students will need to assess how much financial support they will be able to offer as parents. The lesser support they provide, the greater the burden of student loan debt on their children.
Many students likely have no idea about how they plan to pay for the educational expenses of their children. By drawing their attention to this aspect, you will help them focus on saving sufficient amounts of money in 529 savings accounts.
Q: For people with dependents, how do you plan to look after them—especially if you were to die a premature death?
Single people with no dependents typically will not have anything other than funeral expenses to worry about. However, those with dependents have a lot to consider. Some people might be the sole income earner in their family. Therefore, they will need to ensure that their dependents do not face financial hardships if they were to die prematurely. From the dependents’ point of view, the loss of someone close is bad enough without having to grapple with an uncertain future clouded by financial adversity.
People often take life for granted. The younger your students are, the less they will they dwell on the uncertainties of life. This question will get your students to view life more sedately and help give their lives a financial value. Use this question to teach your students about the related aspects of risk and insurance.
Q: What major expenses do you need to pay in the coming year?
Seldom do people take the time and effort to plan (and manage) their finances well. Therefore, they will keep playing catch-up when it comes to paying their bills. This is regardless of whether the bills are unforeseen expenses or whether they are routine ones.
All students will have their own big expenses due for payment in the coming year. However, not many students will make plans to save for paying these bills. Get them to break large bills into monthly portions. For example, break a $1,500 bill due at the end of the year into 10 installments of $150. This strategy can help students avoid unnecessary stress while enabling them to meet their liabilities comfortably.
Q: What steps are you taking to enhance your earning capacity?
At times, people could find themselves stuck in a rut in their professional lives. People typically look at their expenses and savings. However, not many pay due attention to ways they could augment their earning capacities. From acquiring better positions at work to exploring the opportunities available in other organizations, and from starting a side business to working in an additional part-time job, the opportunities are immense. Get your students to give an average figure for their monthly expenses. Add $500 or so to this. Ask them for ways they would be able to meet their increased expenses. Use this question to encourage your students to explore ways they could augment their current earning capacity.
The success of a personal finance class does not lie in the concepts you cover during the session. Rather, it relies on how well students grasp these concepts and apply them in their lives. Using the questions listed above will enable students to view the subject as something personal rather than as something abstract. How well you can bring about this change in mindset would reflect on your success as a personal finance teacher.