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What Schools Should Teach About Personal Finance

recognize bad financial advice

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Recently, more states are adding financial education to their curricula. Some people cheer the change but I question the utility of it. When I was in school, we were taught how to write checks (oh I’m so old). But there are objectively wrong ways to write a check (like forgetting to sign it or overdrawing your account).  Most personal financial advice isn’t objectively right or wrong. And there’s plenty of advice online. What we should really teach is how to parse the good from the bad advice. Here’s the information I wish I learned in school about personal finance education.

Ask Why

When a new post commander arrived at an Army base, he was surprised to see a couple of his soldiers standing sentry over an empty bench.

It seemed like an odd thing for soldiers to be doing, so he asked a sergeant who had been on base for a few years why the bench was being guarded.

“I don’t know why,” the sergeant said, “but I’ve heard we’ve had men assigned to that bench for the past 35 years.”

The post commander dug back through personnel files and found the name of the man who was in charge 35 years ago. He grabbed a telephone and called him up.

“I’m the new post commander, and I have a question for you,” he said. “Why is that bench so heavily guarded?”

The old retiree was shocked. “You mean the paint still isn’t dry?”

Source: Guarding an Empty Bench Doesn’t Serve Any Purpose

Usually when we get financial advice handed down to us, there may have been good reasons for that advice at that time. But we can’t blindly follow advice just because it made sense at one point. We have to know if it makes sense now. And to do that, we need to know the underlying reasons.

Run the Numbers Yourself

After we find out the rationale for financial advice, we have to check it. No one cares about my financial prospects more than me, so I run the numbers.

General personal finance advice is an oxymoron – it can’t be general and personal at the same time. The averages, the medians, the modes – they may not apply to you. I heard a story about how pilot seats were created to fit the “average” pilot. It basically created a seat that fit no pilots – because no pilot had these average dimensions. Eventually they made the seats adjustable – and that’s how personal finance advice should be too.

When I tell people that, when I consider my own specific situation, renting is better than owning. People retort in generalities, because that’s all they have. The median rent always rises. Average mortgage interest rates are historically low. Most housing developments give you freedom to change your place. The deal with housing and renting is that it’s very specific to your state, your area, your taxes, and your own situation. The median rent doesn’t always rise (ever heard of Detroit?). Mortgage interests rates aren’t low if you have bad credit or high debt. In many places, HOAs and state laws put a lot of restrictions on homeownership. Yes, you likely have those same restrictions and more as a renter, but it’s easier to live with when you’re not risking hundreds of thousands of dollars.

I believe that owning a home may be good for the “average” renter but I also believe the “average” renter doesn’t exist. Figure out your own situation for yourself. Don’t rely on what worked for somebody else.

Beware The Consequences of Your Choices

I don’t mind the homeowners who insist that homeownership is the best choice. It’s in their self-interest after all- their housing investment depends on renters wanting to buy. But remember, they aren’t paying your mortgage. People adamant about the benefits of college stand to lose prestige if their alma mater loses its luster from future students. Remember: they aren’t paying your loans.

It’s key to understand that advice givers are looking out for themselves more so than you. And by buying into this old advice, you’re upholding the same systems that have kept the status quo in stasis. Homeownership and college attendance have always helped those with money, status, and privilege. There’s nothing wrong with wanting to be a part of that group, but you should know that it’s a system that hurts a lot of people, and one of those people could be you.

Check Your Values

Have you ever heard modern couples talking about splitting finances? Lots of people prefer spreadsheets to trust and financial “experts” pick percentages for fairness. I remember watching a former roommate splitting every single check down to the cents with her long-time boyfriend, and it just seemed exhausting. Even if that’s the best way to get your “fair share,” I would rather be generous with the people I love. I’ve also seen a finance expert state that the higher-earning partner should be able to have a nicer lifestyle than the lower-earning partner because he/she (usually he) earned it. What a weird way to live! One spouse lives in luxury and the other one clips coupons – but at least it’s fair!

But how is a personal finance expert to know that you would rather be ahead some of the time and behind some of the time because that’s what you view a partnership to be? They can’t know that. Only you can know that. You can’t follow advice meant for someone with different values than you.

Would We Even Listen to Good Advice if It Hit Us in the Face?

It makes sense that when confronted with irrefutable proof, that we would change our minds, right? But even when we get good financial advice, our emotions and our attachment to old ideas keeps us stuck.

John Sexton, then-president of New York University, one of the most expensive and prestigious schools in the country, thought a lot about his university’s duty to alert high school students of the financial reality of matriculating. In fact:

. . . the university started systematically calling some students right after they got their financial aid offers. It focused on those who were first in their family to go to college or who had a big gap between whAT NYU offered and what the family was expected to pay. Nearly 2,000 calls were made. ‘And it had no impact,’ Sexton says, letting his face drop to express his disappointment. . .

This raises questions about how much we can change anyone’s mind, even our own.

Conclusion – What Schools Should Teach About Personal Finance

I consume a lot of personal financial advice and I disagree with a lot of it. Most of the reason is that what financial gurus prescribe is the kind of thing THEY want or have done, but they have different values, lifestyles, money situations than me. They make their money by making general proclamations, but never forget, they suffer no repercussions if their ideas are wrong. No one knows your situation better than you, no one knows you better than you, and you will pay any and all consequences for your actions. Just make sure that any financial advice you follow is personalized to you.

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