April is Financial Literacy Month and the purpose is to bring awareness to basic principles of personal finance. American children and adults routinely fail basic financial literacy questions and personal finance is not a part of the vast majority of schools’ curriculum.
This month, however, we encourage you to take a step back and consider on a high level why financial literacy matters more now than ever. If you can understand the big picture why you need to be diligent about your dollars, then getting into the weeds is not as daunting. Here are 5 lessons about money you didn’t learn in school.
1. Your finances impact nearly every aspect of your life
Money shouldn’t be worshipped, but rather respected. Respecting money means understanding how it works and how it impacts your life. Money is simply a resource and you must utilize that resource wisely. The decisions you make with your money directly impact your family, friends, your home, your health and your job.
Some of our most important decisions in life are made by age 35 (level of education, career, marriage, kids, first home purchase, investment decisions). If you make these decisions without fully understanding the financial implications, it can seriously impact your ability to build wealth.
2. The American Dream can easily turn into a debt nightmare
Many of us were sold a 20th century model of ‘making it’ in America. The formula included – get good grades, go to a great school, get a good job, buy a car, get married, buy a house, have kids. That advice worked well for previous generations, but let’s look at what that formula may cost you today.
- Undergraduate College Degree (Tuition, Fees, Room & Board, and Books)
- In-State Public college averages $25,290/year = $100K+ for 4 years
- Private College average $50,900/year = $200K+ for 4 years
- Average starting salary for college graduates – $50,359
- Average cost of a new car: $33,560
- Average cost of a wedding: $35,329
- Median home cost: $199,200
- Cost of raising a child (Birth to 17): $233,610 or about $14K/year
These numbers are not intended to scare you or to imply it’s impossible (although the fact these numbers represent averages is pretty scary). It is possible to do all of these things, however, if you don’t fully understand the financial implications of these decisions, your American dream can easily turn into a debt nightmare.
3. You’re on your own financially, no employer or government will save you
If you’re under the age of 50, you likely don’t have a pension and Social Security is not guaranteed. A pension is basically a financial arrangement with a company which would fund your retirement (as a percentage of salary) in exchange for a certain number of years of service. That’s where the “get a good job with benefits” advice came from. Except for a limited number of government jobs, pensions are practically extinct, so you are on your own for retirement. There is also no such thing as a secure or guaranteed job, so you need to prepare for that as well. You’re working for 40 years (ages 25-65) to fund not working for 30 years (ages 65-95). You need to find a way to save 30 years’ worth of income in 40 working years. Don’t wait until your 40’s to start thinking about retirement investing. Also, don’t assume you can work into your 70’s either, your health may not accommodate it.
4. Delayed gratification can change your financial future
Personal finance is much more about behavior and mindset than money and math. It takes self-awareness and discipline to walk into Target and only purchase the one item we went there for. We are not rational when it comes to money and we must understand ourselves well enough to counteract it. The principle of delayed gratification is very important to be savvy with money. We live in a fast transacting world where we can have nearly anything in 24 hours, but building real wealth is still a slow methodical process. Even though you may want something now and pull out the credit card, it’s almost always a better idea to wait and pay cash. People who build up their delayed gratification muscles and sacrifice immediate wants for the long-term benefit are the true winners when it comes to money.
5. College education has not adapted to the 21st-century economy
The cost of college has risen over 200% in the past 30 years, however, the value of the education is not twice as valuable as it was in the 90’s. While the economy has changed dramatically in the past 30 years, college curriculums haven’t. This does NOT mean college education isn’t worthwhile, however, if you believe your college education is all you need to be prepared for a 21st-century economy, you may be sorely disappointed. Here are just a few vital 21st-century skills needed regardless of major.
- Financial literacy – Budgeting, saving, credit, debt, investing
- Entrepreneurship –Building formal structures and processes to create value for others
- Communication – Public speaking, Writing, Storytelling
Your education shouldn’t end with a diploma. If you want to be successful in any area of life, you should be a continuous life-long learner. Understanding how money works and how to maximize your financial resources to live your life on your terms should be near the top of the learning list. Financial literacy is simply learning to be a good steward of your financial resources.