Trial By Fire / On-the-Job Training – How We Learn Personal Finance

In the preceding post, I shared my thoughts around the Trial By Fire / On-the-Job Training that is how we learn parenting.  Despite how monumentally important it is for us to not screw up our kids (too badly), I largely give society a pass on not preparing us for this challenge.  Not everyone will be parents and there are few (no?) hard and fast rules with parenting – each parent does things differently (and, arguably, each child’s needs are different).

Personal Finance on the other hand, everyone needs to have knowledge of and there ARE right and wrong ways!

High School students almost universally graduate with little-to-no finance knowledge, then are immediately asked to complete a FAFSA (Free Application for Federal Student Aid, which is currently 10 pages and includes extensive questions on income and taxes for the student and their parents), file their own tax returns and make decisions on which funds to put their 401K money into.

Given that our school system is already educating our children on things as important to daily life as mathematics and as unimportant as the War of 1812, doesn’t it make sense that we’d educate our children on how to file tax returns (which they’ll have to do most of their lives), student loan debt (which is now a bigger issue than auto or credit card debt), saving for retirement and concepts of basic financial literacy?

/endRant *climbs off soapbox*

At any rate – society, by and large, did not educate us and likely will not educate our kids on Personal Finance.  So, we’ll go through our Personal Finance on-the-job training and we’ll personally educate our own children so they do better than we.

Someone needs to teach this kid to handle money better.

Someone needs to teach this kid to handle money better.

The Trial By Fire / On-the-Job Training of Personal Finance

I still remember filling out my first 1040EZ form when I was 16.  It might as well have been written in hieroglyphics.  It was probably two more years before I knew what AGI was.

Being young and middle class, I didn’t have a ton of money and didn’t think too much about retirement.  As a result, I pissed away the years of my life where compound interest is at its most magical.

The three biggest Personal Finance mistakes of my youth were:

  • Not budgeting.  There were a lot of years that fell into the consumer trap that told me that the line on my pay stub that read “Net Pay” actually read “How Much Money You have To Blow This Month!”
  • Becoming comfortable with debt.
  • Not saving.
    • If I had done nothing else but sock $5K away into a ROTH IRA (I was already paying the lowest taxes I’m likely to ever see) every year from age 20 to age 30, at age 62 I’d have $729,939 (assuming 7% rate of return) more tax-free money available to me in retirement.
    • When it came time to be adults and buy a house, I had $0 saved.

Unfortunately, as with most of us, my personal finance trial by fire resulted in me being burned alive for more than a decade before I even knew I was on fire!

What do you think?  Do you think the next generation will be more financially savvy at a younger age?  Were you able to avoid the mistakes of personal finance on-the-job training?  Comment below!

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