In life, you spend your first 18-20 years in school. You may spend longer in school. The hope is to have a good education, go out into the world, and be able to create income and value within the world. One thing that is missing is a financial education. Schools miss out on not teaching students about money. Here are some money lessons not taught in school.
The world is full of information, and oftentimes the education system misses out on teaching the young generation about money.
The concepts of taxes, compounding interest, income producing assets, how to use money, and even busting the myths that people need to work till 65 are all things not taught in school. These are things that should be taught when students are younger.
Being able to equip people for the future is the job of the teacher. Schools have lacked financial literacy, and it is time to learn some money lessons not taught in school.
Lesson #1: The Power of Compounding Interest.
Compound interest is the interest upon interest. Albert Einstein talked about it saying:
“the 8th wonder of the world. He who understands it, earns it; he who doesn’t pays it.”
This concept of compounding interest is one of those money lessons not taught in schools. It shows students that an avalanche can start small with a snowball. As it rolls down a hill it will continue to grow and grow and grow. Eventually, this snowball becomes an avalanche.
You can use this in life. Little things you do every day can grow and grow and grow creating an avalanche into your life. Darren Hardy talks about using compound interest in life in his book, The Compound Effect.
Compound interest grows interest upon interest. The more time you have the more time compound interest can grow your money.
People often say “time in the market is better than timing the market.” It means that having a longer horizon gives you the ability to grow your money more with less.
Ex: You put in $300 monthly for 40 years at 8% annual return = $935,259
Let’s say, you start late. To equal close to that number at 30 years you will need to put $685 per month to equal $932,705
With only 20 years to invest you will have to invest more. You will need to invest $1700 per month to hit close to $935,000.
- $300/month at 8% for 40 years = $935,259
- $685/month at 8% for 30 years = $932,705
- $1700/month at 8% for 20 years = $934,598
Having more time gives us the ability to use compounding interest to grow our wealth. Time is a good thing.
Lesson # 2: Retirement is not at 65
Often we are fed a lie about when you should retire. It is said, retirement age is at 65 or older.
Where did this arbitrary age come from?
It is at this age because that is the age of when you can receive your social security and medicare benefits.
In the U.S. there is social security, which is our entitlement safety net for retirees.
Social Security gives retirees a needed suplemental income in their retirement age.
Medicare gives retirees supplemental Government healthcare in the U.S.
Other countries have other entitlement safety nets for their retirees as well. This helps older folks be able to handle financial situations without having to work more.
The problem is that retiring is something being taught to students. No one ever teaches that you can retire at the age of 30 or 40 or 50. Who would stop working at those ages anyway? I know I would.
If I was not passionate about my work, or my job became no more what would I do with life?
If you have enough money saved up in investments you could stop working, go and travel the world, do whatever passion you may have.
Retirement is not about doing nothing. Being free to do whatever you want without the need of income producing work is financial freedom. This is something that should be taught to students.
All of a sudden, students will be saving, investing, and trying to reach financial independence and then they can go explore, and make a difference in the world.
People are often burdened with money issues and seek to find less life fulfilling careers.
Seeking Financial Independence
We should be seeking to achieve financial independence instead. Financial independece gives us the choice to choose our own path.
Financial independence gives students an idea or a concept to seek. It allows them to not have to work mindlessly at a job they do not enjoy until 65. Then they will have the rest of their life to enjoy their hobbies and passion.
Life is far more valuable than working mindlessly for 40 years.
Schools need to teach about financial independence instead of retirement starting at 65.
Lesson # 3: Owning Income Producing Assets
If I knew when I was growing up to try to own income producing assets, I would have sought after as many as I could in order to have many avenues for income. It is a wish of mine that it was a money lesson taught in school.
Owning assets can be better than a job. It can bring income to you without even working. You have put in the hard work, and now it is time for that hard work and your money earned to work for you .
When growing up, most people talk about owning a house, owning a car, and being able to go on a nice vacation.
Yes, these things sound nice, but how do we make these into income producing assets.
If you own a house, you can rent out rooms and create a revenue stream for yourself. This extra income could also help pay off your mortgage giving you additional money to put towards other investments.
Owning a car can be useful for rideshare apps like Uber and Lyft. You can use extra time to create yourself more income through these apps.
Buying stocks that will deliver dividends and growth on your portfolio can help you reach financial independence quicker.
Income-producing assets is something not taught in schools. Oftentimes, it may not be taught at home as well.
Lesson #4: Taxes
Once you start a job there is a little thing called taxes that has to be paid every year. It is the easiest way for the government to collect.
If taxes were part of a financial literacy program in school then people would be able to take advantage and save money on doing taxes. Alas, it is not a money lesson taught in school.
Different countries have different tax laws. Taxes are something that really puts the fear in people. If they hear that taxes are rising they get scared.
Honestly, I do not understand what people are so afraid of, if you learn about taxes just a little bit you can avoid paying them.
Jeremy from Gocurrycracker wrote an article called Never Pay Taxes Again. He breaks down several ways to eliminate taxes.
- Choose Leisure over labor
- Live well for less
- Leverage Roth IRA conversions
- Harvest Capital Losses And Capital Gains
He later on explains these, but let me break these down.
Lowering those Taxes
The U.S. government taxes people that earn a paycheck. Earning a paycheck is the number one way to be taxed. So if you do not earn one you will pay less taxes. That comes down to having most of your money come from investments.
Living well for less is simple for most and hard for a lot of people. You just have to minimize your spending. If you can keep your spending down you can live a life without having to work for more income. Then you can pay less taxes.
This works for a lot of countries as well. Investments are treated differently than earned income. In Taiwan, where I live, there are no taxes on capital gains or dividends.
In Australia, they have Franked dividends on the dividends you can receive. So if you can have a great portfolio with lots of dividends that are franked you will not have to pay taxes on that money coming from investments.
Being able to harvest capital losses and capital gains can bring down your Adjusted Gross Income (AGI) which can save you taxes.
With the use of tax advantaged accounts like 401ks, HSAs, and IRAs, you can reduce your adjusted gross income, and minimize the taxes you will have to pay. Even with a couple making $100K a year can reduce their taxes to $0. So take advantage of these accounts, and reap the benefits by paying less in taxes.
Lesson #5: Where to invest your money?
As I was in University, I worked a job to help pay for daily expenses. One thing I didn’t know I could do with leftover money was to invest it. It sounds quite ignorant, but think about it.
As a student, your job is to study, and get good grades. One thing that I could have learned was how to invest just $10 at a time.
Investing is a money lesson that is not taught in schools.
As technology advances, there are many opportunities to invest in stock, bonds, and real estate. Leaving university, most people are ill equipped to be able to know what they can do with their money. Investing helps turn money into a tool to use, grow, and work for our futures.
Even in Bull or Bear Markets, you need to invest for your future.
There are opportunities in apps like M1 Finance where you can start investing with just $10. That is super cheap, but if you have no idea what you are doing you can get lost and lose a lot of money.
During the GameStop and Wall Street Bets market manipulation, lots of people lost tons of money. They invested money into things they did not understand and lost out big.
Being able to understand simple concepts of investing can help these students not lose money, but instead help them to make money and create wealth.
Time to Start Investing
Warren Buffet put it this way “if you don't find a way to make money while you sleep, you will work until you die.”
Investing allows your money to work for you while you sleep.
If you want to learn more about investing start with some easy finance books like The Simple Path to Wealth.
Money Lessons not taught in School:
We learn a lot about money from our family. Some families are great at saving, and their children are also great at saving. There are families that tend to be bad with money, and teach their kids their bad habits.
If money and finances are taught in school maybe it will help these students be able to change their life and the lives of their family.
We all want to be financially secure, it is time to help the next generation to also have the tools to use money for their benefit.
Money can be taboo, but once it is talked about and taught about we can move people in a better financial direction.
Let's learn a few lessons here:
- Compounding interest
- Retirement does not start at 65
- Buying income producing assets is better than a job.
- Taxes are something you need to learn in order to pay less.
- Investing is important even from a young age.
These are just a few money lessons not taught in school.
Let’s learn them now, teach our younger generation these lessons in order for them to start better and earlier than us.
What are some money lessons you believe should be taught in schools?
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.