What's the Value of A Personal Finance Course? [UPDATED]
Priceless!
- Analytical thinking
- Problem-solving
- Teamwork through group projects
- Decision-making in ambiguous situations where there may not be one right answer
- Communication skills, including written and oral in classroom discussions and presentations
It also presents so many cross-curricular opportunities in history, math, economics, business and family and consumer science to name just a few. These two points alone should be enough to more than adequately answer that question but we know a cost-benefit analysis is usually standard for proposals like this.
This post will focus on the benefits side of the equation and specifically what's the benefit to a student who takes what is learned in their personal finance course and translates that into behaviors. The numbers may not be precise but illuminate where the greatest leverage is. After going through this analysis, it's clear that we need to continue to focus on helping our students understand reducing fees (our Fine Prints accomplish this), managing credit and budgeting, which has secondary effect of increasing savings rate.
As the chart below shows, a student who uses the knowledge gained from a personal finance class has the opportunity to save more than $3,000 PER YEAR. Compound those savings over a 40 year period assuming a 7% return generates close to $600,000 over their lifetime. Just think, as an educator, you already know about the opportunity you have every day to create tremendous value in the lives of your students in so many ways, tangible and intangible. Now you can crow about the economic value that you are creating too!
Here's an estimate of the economic value of a personal finance course:
- Average interest paid to credit card companies for debt: $143 billion
- 209 million adults over age of 18
- Save $684 per person
- Paid $34.3 billion in overdraft fees/209 million adults
- Save $164 per person
- Average American saves $6017 per year (about 10% of net pay of $67,241)
- Assume that increase in savings rate is invested in the stock market
- Increasing savings rate (as % of net pay) by 1% = $672
- Average score of Gen Z and Gen Y is around 640 (source)
- Difference in cost of $300,000 house with 640 credit score ($244,000) vs. 700 ($193,000) credit score (MyFICO Loan Calculator)
- $51,000 less interest paid with higher credit score
- 64.8% of Americans are homeowners
- $33,000 in interest savings (since only 2/3 of Americans own homes)
- Save about $1,000 per year (assuming 30 year mortgage)
- Report found that a couple with poor credit may pay $2,090 or more to insure two cars than a couple with excellent credit (Consumer Reports)
- Let's be conservative and assume that a less extreme example of moving from a fair to an excellent credit score would reduce the cost of insuring two cars would save 20% of $2,090 or about $400 in savings per year.
- Average American saves $6,017 per year (see data above)
- 157 million Americans part of American workforce
- Total Savings = $6,017 X 157 million working Americans= $944 billion
- Only 37% of Americans 18-34 invest in the stock market
- Still working on calculating this
What if they could lower fees on investments by .54%?
- Actively managed funds charge roughly 0.63% in expenses per year and rarely beat the market, stock index funds average about 0.09% for a difference of 0.54% (NerdWallet).
- Average 20-something has $16,000 invested for retirement (TransAmerica research)
- Using stock index funds instead of high cost actively managed funds saves $86/year in fees which would then compound over time as investment balances increased over time.
About the Author
Tim Ranzetta
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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