Personal Finance Lessons Schools Never Teach
Here are some of the money lessons that schools should start teaching.
Students learn a lot about math, literature, and social sciences but nothing about investments or taxes. The traditional approach of getting good grades to get a high paying job is not enough these days. Youngsters are taught to memorize the behemoth periodic table but have no idea how to write a balance sheet or cash flow statement. It’s like learning rocket science without knowing how to tighten a nut-bolt. Financial education is a basic life skill. Mastering it would help students to take informed life decisions, make wise investments and start preparing for their financial freedom at an early age. Here are some of the money lessons that schools should start teaching.
Importance of investment
Students should be taught the concept of investing in an appreciating vs. depreciating asset when they are young. Investing properly will help them to take charge of their financial security. They should learn the basic principles of how money works. It is important for them to develop an eye for good investments of their time as well as money. Activity games like CASHFLOW Classic or Stock Market Simulator should be a part of their curriculum. Only then they can put things in perspective and start looking at education itself as an investment and be the judge of whether it’s a good or bad one in a given case. To grow their net worth over the time, they should learn to put the excess money/time into the creation of “appreciating” assets like dividend stocks, government bonds, gold bonds, real-estate, businesses or generating passive income.
Concept of cashflow and passive income
In simple terms, a personal cash flow statement depicts one’s income and expenditure. It helps to determine sources of one’s earning and identify where it gets spent over a stipulated period. Students should be taught that after their basic living expenses are taken care of, the remainder, if any, should be saved or invested to generate more sources of income. They should simulate for themselves what happens if one spends more on things like expensive cars or luxury items vs. stocks, FDs or businesses.
Passive income is where the money keeps flowing with minimal human effort. e.g – royalty from books, rent from real estate, etc. Students should be taught that a 9-5 job is not the only way of earning one’s income. Consequently, they should learn that formal education is not the only way of building one’s career. Even if their passion lies away from formal education, they should plan and pursue it. Passion and source of income can be different. One should not give up on their passion due to the myth that financial security is built only on the altar of education.
Planning, budgeting and savings taxes
No sooner does a common man start earning than they start spending. Planning to reserve a portion of one’s income for investments, budgeting to control the portion of one’s spending and saving taxes to earn an extra portion of income should be taught at a school level. Money saved is money earned, and money invested is money grown.
Even today, most employees are not aware of the investments under Section 80C like national saving scheme, national pension system, 5-year tax-saving FD, etc. These financial instruments can get tax up to 2 lakhs exempted. If only these concepts are taught in school, we would have more fiscally responsible citizens.
Lastly, students should be encouraged to be more creative and entrepreneurial. Skills like selling, communication and generating value should be developed early. These skills backed by strong financial know-how will create the next generation of game-changers. While presently, students aren’t even thinking in the right direction.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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