What do you wish you’d known about money by the time you were 12? Or 18? Or 22? Or 30? Shouldn’t money and finance and quality of life be part of the K-16 curriculum?
Given that young people stumble into un-payable student loans by the time they graduate from college, and that 40% of Americans can’t cover a $400 expense, and that overall household debt in the United States now tops 13 trillion dollars, who wins if we stay ignorant? Certainly not us regular people.
If we are the biggest losers – all of us – in the money game, I’d like to propose a wish-list money curriculum that you have to pass with flying colors to be let loose in this predatory money economy.
The magic of compound interest. If you save $100 and bank it at 3% (some banks offer that), it will double in 23 years. Invest with a bit more risk in an Index Fund and you’d double it in 12 years. The basic math is 7/10. Any quantity that grows at 7% doubles in 10 years. A 10% growth rate doubles in 7 years. If you’d added $100 a month to your savings you would have 40K in those 23 years. Albert Einstein is quoted as saying that compound interest is “the most powerful force in the universe” or “the greatest invention in human history.” But if you borrow using your credit card the bank wins. Here’s one example: put $5000 on your credit card at the current average interest rate of 16.5%, pay the minimum monthly of $200 and you will have paid an extra $2,500. Summary, when you are saving, you win. When you are debting, your creditor wins. Motto of the story: make sure the interest you pay is no higher than the interest you’d get on a Certificate of Deposit to decide whether to buy with cash.
Every student, when they learn to do percentages, should be able to calculate this – and consider it horrifying that their parents don’t know it.
Systems thinking. Compounding is not the only variable for deciding whether to borrow to purchase something. Smart shopping is a multi-variate equation. If we think in a linear way – do i want it, do i have the money – we will tend to happiness = accumulation. Systems thinking, applied to purchases, would include:
- Do I already have one? (need)
- Do I have room to store it? (space)
- How long will it last? (time)
- Can I get it for equal or better price elsewhere? (value)
- How will buying and using this impact others? (values) (and don’t you wish people who buy leaf blowers would ask this question?)
- Can I borrow it instead? (community)
Systems thinking is factoring in all the inputs (needs) and outputs (value) of a choice to see how to get the most out of anything, from the rightness of a purchase to fixing a lawnmower to planning a spaghetti feed fundraiser for your church. It is a complex world. Everything is hitched to everything else. No system – be it a household or a government – is linear. Even minimalism fails if you are only evaluating one factor.
Systems thinking can be taught in math, in history, in science. It’s an approach to any problem put before you. Dennis Meadows and colleagues developed Fishbanks, a simulation game for managing a resource (a fishery) where in a few hours you learn a multitude of lessons about systems.
Your money – your paycheck, your savings, your debt, your consumer decisions – are a very small cog in a very big machine of the financial system and the economy.
The financial system
Speaking of the financial system, what is it? Clearly it’s a system, so the prior lesson should alert us to the complexity of it. The simplest description is that banks mediate the relationship between borrowers, lenders and investors. In a few minutes this video gives you the basics. Put that static structure into gear, however, and new ways to borrow, lend and invest are created – stocks, derivatives, mutual funds, ETFs, municipal bonds, government bonds, corporate bonds and on and on. It’s actually not that hard to build a glossary of terms for how money moves through financial systems (from household to global) and have students demonstrate proficiency not just in the terms but how they relate. Monopoly was originally called the Landlord’s Game and was designed to understand real estate investing. Other games teach about budgeting, credit, investing, cash flow, etc. Kids love games. In the classroom you add a long debrief about what they learned by playing and some writing or design assignments.
Money
Money is an agreed upon representation of value. and it flows through the money system. In Your Money or Your Life, of course, we stand
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