Besides moaning and carping, sometimes we do great work here. One day last week, in reply to the ‘Little Fools’ post, such a moment occurred. When Randy the private school teacher asked for suggestions on how to construct a course in financial literacy, you gave him about 300 ideas. Some sucked. Some were brilliant.
Then I asked Randy to comb the blog, design his top-10-topic course, and report back to us. He did. Here it is. — Garth
Great feedback. I went through the comments twice and tried to broadly categorize what I thought were the key issues/concepts to fiscal literacy. The most gratifying aspect of this exercise was the links to other resources or ideas that students might relate to. To present a concept that is engaging is half the battle. When you are able to show relevance at a personal level and some humor, you have a winning formula.
So this is what I have come up with.
1. Live Within Your Means: Wants and needs, Budget
To live within your means is the key concept in fiscal literacy. The student’s ability to learn to differentiate a want from a need is fulfilled by creating a budget to balance those two.
Activity – Save to buy a dog: Rationale: Can they afford it? Purchase a fictitious pet for say $500 or from the SPCA, and have the students do the research into the costs (see Murray the Vet) regarding shots, food, and Fido not having any more kids. I would think that the students would be all over this.
2. Money: What is it? Function? Fiat money. Interest Rates/ Monetary Policy.
Rationale: Primary importance is to understand the four functions of a currency. Some good video clips on You tube. Plenty of interest in the Bit coin craze and how it is being used illegally, but many see it as a window on the future as to what and how a future currency could look like.
Activity: Counterfeiting fascinates students and a few good examples are always in the news, such as Frank Bourassa, who has been allowed to go free after turning over a huge quantity of fake U.S. $20 bills. Students try to pick out the fake.
3. Investment Basics: Stocks, bonds, ETF, mutual funds, seg funds, Retirement, RRSP, TFSA, RESP, CPP, OAS
Rationale: Understanding investment basics allow a person to begin earlier long term financial planning. Teach them about investment basics – stock/bond. How is mom and dad’s retirement accomplished? DB/DC What is the difference? What vehicles help me to retire early?
Activity: What would your future look like in a perfect world 30 years from now? What would it cost? How much money do you need? Do the math.
Two activities here. First I give them 1 million dollars and they must select a minimum of six stocks and play the stock market. There are a number of interactive sites that allow transactions in real time. They also must select a stock and present/sell it to the class. Best as selected by the class gets a treat. The second is to bring in a portfolio advisor who talks about going to university, what to study, what the DC/DB is again, what is a bond/yield, and generally compound interest. Kids are motivated because they want to get into business/finance/marketing.
Rationale: Understanding credit, benefits if it is paid on time. For example, a $200 pair of blue jeans is $276 if purchased with a Hudson Bay MasterCard @ 29.9 % with $10.00 min. payment (28 payments or 2.3 years) vs. $206 at the end of the month, plus reward points.
The power of compound interest, time value of money, money made over a lifetime. This was one of the clear themes/topics for the blog. I think that today with low interest rates and the threat of deflation that reducing debt is a concept that is very important. The visual of the debt clock for Canada/U.S. is excellent. There is an interactive game where students get the opportunity to manage the U.S. debt crisis by being put in charge. This lets them see the magnitude of the issue. As well a discussion around the pitfalls around student debt would another great topic. If you have debt issues in the future where can you turn?
Activity: I like two activities that focus on a pack of cigarettes/latte. Do without one each week X 52 X 30 compounded; a real world example students understand. However, discipline is the key. The second activity is called Budget Hero. It is interactive and the link is provided.
5. House – Own or Rent
House: amortization, condo fees, strata, depreciation, taxes, upkeep, neighbors, profit/foreclosure on sale of house, lawyer/notary, deed itself. Rent: responsibilities, fine print, parties, neighbors, damage deposit. Value of money used for mortgage vs. rent
Rationale: As I have rented, owned, and been a landlord I have a variety of viewpoints on this issue. In the not too distant future they will go off to university or work up north and most likely rent. As they move into their late twenties/thirties the ownership question will be a hot topic and as this blog has pointed out many times, there is a lack of understanding at so many levels.
Activity: Is it better to rent or buy? NY Times Interactive
Also mentioned in the blog was the idea of getting the students to furnish an apartment within a budget using KIJIJI. Given a list of basic items to measure their frugality, as well as a list of items they could buy if they saved X amount of dollars would definitely appeal to students. Once again it fits the criteria of engaging and relevant.
Rationale: Students need an understanding of the functions of government at various levels, and the services that each supplies. They then see why taxes are collected. At this point students should be made aware of a variety of taxes and where the $$ go. Students can then debate the value of a tax (or where do the $$ go?). Do corporations pay their fair share?
Activity: Provide the students with a couple of profiles (gross/net, CPP, OAS, union dues etc.) and a blank T-4. Complete it. Short activity but to the point.
7. The Bank: Savings/chequing/line of credit/services, Credit cards, Difference between a debit card and a credit card, Function of banks, how are banks, credit unions, and insurance companies different? What is the Bank of Canada and how is it different from the domestic banks?
Rationale: Everyone uses a bank, yet many consumers do not shop around and compare fees and service charges to their benefit. I am a valued customer; what can you do to reduce my interest rate to show your appreciation for my continued patronage?
Activity: I think the best solution here is to bring in an expert to talk to the students about what services are provided by a bank since they are ubiquitous. However this would provide a great opportunity for the students to research various rates/services and compare.
Rationale: There were a number of references to either risk, gambling, psychology, herd mentality, peer pressure, or emotions in financial decision-making. So I grouped them together under this heading. Much of this is dependent upon knowing who you are, cultural background, age, etc. This would be a great entry point for an introduction to whole/term insurance.
Activity: Start by taking this quiz to get an idea of your risk tolerance–one of the fundamental issues to consider when planning your investment strategy, either alone or in consultation with a professional. Two personal finance professors developed this quiz. Link.
9. The Purchase (car, smartphone, laptop): Hidden fees, term, added features, Negotiation, Budget
Rationale: I like the art of the negotiation. There is nothing like sitting on a carpet in Afghanistan and bartering with a 12 year old. The youth in many countries acquire this skill early in life. I polled a number of students in my class. About 50/50 as to those that had bargained vs. those that had not. Those that had (Asia and Mexico) were comfortable with the process. I suggested going to Safeway and trying it out again on the produce manager, but found no takers.
Activity: A number of choices here. First, bring in an expert. A car salesman or a student that works at a phone kiosk could provide background. Second, have the students do a comparison of smartphones looking at a selection of features that they find appealing. Third, a contest to find the cheapest rate for a smartphone with this set of features (2G vs. 3G) etc., but with a set monthly budget.
Rationale: I remember my brother being a great salesman (in his twenties) and buying a regional franchise from his boss. He was excited about his new office and the opportunity to sell his wares in this community. Sales were really slow. He found out that before the transfer of the region, the boss had phoned virtually every resident flogging the product my brother was to sell. He had assured him that would not happen. Lesson learned.
Students love social media and advertising. Sports, clothing, music, the list is endless as to how they are a fixture for marketing. Caveat Emptor.
Activity: Role-play a salesperson on commission. What are their motivations? I have done this to illustrate union and management negotiations. It is very effective when the girls are the bosses and the boys are labour.
Thanks to all for your contributions. I will augment many of these suggestions into what I already teach. Randy