Why Isn’t Personal Finance Taught in School?

Internet Meme

Think back over your school days. In elementary school we had the basics: writing, grammar, English. Maybe American history. Math. Nature studies. Middle school? English literature, algebra, European history, and civics. High school? College level classes, more English literature, biology, physics, and more history. There were shop classes and home economics. And there was always gym classes.

If the purpose of education is to prepare a young person to go out into the world, find a job, make it in society, then our students are woefully unprepared. After twelve years of education, not one student is better prepared to manage their personal finances — or even understand how taxes and interest work. Over the course of our lives we, of course, use English. We use some math. History might come in to play at some point in the future. But we use financial knowledge. Every. Single. Day. So why is it not taught?

This latest post began while watching an interview with Robert Kiyosaki about the origins of Rich Dad, Poor Dad:

Kiyosaki recalls asking his fourth grade teacher why they don’t learn about money (10:30). She replied that they “don’t teach money at school” but couldn’t answer his question as to why. Kiyosaki continues, saying he eventually asked his father — who worked for the department of education — why money isn’t taught in school. His father’s reply? ‘Because the government doesn’t let us teach it. It’s not in the curriculum.’

So I began to wonder: how is education curriculum set? Why doesn’t the government allow personal finance to be part of public schools? (Note: I never attended private school, so I cannot speak to if it is taught there or not, but feel free to comment if you did. I’d love to know!) It seems not only common sensical that it would be taught, but given these horrendous metrics, Americans are in desperate need of financial literacy:

  • 41% of Americans use a budget (inversely, 59% of Americans don’t track or understand how much they spend every month)
  • The average American college graduate leaves school with $37,172 in student loans, most with no immediate plan to pay them off
  • Two-thirds of Americans would have trouble scrounging $1,000 for an emergency
  • 35% of Americans (!) have debt in collections with the average amount being $5,178
  • A National Endowment for Financial Education study found only 24% of millennials show “basic financial literacy” while 69% of the surveyed rate their own financial knowledge as ‘high.’

So what’s the deal? Before diving into a ‘Conspiracy of the Rich’ that keeps the average person money stupid, I wanted to learn the origins of our public education curriculum. I began to dig to find out just why what’s taught is taught.

It begins with the Prussian Education system.

The Prussian Education system was founded in 1763 by Frederick the Great. The system became the model for compulsory attendance (e.g., you have to go to school), national testing, and, per Wikipedia, “prescribed national curriculum for each grade, and mandatory kindergarten.” It also maintained a specialized training for teachers, essentially teaching teachers how and what to teach. This might be the most important facet, as teachers were not existing specialists or professionals, but professional teachers. The person teaching math or science would not be a mathematician or scientist.

The Prussian system was imported to the United States in the early 19th century, with early advocates including American education reformer Horace Mann (who eventually went to Germany to inspect German schools first-hand). The Prussian system was designed to serve the kingdom, training the populace to be soldiers, farmers, and eventually factory workers when the Industrial Revolution arrived. This is why you hear contemporary education referred to as “factory model” or “industrial era.” Indeed, it freaked me out a little bit when I realized that the reason for “bells” to signal start and end of classes was to train young people for the bells and whistles of the factory, denoting shift changes.

The Prussian system would later be refined in 1892 by the Committee of Ten. The committee’s recommendations became the basis of our modern education system: 12 years of education, eight of which are elementary followed by four years of high school. Curriculum was focused on English, mathematics, and sciences (such as chemistry, physics, and astronomy). The higher sciences such as psychics and chemistry were reserved for the high school level. English, mathematics, civics, and history would be taught at every level.

In the report linked above, there is no mention by the Committee of Ten of finance, money, or taxes.

So is our current system just outdated? What would it take to add personal finance to the curriculum? Why hasn’t it been? In 2013, a poll from Harris Interactive (sponsored by Bank of America) showed 99% of adults agree financial literacy should be taught in school. A 2013 Time magazine article entitled “Why We Want-But Can’t Have-Personal Finance in Schools” cites four major reasons finance has not been part of the curriculum:

  • Only one in five teachers feels qualified to lead a personal finance class, according to a University of Wisconsin study. So we don’t have enough instructors.
  • Personal finance concepts are not part of standardized tests like the SAT or ACT. As the saying goes in education circles: If it’s not tested, it’s not taught.
  • Education is run at the state level. So there is no federal authority to mandate personal finance classes, and each state has its own ideas on how to go about it.
  • There is little academic agreement as to what kind of personal finance instruction works. Many educators are waiting for clarity before they sign on.

There seems to be a catch-22 in regards to ‘feeling qualified’ to lead personal finance classes. Teachers don’t feel qualified to teach it because they never learned it themselves. In fact, these surveyed teachers may be struggling with their own financial literacy.

I’ve personally always been amazed that taxes are not taught at some level in school. These are something every American must file once per year, yet there’s no education or even explanation on how it all works. But, according to the Time magazine article above, teachers don’t really understand it either. I would say financial literacy should start at home, but parents weren’t taught in schools either. A 2011 Charles Schwab survey of 1,132 teenagers between 16 and 18 revealed 42% wanted their parents to talk to them about how money works. Only 32% of the surveyed teens knew how credit cards and interest worked. But if the parents aren’t knowledgeable (or comfortable enough) to talk about it, then the ignorance is passed on. It’s a death spiral of financial ignorance.

I couldn’t find an explicit reason why finance was left off the educational menu. One could infer that it wasn’t important in the 19th century — money still existed, bills had to paid with interest, although there was no personal income tax (except from 1861-1866 where it was enacted to pay for the Civil War) but property taxes and tariffs existed. Kiyosaki seems to insinuate that it’s more sinister, that financial education is left off the table explicitly to keep people dumb about money. His entire modus operandi for his Rich Dad series is to teach people about financial literacy because it’s not taught in schools.

He is right in that the failure to teach financial literacy in school falls on the government. Some states have taken the initiative, but it appears lacking, according to “Survey of the States“, a Council for Economic Education report. Seventeen states require high school students to take at least one course in personal finance. However, the report also shows “there has been little increase in economic education in recent years and no growth in personal financial education.” So states are aware of the problem, some have made an attempt to change it, but overall it appears to be half-assed or not a priority. I suspect it will take adding personal finance to standardized testing to get the ball rolling, coupled with education of teachers so they can teach the subject.

Until then, hopefully people like Robert Kiyosaki or Dave Ramsey will continue to get guide people. Or maybe blogs like this one can help someone find their way. Perhaps it will be those who are financially literate that will teach future generations.

How to Build a Budget

The dreaded “B” word

“Either tell your money what to do, or end up wondering where it went.”

Dave Ramsey

I used to hate budgeting. Not that it seemed like too much work…just something about that damn “B” word used to cause me to groan and not want to do it. Maybe there was some stigma attached to the “I’m on a budget” mentality. It made me feel poor, cash-strapped, and destitute. The truth is, I can’t live without a budget now. I’m not poor. I’m not cash-strapped or destitute. I’m in control. Every month I fill out my budget and my money gets to work.

I started budgeting in December 2017. I was doing a good job of putting every spare cent towards my debt. The bills got paid first, then everything left went to credit cards or student loan. When December 1 hit, I knew I had to set some aside for Christmas presents, but I wasn’t sure how much I’d have. I knew I DID NOT want to use credit cards for gifts (and undo all the payoff work I had spent the past six months accomplishing) so I made a budget. I determined all the “had to pays” like bills, gym memberships, and minimum student loan and car payment. From there I determined what I could spend on gifts and then what extra I could pay on credit cards (I was not going to let up on my momentum).

The next thing I knew, I had done my first budget.

I used that formula for the next month, then the next, and all of 2018. I still use it. It became more intricate. I put in formulas. I began to estimate what I thought my paychecks would bring in and budgeted accordingly; I was always conservative on my income estimates so I didn’t actually over budget. And you know what happened? I ALWAYS had money left over each month.

So let’s walk through it. For the columns, I have “Expenses”, “Budget”, “Actual”, “Percent Met”, and “Notes.” The first column is self explanatory. “Budget” and “Actual” are my estimated amount and actual amount I end up paying or can afford. For some of the expenses, like “LA Fitness” and “Hulu”, those are the set amounts every month which I just pay (LA Fitness is on there twice because I pay for my wife’s membership). That’s why the Budget and Actual amounts always match. “Percent Met” is just math porn for me: I like to know how far over or short I am on my estimate. For example, my savings this month I was able to pay extra to so I was way over 100% to my estimate. Lastly, notes are for personal comments or reminders. The $100 to my emergency fund was replenishment (I keep $1,000 in an immediate emergency fund for when shit breaks…not sure what I had to use it on back then but the $100 was to make up the shortage).

The second group of rows starts with “Current Bank.” Current bank is what I’m starting the month with. Because pay days didn’t always fall on the 1st of the month, I had carry over money from the previous month. This row shows what I’m starting with. The next two rows are pay days with my estimated pay and actual pay (I was wage plus commission, so it was impossible to predict my actual paycheck). The fourth row is money made from freelance work. I also have a row reminding me to pay myself 10% — I’m a huge fan of this ‘rule’, where I immediately put 10% of my income into savings. This line had a formula to determine immediately what 10% of my income that month was. “Remainder at end of month” showed me what I had left over, so I knew this was money I could either spend, save, or invest. I also tracked retirement contributions, and how much of my expenses were mandatory (i.e., gym memberships, hulu, stuff I couldn’t miss payments on or were on autopay) and optional (putting money aside for a movie project or E-Trade).

You may have noticed that some of the big bills were missing: mortgage and car. How about utilities? Food? Gas? For those bills, my wife and I split them. We have a joint bank account for paying those bills. Long ago we determined the monthly cost of our mortgage, car payment, utilities, and estimated food and gas costs. We each contribute the same amount from each of our paychecks into the joint account, which then pays those bills. This ensures 1) we don’t mix all our money and end up arguing over personal purchases and 2) all those bills get paid first. This is why my income looks so low on the spreadsheet — I’ve already deducted the amount that goes into the joint account. The rest are my personal bills.

Regardless of how you do it, those bills still need to be paid! So if you’re making your own budget, please make sure you include them on your month budget. I guarantee if you make a budget, you will find money. Maybe you’re overspending somewhere. Maybe you can cut an expense out or save somewhere. When I was trying to determine my wife and I’s monthly expenses for the joint account, I tracked every purchase for a month: grocery bills, gas for the car, weekly take out meal…I kept all the receipts and determined what we spent on average per month.

Budgeting is about being in control. You’re in control of you money, which helps you be in control of your life. It doesn’t have to be a rigid lifestyle either. Budgeting doesn’t mean not doing anything fun or enjoying yourself. Every month I allocate $100 to blow on whatever I want. It can be more if there’s leftover money in the budget. Or, I can save it away for a future larger purchase or trip. It’s not a monastic lifestyle. I don’t wear ratty clothes and have an empty house devoid of furniture and appliances. If you’re going to Quit Your Job, you must be in control of your finances!

If you’re interested in learning more about building a budget or getting control of your finances, check out these books below: