Financial Education… or a Lack of

When Mrs. Horizon and I began talking about finances early in our relationship, she was completely lost. She had never taken an economics class let alone a personal finance class. Her schooling had never required her to take anything like this and, paired with her lack of interest in the subject, caused her to not understand almost anything about personal finance. Anything beyond saving she had no base understanding of and honestly was never required too. After many months of me talking finances at her she started warming up to the idea of learning the basics of personal finance. Soon she began asking basic questions. “How does compound interest work?” “What’s the difference between a traditional and Roth IRA?” “How does a 401k work?” “What’s the difference between an index and mutual fund?” and many other questions. Then, once I introduced the idea of financial independence and proved out the math to her, she began actively researching on her own. She had been bit by the FIRE bug! One day on a long drive we began talking about her previous lack of interest in personal finance and we agreed that if I hadn’t been as interested in finances, she would never have started on the path she was on. Why would she have? She was never forced to learn the basics of personal finance in any educational setting. But she is not alone. Personal finance is rarely required and sometimes not even offered in high schools across the country and when paired with the western consumerism culture, young adults are likely to get swept up in the debt crisis that plagues this country.

I would like to create and open dialogue with this post and see if anyone out there agrees, disagrees, or is indifferent about the situation of financial education and financial literacy for all young adults today. I want to really focus on the school system here not so much on parents. My reasoning for this is many parents are just not equipped with the knowledge or understanding of money themselves to be able to effectively teach it to another individual. Many people struggle with the simple basics of financial literacy and the understanding of money. To expect these individuals to teach their children is honestly not fair. I think we as a society have an obligation to the youth of today to increase the financial literacy of young adults so we do not continue to burden young people with out of control debt to the point where they cannot afford to take on opportunity that may come their way.

The Council for Economic Education (CEE) conducts a survey every two years that addresses economic and personal finance education in our Nation’s schools and the 2018 number recently came out and we continue to struggle to teach the very basics of financial literacy our youth. This is the future of this country and they have no fundamental education about money. Here are some of the alarming stats from the survey.

1. Only 22 states require high school students take an economics course.

2. Only 17 states require high school students take a personal finance course.

3. The numbers in 1 and 2 have held constant since 2016 and 2014 respectively meaning no effort is being made to change this.

4. Only 16 states include anything related to economics on the standardized state testing.

5. Only 7 states include anything related to personal finance on the standardized state testing.

It would seem we are leaving out a basic understanding about one of the important parts of being an adult. In today’s society a concrete understanding of finances is crucial to a person’s individual success. The fact is most people go to college or go out on their own without any of this basic understanding and this is where the real struggles begin.

These people would now be considered young adults, able to make their own financial decisions and sign up for any and all forms of credit they feel make sense. The problem is the majority do not yet understand how any of this works. They can get credit cards, car loans, student loans, and a multitude of other debt products. They don’t understand return on investment (ROI) of the expensive college they are attending or subsidized vs. unsubsidized loans they take to pay for it. Do you think any of these companies offering these products are going to explain it? I doubt it. Typically, all of these companies understand one thing, profits and they are greedily preying on young adults with no financial base knowledge to make as much as they possibly can. They want to tap into the next 40 years of earning potential and ensure they get way more than their fair share of interest and late fees. These companies are not looking out for the best interest of the 20 something walking in the door who really wants the next gadget, gizmo, or outfit. What about the flashy car to impress their friends or the big expensive degree that has no tangible job prospects after graduation? By the time these young people realize what is going on they are rolled up in so much debt they don’t have anyplace to turn and the majority spend the early part of their lives digging out of the hole they did not realize they were putting themselves into. I want to take a moment and look at some of the statistics for the average 18-34 year-old living in America today. This data is readily available through the many financial literacy and financial education councils in America.

1. Only 27% understand the concept of inflation, risk diversification, and simple interest rate calculations.

2. They are twice as likely to take a hardship withdrawal from a retirement account or miss a mortgage payment as their older counterparts.

3. Some 25% owe at least $30,000 limiting their ability to invest in their future.

4. 46% of 18-24 year-old adults have no savings at all and 70% have less than $1,000.

5. Average student loan debt has ballooned to over $37,000 per borrower hitting this age demographic the hardest with a total of $376 billion in student loan debt.

6. Their average credit card balance is $5,700 dollars.

7. Their average car loan held is over $12,000.

The statistics are alarming and many are delaying major life events as a result of the debt burden. I do not blame the young adults. Most of them honestly do not understand the financial situation they are creating. I think it is our responsibility to teach today’s youth about the debt crisis in America. I am actively pursuing ways to assist in this area. Mrs. Horizon and I are trying to become more active attempting to spread the FIRE on college campuses. I personally want to get involved in talking to youth interested in learning about money. I don’t want to give “get rich” talks or anything like that because I don’t believe in a lot of that stuff. I want to explain how most Americans spend 30% of the money they earn just paying the interest on their multitude of debts in every area you can imagine. Think of how much less stress young adults just getting started in life would have if they never started digging the hole. If they understood how to win in the money game. If they all figured out how to have interest paid to them instead of always paying interest. I am hoping we can do our part and want to get a conversation started. If anyone feels strongly comment below or get involved in your local community. Each person can make a difference We need to work together to get past the taboo of talking about money with children, teens, and young adults. Create a brighter future for everyone involved and stop the cycle of debt that is gripping the majority of our young people today. If you read this, I appreciate you sticking it out through my rant!

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Crossing the Event Horizon