We all remember the long tedious hours of algebra and calculus homework from high school, and probably remember thinking, “When am I ever going to use this in the ‘real world’?” While mathematics courses are important, if we are not Engineers or we do not work in a field of science or finance, we probably will not be calculating derivatives any time soon. This got me thinking, what do I wish I had learned in high school? What are some things that high school students should learn to help them get ahead in life? From a financial perspective, I decided to ask a few of my colleagues here at the bank what they wish they had learned in high school.
According to a study conducted by US Bank, only 41% of Americans use a budget. Even an individual making over 100K a month can fall on financial hardship if they improperly manage their money. This is a concept that can be hard for high school students who have part-time jobs with little to no living expenses. Teaching proper budgeting skills at a young age helps engrain the habit before it is essential.
Budgeting apps such as MoneyDesktop® by MX, Mint®, or Good Budget® are often free and connect directly to your financial institution in order to track expenses and automatically categorize them into your predetermined accounts. If you are uncomfortable linking an application to your financial institution you could always open separate accounts for different expense categories, and use direct deposit and bill pay to automate the amounts going into each account.
A close partner of budgeting is the concept of saving. The principles of saving are simple, but require discipline and a decent amount of forethought to work. A good rule of thumb could be for every dollar earned, save 20% for emergencies, retirement, and future investments. Financial institutions often have special savings accounts for students that may offer exceptional rates to encourage and assist them in establishing effective saving habits.
Investing can be confusing at age 16 and may not seem fun when a new bike or nice clothes are on the line. However, high school students have a major advantage when it comes to investing, and that advantage is time. Compounding interest is a powerful thing when you have time on your side. By contributing a meager $25 a month from the time a student turns 18 until they retire at 67 can earn approximately $86,800 at a modest 6% return. By making wise investments, students may secure a more stable financial future.
Credit building is a concept that should be taught to young people. Building a healthy credit is often times one of the only ways goals such as home ownership can be accomplished. Good credit will often save you money in the future, where as bad credit can cost you. Credit reports can be checked once a year and provide a good outlook of where your credit stands. A score of 740 often allows for the best rates when applying for a mortgage so that is an excellent goal. Another rule of thumb is to avoid surpassing 30% of your credit limit and pay off credit card bills in full each month. By teaching students the impact credit has on their future, they can better prepare themselves to make smart financial decisions when applying for student loans or their first credit card.
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