In my opinion, I don’t think school adequately prepares children for the real world in terms of finances and everything that comes along with “adulting”. Once you matriculate, you should be equipped with certain tools and skills regarding finances that will help you in life regardless of what path you take after school.
That being said, below are five financial skills and abilities that I think should be taught in school. This list is certainly not everything that I think should be taught but it is 5 key topics that I feel will be very beneficial for children to learn. Most of these will be taught in high-school but some basic, foundational ideas can be taught from a young age.
Budgeting is the basics of financial planning. If you don’t know how to work with your money, you will most likely end up in a financial position that you don’t want to be in. By teaching children how to properly plan their monthly expenses, they will be far better equipped when they earn a salary.
I have spoken to far too many adults who don’t have a budget and therefore don’t actually know where their money is going every month. If you aren’t taught how to plan your spending on a monthly basis, how can you be expected to plan your financial situation long term?
- How to do your taxes
Unfortunately, a portion of your income will go to SARS every month so I think it is absolutely crucial that children are taught how to file their taxes. Yes, SARS eFiling is quite user-friendly, but it is still very intimidating.
I am not saying that every child needs to be fully educated on all the intricacies of taxes, that is what tax practitioners are for, but they should be taught about PAYE, UIF and what an IRP5 is. There should also be a basic, practical run through of how to submit your tax return as well as what your assessment means.
- How to leverage compound interest
According to Einstein, “Compound interest is the eighth wonder of the world. He who understand it, earns it… he who doesn’t, pays it.”
Yes, we were taught in school about compound interest and how to calculate it but I don’t think enough emphasis was placed on how to make it work for you.
There needs to be a focus on teaching children that a small amount saved monthly in an account or investment that earns compound interest can become a significant amount over a number of years.
On the contrary, children should also be taught that compound interest can work against you. Most forms of debt have a high interest rate attached so although your monthly repayment may seem low, you will be paying a lot more for whatever you have purchased. If this is not managed correctly, you could end up stuck in the debt cycle.
- How to manage your credit
I am a firm believer in staying as far away from debt as possible, unless you know exactly how to leverage your debt so that it works for you.
This being said, I think children should be taught what exactly debt is as well as the various forms. It is also important that they know what a credit score is, how it is calculated and what it is used for.
Children or young adults need to understand that in order to build a good credit score they unfortunately do need to make use of debt, but there is a right way to do that. For example, a cellphone contract is a very good way to build up a credit history as the contract can be for a very small monthly amount and for a set amount of time.
- Basic knowledge of investments
If we want our children to have the best future, we need to provide them with the knowledge to make informed decisions. I am not saying that a full study of investments needs to be taught, but I think there should at least be a basic understanding of the different types of investments available such as shares, property, commodities and cryptocurrencies.
I would like to see educated people talking to financial advisors and being able to determine, with the help of the financial advisor, what would be best for themselves and their financial goals as opposed to being entirely reliant on the financial advisor the give them the correct advice.
- Bonus: what to do when you buy property
I know I said that I was just going to focus on five things, but I truly believe this one should be included because at some point majority of people will need to know what to do if they want to buy a property.
A basic timeline showing what to do when buying a house should be taught to all children – from when and how to apply for a bond, to when you need to sign the Offer-To-Purchase to why you need a conveyancer as well as a basic breakdown of all costs that are involved.
The above is just a short list of what should be taught to children, but it can go much further than this. I think there is a need for financial education from as early age as possible. There is also a responsibility on parents to ensure that they are sufficiently educated so that they can educate their children.
My heart is really to try and fill in the gaps where there is a lack of financial education, regardless of your age. I don’t think it is ever too late to start learning how to manage your finances better and how to make wiser decisions that can ensure a more financially secure future for yourself and your family.