Money Matters: 6 Money Lessons I Wish Were Taught In Schools
From the moment I was old enough to ask my parents to buy me things, money had relevance in my life. Yet money lessons were glaringly absent in my school days.
I learned a lot of things I never once had cause to use once I hit adulthood.
The capital of Yugoslavia? Engraved forever in my brain as Belgrade. Ask me for the symbol of Gold on the periodic table, and Au jumps to the forefront of my memory banks. And I can still recall instantly that the square root of 25 is 5.
Yet no one taught me or my classmates about budgeting, or how to save, let alone how to invest. I had to find that information for myself, and eventually, center my education around it.
I’ve spent twenty years teaching clients how to manage their money so it helps them achieve their dreams, and in that time, I’ve seen first hand the lessons that need to be taught in schools to help everyday Kiwis not just survive, but thrive.
How to budget
Budgeting is an absolutely vital skill for every single person out there. There is no way to navigate adulthood successfully without it, and it’s the one that trips so many people up when it comes to finances.
Everyone needs to understand how to manage their income and expenses. We all need an awareness of how to make our money go further; ways to spend less or earn more. Budgeting is the key to avoiding debt, to living within your means, to saving for the future and achieving your dreams. Yet most people don’t learn this crucial skill until they are already in financial hardship.
How to save
Were you taught you need to save at least 10% of your monthly income, and why? Your savings are not just for that overseas trip or that new car, but they’re also your emergency fund for when your dog unexpectedly needs a $1500 surgery or your car needs a $900 repair.
Sure, you can keep a credit card for those emergencies; but you’ll still be paying the associated credit card fees. And realistically, are you disciplined enough not to use the card for anything other than emergencies? Are you saving in the meantime, so you can get rid of the card once you have enough saved up?
Save the money, so when the time comes, it can save you.
The impact of debt
Getting into debt is so much easier than getting out of it. Yet so many of us have no idea, and quite happily take out loans left, right, and center, never realising how much money it’s costing us, or how long it will take to pay back.
Take a credit card with a 20% interest rate and a balance of $2000. You’re paying off $40 per month, straight from your pay. How long do you think it would take you to pay off? Three years? Five?
Assuming there are no fees (other than interest), and that you do not use the card at all while you’re paying off the balance, it will take you eight years to pay off, and you’ll end up paying back $3807 in total, nearly double what you borrowed to begin with.
How to shop around and find the best deal
Competition is your best friend. Whether you’re looking for the best deal on car insurance, the lowest bank fees, grocery prices, or energy prices, it pays to shop around and find the best offer.
I know it can be overwhelming and time consuming to do, but for the amount of money you can save, shopping around is really worth it.
Be aware, too, that some suppliers will match their competition’s offer when you ask; the simple act of asking for the deal can save you both money and the time and hassle of switching.
How compound interest works
We’ve already discussed the pitfalls of interest on debts, above. But interest can also work for you.
Imagine you put $1000 into a high-interest savings account. For argument’s sake, we’ll say it pays 8% interest. As your balance increases over time, so does the amount of interest paid into your account; at that point, your interest is earning you more interest.
Make a regular payment into the account, and you’ll grow your total even faster. In the example above, a payment of $29 per week at 8% interest will mean you have $10,000 after five years (not accounting for inflation).
How to buy a house
Buying a house is the number one dream for most Kiwis, yet few have a clue of what’s involved beyond saving what you can and getting a mortgage somewhere along the way.
There are many hidden costs in the process of buying a house, and those can really sting if you haven’t accounted for them. The time to find out about them is long before you start visiting open homes, when you first open that Savings account.
Be prepared, so you won’t be surprised.
There are many more things I wish every Kiwi kid was taught early on, but these are some of the most important ones.
Were you taught any of these things, either at school or by your parents? Are any of these areas still a mystery to you? Please share in the comments, and feel free to request blogs on any finance topic you’d like to learn more about!