@Randem

I’ve often thought about how much work I’ve had to put into learning about finance. I’ve read numerous books, spend endless hours researching online, and irritated numerous business school graduates with my questions. And there have been many occasions when I thought to myself that this is such an important part of life, and wondered why we don’t learn it in school.

I had a basic economics course in high school, and I remember thinking that I didn’t learn anything from it. It was dumbed down, as if we wouldn’t understand. Kids aren’t bored by economics because they don’t understand it, they’re bored because the curriculum is too easy.

When I see that a sixth-grade teacher wants to teach his student about finance, I find it encouraging. But at the same time, I find it equally scary that even this well-intentioned teacher doesn’t really know what they need to learn about. So this prompted me to ask myself, what do I wish I had learned about finance when I was in school?

Balance sheets
The first, most important thing to understand about finance is the balance sheet: assets and liabilities, income and expenses. It seems to me that too many Americans don’t understand the simple concept of the importance of spending less than you earn. Everyone seems to think this is obvious, common knowledge, but so few people actually follow it, and I believe that’s because too many consider their credit cards or their homes as assets.

I know that a lot of people have a lot of opinions about the book, but Rich Dad, Poor Dad seems like the perfect introduction to assets and liabilities at a sixth grade level. There is nothing complicated in that book, and it really drives home the simple concept of putting your money to work for you, and paying yourself first. I see no reason why a sixth-grader couldn’t learn a great deal from exposure to that book.

Rules of thumb
Rules of thumb are easy to remember, and they tend to serve us well. I can think of a few rules of thumb that used to be common knowledge, but seem mystical in today’s world.

For instance, the sub-prime crisis would never have happened if everyone knew the rule of thumb that your house payment should be no more than 25% of your monthly income. How many unemployment claims could be avoided if everyone kept an emergency fund equal to six months expenses? And nobody would be talking about a Social Security crisis if everyone remembered to put 10% of every paycheck into savings.

The magic of compound interest
Any sixth-grader can understand multiplication. There’s no reason they couldn’t grasp the concept of compound interest, if it was explained to them.

There are two sides to compound interest. On the positive side you have investment, where you make your money work for you, each year better than the last. On the negative side, you have inflation, where each year your money is worth even less than it was the previous year.

In both cases, earlier is better. If teachers could get students excited about compound interest as early as sixth grade, maybe those kids would be more diligent about saving and investing as early as possible, and we would no longer need things like Social Security in this country.

What else?
The last thing that really stands out to me is the intimidation factor. It is human nature to be afraid to try things you haven’t done before. If a teacher could show the kids how easy it is to open a savings account or a money market account, or how to invest in an index fund, it would take the intimidation out of the process. And maybe you’d have a bunch of sixth-graders running home and asking their parents to set them up now!