Schools in the United States are starting to encourage their youth start investing and learn about it in a deeper way at school. Getting the answers to questions like “How can one invest?” or “How to become an investor as a teenager?”, lead the youth to research on these specific topics to gain more information. Because of this encouragement, more and more states are starting to require schools to teach their students personal finance. Starting from 2020, 17 states out of the 50 have adopted several mandates that made financial-literacy courses a requirement for high school graduation.
Personal-finance courses teach pupils the best practices for managing their money starting from young ages, leading to a better financial management in the future as adults. Students not only learn how to buy and sell shares but also save their earnings in order to have enough money to invest. This helps educate pupils in many areas, in topics that stretch far beyond just finance. Some other lessons taught in these courses are budget planning, banking, paying for college education, managing credit and more. They cover many examples which will help guide any person in today’s world, as knowing how to manage one’s money may help individuals to get better views on how much to spend or need to spend on a daily basis. Such vital skills are also paving the way for a new world in which the number of investors is rapidly increasing.
Data is highlighting proof to the influence these courses have on students. According to the co-founder of Next Gen Personal Finance, Tim Ranzetta, more than half of the pupils are in a state that requires such a course to get a high school diploma, and it is believed that this ratio will be even higher in the future. New York and California are two of the states that are planning to start giving this class, making it possible for this number go up to %70.
A recent research from a professor at Montana State University showed that the courses are effective in improving financial knowledge and behavior. A meta-analysis of 76 randomized experiments found that people who take these courses usually perform better in simple financial activities such as managing their supermarket purchases. Moreover, other studies have found that students who took the personal finance course as a high schooler usually take out less loans, whereas the course’s students who did take out loans used them to pay for their college fees and chose low-cost options.
It is important that an instruction on such topics comes from schools, as it is not always possible to get this valuable information at home. California’s school superintendent Tony Thurmond suggests that many people say “I wish someone taught me this when I was a kid,” adding that he is willing to remove courses that do not have a clear connection with daily life.
So how could one educate and raise a young investor? Firstly, it is important to make sure that the youth is aware of the importance as well as the basics of money management, including saving and spending. After this, parents should provide their children with hands-on experiences in their daily lives. Creating a bank account could be a great start for this kind of experience. However, since minors can not open brokerage accounts or invest in stocks directly, their legal guardian needs to open accounts on behalf of their children. These type of accounts are called “custodial accounts”,and varying on the state, the age of termination (when the custodian leaves the control of the account) is either 18 or 21. And when it comes to the advantages of introducing investment to younger children, it can be said that they generally will have more chances of taking risks, which comes with the chance of earning high, as they start young. As much as this might sound harmful, being able to take risks is a vital skill to have. They will also develop other crucial skills like critical thinking and decision making.
Furthermore, an analysis of retail accounts by Vanguard at the end of 2022 showed that the younger generations allocate more cash than the older ones. The average portfolio for Generation Z was 29% cash, whereas this was only 19% for baby-boomers. Therefore, we can say that Generation Z is not as interested as the older generation in holding equities or bonds in their bank accounts. It can be interpreted as a sign that showcases the fact that they need to be educated in the area of personal finance– because holding money in the form of cash is not always the best option as money tends to change its value rather rapidly.
To wrap up, educating a person starting from young ages is a good way to build a more financially aware generation, especially in these years where the Generation Alpha, starting from 2010, is getting closer to their high school ages. With these personal finance courses, one can both learn investing while also acquiring the skills they will need in their life, regardless of what they do with the rest of their lives.
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