A Penny For Your Thoughts

Economics teacher Chris Wilson answers some questions about personal finance and what students should know about saving and spending money.

Sarah Liu, Editor-in-Chief

Q: When do you think kids should start opening bank accounts, and is there a benefit to saving when you’re young?

I’m of the mindset that kids, with the help of parents or guardians, should start early in this regard. The earlier they get started the more likely it is that they will retain good financial and budgetary habits later on in life. Opening up a simple savings account will allow kids to become familiarized with different money management techniques and concepts like “simple interest vs. compounded interest,” preparing them with the financial tools they’ll need later in life to make their money work for them (as opposed to them working for their money).

Q: Do you think having a debit or credit card is smart for high-schoolers?

Tough one. Debit card? Yes. Credit card? Yes (with a caveat). Debit cards are great because they are tied to your checking account. Money is immediately withdrawn from that checking account the second you engage in any transaction. Students will be much more cautious about their spending habits knowing that they have a limited amount of their own money to play with. This helps them budget those funds more efficiently than, say, a credit card, because, again, the money is their own and we tend to look after our own property better than that of others. With credit cards, I think it is important to allow students, while they are still at home (under the watchful eye of their parents), opportunities to establish a credit history with financial institutions. Parents can help set parameters early on (spending limits, reminders to pay-off monthly bills in full to avoid late fees and penalties, etc.) which will ingrain the types of habits we’re looking to develop early on in life. Applying for a credit card in college without any understanding of how they work could be a recipe for disaster.

Q: Is there a rule of thumb we should learn when we get our first paychecks?

Every financial guru has their own “rule of thumb” and I’m not going to pretend to have all of the answers when it comes to generating enormous amounts of wealth or income. What I can say is that it’s very important to understand the idea of “time preference.” Are you someone with a high time preference, focused primarily on your own well-being in the present or immediate future? Or are you somebody with a low time preference, placing more emphasis than average on their well-being in the further future? Those with a high time preference will probably find themselves living paycheck to paycheck, barely making it through the month on what income they’re able to generate due to their outrageous spending habits. Those with a low time preference will probably have to sacrifice a little pleasure now in order to enjoy the fruits of their labor later on in life. Training yourself to see the “big picture” might just be the difference between being able to retire at 45 versus retiring at 75. It all comes down to sacrifice, though.

Q: What do you think is the biggest spending mistake you’ve seen people make?

Being too cautious with their investments. If you have the chance and can afford it (maybe you’ve got a little “nest egg” or extra disposable income tucked away), maybe moving some of your money out of a 2% interest earning savings account and playing the market on a stock tip from your buddy isn’t the worst decision one can make. Again, though, this needs to be money you can afford to play with.

Q: What is the value in doing a “budget project” as a high-schooler?

For teachers, we get a tremendous kick out of seeing student’s faces when it finally sinks in: “OMG. Adulting is hard. And California is EXPENSIVE!” For students, the benefit is obvious–you’re practicing for a real-world scenario (everyone has to budget their income) and the lessons you’ll learn from the project will (hopefully) prepare you for “the unexpected” that life sometimes throws your way.

Q: What was your worst “money mistake” as a young person?

I could tell you but I don’t want the IRS on my tail again. (Calm down. That was a joke.) Worst money mistake? Probably spending every dollar I earned working summers at a parking lot (I was paid in cash) on a Hawaiian vacation package. The money was supposed to go toward college textbooks. Oops! Live and learn.