Back in January, I suggested a free non-credit course from the University of Illinois offered through Coursera – Financial Planning for Young Adults (currently free again through March 14). I completed it a few weeks ago, making this the first time I’ve ever finished an online course – go me! I’ve started more than a few, but I’m not very diligent about online learning despite being a pretty good classroom student. I know, I’m sooo 20th century, and I’m okay with that.
My interest in how money works goes back to when I was 5 years old and wanted to know why things cost more at checkout than they did on the price tag. Ah, the concept of sales tax, which at that time was an easy to calculate 5% in New Jersey. I remember the conversation ridiculously well…the supermarket parking lot, where my mother said explained that sales tax wasn’t charged on necessary items like food, but for some reason we paid it on toilet paper, which she then went on a rant about the utter necessity of. This is a long way of saying I was always ahead of my age when it came to an awareness of all things financial, but I never really felt on top of things no matter how hard I tried. Seriously, I asked my uncle-the-fancy-fund-manager about CDs v. money market funds when I was 11 and got the brush-off. I really tried!
The course touches on goal-setting, budgeting, saving, interest, loans, credit, insurance, and investing along with an optional module on financial planning as a career. The formats included video lectures, street interviews, skits, optional reading and quizzes. I really didn’t know what to expect, but lots of shost segments within each module like this kept it moving along pretty well for me.
This course had street interview segments that posed straightforward questions like “What are the pros and cons of using a credit card?” and “Do you set aside money for emergencies?” to various students on the campus. OMG, hearing most of them waffle through the answers that they didn’t know was painful – almost as painful as the one or two who really thought they knew a thing or two on the subject. College kids today are not much better off in their knowledge of personal finance than we were in 1990. As if it wasn’t bad enough back then when private college tuition-room-board was $20K/year, it is now a bigger disservice than ever to a generation that is graduating with insane levels of debt. They don’t understand that debt any better when they graduate than they did when they signed on the dotted line at 18.
The rolling average return of the stock market over any and every 30-year period since the stock market was formed is 9%. This includes all the big nasty recessions, depressions, corrections and wars you can think of. So with that in mind…
If you put $2,000 a year into a market index tracker every year age 22-30 (9 years, so $18,000 total) and then just leave it there until you’re 65, you’ll have about $579,000 waiting for you.
If you put $2,000 a year into a market index tracker every year age 31-65 (35 years, so $70,000 total), you’ll have about $470,000 at age 65.
THIS BLEW MY FREAKING MIND.
If you like that graphic, check out The Frugal Expat’s chart along the same lines in his awesome article about money lessons not taught in school. Good to know this bee isn’t just buzzing in my bonnet!
If someone had taught me this at any age – me, the first-grader who used to take the check at the diner, add it up, figure out the sales tax and the minimum tip just for fun – I guarantee you I would have done whatever it took to do exactly this. Because I saved money, I just never did anything invest-y with it because I was clueless. At 22 I left for the UK with $1200 still in my bank account at home doing nothing for years. Then 23-26 I had a spendy husband, until at 28 I got $10K from my (shockingly amicable) divorce – invested half on a Master’s degree, and then the other half sat earning a pathetic <1% interest for 20 years (long story involving my laziness about international transfers). My point is just that I had chunks of money throughout my 20s and the desire to make that $18K happen, I could have done it – and I’d be in amazing shape for retirement instead of playing catch-up like a lot of people my age.
So even though I felt this course was pretty basic, I’m not the intended audience. This would have been a good intro at the right time, though I suspect that, unlike the student-actors in the little video vignettes in the course, most who take it won’t be immediately receptive. But hey, at least they’ll have half a clue where to start when they finally are ready.