Financial literacy is an important skill, but when should it be taught? In high school, students have jobs and make money, so they need money skills. This lesson defines financial literacy and looks at some ways to teach it to high school students.
What Is Financial Literacy?
Meet Buddy Jett, a high school senior just about to graduate. Buddy needs to learn some basic financial skills to understand how money works, or have financial literacy. There are three key things he’ll need to prepare for college and the workforce: budgeting, taxes, and interest calculations. Budgeting will be the most important tool for Buddy’s future financial success, but we need to cover a few other topics before we can get to that discussion.
We’ve all heard Benjamin Franklin’s famous quote, ‘In this world nothing can be said to be certain, except death and taxes.’ Ben’s quote is true because governments need money to be able to function. Where you live and work makes a difference in how much and what kind of taxes you will pay. Taxes can be very complicated, even for a smarty like Buddy.
He’ll focus on the two most common types of taxes: income and sales tax.Sales TaxSales taxes are paid on items you buy. So, if Buddy wants to buy the latest gaming console that has a price tag of $400.00, and he lives in an area that has an 8% sales tax, he’ll actually need to shell out the price tag plus the $32.00 of sales tax ($400 x .08), for a total of $432.00Income TaxBut wait, there’s more.
Buddy has a job and has to pay income taxes, probably 10% of his income. How much would Buddy have to earn to be able to afford the $400.00 game console? We know from the sales tax discussion above it’s at least $432.00, and now we also have to account for the 10% income tax.
Buddy takes out his pencil, writes a math equation from algebra, and comes up with $480.00. Yikes!Buddy is learning about how to apply tax information to be able to make important buying decisions. For example, if Buddy has a job that pays $10.00 an hour and works eight hours a day, he can calculate that it will take six days of work to pay for his gaming habit – and that doesn’t even include the cost of any games!$10.00 x 8 = $80.00$80.
00 x 6 = $480.00
Buddy’s getting a taste for how hard the real world can be, so his teacher gives him some good news – interest! What if Buddy could turn that $432.00 into more than $2,500.00 in a completely legal way? The key is compound interest. If he is able to resist spending his hard-earned money on the game system, he can invest it and make money.But interest isn’t all good news – it works the other way too. What if Buddy wanted to take out a loan to buy the game system? How much would he pay, in interest, if he borrowed $500.
00? Even a low 2% interest compounded monthly will end up at around $634.00.Did you catch the sleight of hand that loan companies often use? A 2% interest rate isn’t that much, right? Well, it is if it’s compounded. That ends up being nearly 27% on an annual basis! Now Buddy knows to avoid loans unless he has no other choice. Like our friend Benjamin says, ‘A penny saved is a penny earned’.
In order for Buddy to navigate all the financial perils that face him, he needs to wrap his brain around budgeting, which should include saving for his future. To get him to understand how to budget, his instructor applies his potential budget for his first month out of high school. He’ll need to be aware of two important things: income and expenses.
- Income -The amount of money you earn and bring in is income. When Buddy calculates his income, he needs to remember to take out what he’ll pay in those darn taxes.
It comes out to be about $1,440.00 a month.
- Expenses – Buddy is an independent man now; he has expenses to pay for his upkeep.
He pays rent, utilities, buys his own food, and has an entertainment budget. The total comes to about $1,950.00.
Did you catch Buddy’s mistake? Yep, Buddy spent more than he made. Luckily he’s just in high school and pretending. Buddy’s teacher will help him figure out how to live within a budget so he can be ready after graduation.
Teaching high school students about financial literacy may seem like a super boring topic, but it doesn’t need to be.
Use real world examples like Buddy’s teachers. Aspects to touch on when teaching high school students about financial literacy include taxes, both sales and income, and interest, for savings and loans. Most importantly, though, is teaching high school students about budgeting. They’ll need to be able to compare income to expenses and figure out a way to balance things out. Teaching high school students financial literacy will save them time and energy, and may even earn you a thank you.