How a financial education can save you money in the long-run
Having a solid understanding of personal finance is crucial for saving for retirement. Unfortunately, many people overlook financial education, often leading many to poor money management decisions and missed opportunities for savings.
In fact, there is a lifetime benefit of roughly $100,000 per high school student from completing a one-semester course in personal finance, according to a recent report by consulting firm Tyton Partners and Next Gen Personal Finance, a nonprofit focused on providing financial education to middle and high school students.
According to Tim Ranzetta, co-founder and CEO of Next Gen, much of that financial value is comes from avoiding high-interest credit card debt and having better credit scores to get preferential borrowing rates for key expenses, such as loans and home mortgages.
“You can’t play the money game if you don’t know the rules”
Christopher Jackson, who teaches a personal finance course to seniors at Da Vinci Communications high school, a socioeconomically and racially diverse public charter school in El Segundo, Calif., said he found that students were enthusiastic about saving in Roth individual retirement accounts once they understood the concept of compound interest and how investments grow over time.
He advises them to open Roth I.R.A.s at 18, rather than waiting until they graduate from college and start a career. One of his students has already saved $14,000, he said.
“You can’t play the money game if you don’t know the rules,” Mr. Jackson said. “I teach them the rules of the game.”
Students with a financial literacy course under their belt have better average credit scores and lower debt delinquency rates as young adults, according to data from the Financial Industry Regulatory Authority’s Investor Education Foundation, which seeks to promote financial education.
A report by the Brookings Institution also found that teenage financial literacy is positively correlated with asset accumulation and net worth by age 25.
How financially literate are Americans in general?
American adults have shown a “generally poor” level of financial literacy, according to the 2023 Personal Financial Index report from the TIAA Institute and the Global Financial Literacy Excellence Center.
On average, adults correctly answered about half of the index’s 28 questions in 2023, consistent with the results since 2017. Americans struggle particularly with understanding risk, the report said.
Improving financial literacy is important, the report said, because people with a very low level of financial savvy are more than four times as likely as those with a very high level to have difficulty making ends meet in a typical month.
The bottom line
Investing time and effort into financial education is an investment in your financial well-being. By learning budgeting, understanding credit, making informed investment decisions, managing debt effectively, and building a robust emergency fund, you can save substantial amounts of money over time. Take the initiative to educate yourself financially, and watch as your knowledge transforms your net worth.
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