Dec 04, 2019

What's the Value of A Personal Finance Course? [UPDATED]

 Priceless! 

As more states consider increasing access to personal finance, we should expect advocates to be questioned about the value of a personal finance course or in investment parlance, "What's the Return on Investment (ROI)?"
 
We know there is lots of academic value to the course as it develops the following skills:
  • Analytical thinking
  • Problem-solving
  • Teamwork through group projects
  • Decision-making in ambiguous situations where there may not be one right answer
  • Communication skills, including written and oral in classroom discussions and presentations

It also presents so many cross-curricular opportunities in history, math, economics, business and family and consumer science to name just a few. These two points alone should be enough to more than adequately answer that question but we know a cost-benefit analysis is usually standard for proposals like this.

This post will focus on the benefits side of the equation and specifically what's the benefit to a student who takes what is learned in their personal finance course and translates that into behaviors. The numbers may not be precise but illuminate where the greatest leverage is. After going through this analysis, it's clear that we need to continue to focus on helping our students understand reducing fees (our Fine Prints accomplish this), managing credit and budgeting, which has secondary effect of increasing savings rate.

As the chart below shows, a student who uses the knowledge gained from a personal finance class has the opportunity to save more than $3,000 PER YEAR. Compound those savings over a 40 year period assuming a 7% return generates close to $600,000 over their lifetime. Just think, as an educator, you already know about the opportunity you have every day to create tremendous value in the lives of your students in so many ways, tangible and intangible. Now you can crow about the economic value that you are creating too! 

Here's an estimate of the economic value of a personal finance course:

 
Methodology of the individual items: 
 
Credit Card debt:
Bank overdraft fees:
% increase in savings rate 
  • Average American saves $6017 per year (about 10% of net pay of $67,241)
  • Assume that increase in savings rate is invested in the stock market 
  • Increasing savings rate (as % of net pay) by 1% = $672
Managing credit score more effectively
  • Average score of Gen Z and Gen Y is around 640 (source)
  • Difference in cost of $300,000 house with 640 credit score ($244,000) vs. 700 ($193,000) credit score (MyFICO Loan Calculator)
  • $51,000 less interest paid with higher credit score
  • 64.8% of Americans are homeowners
  • $33,000 in interest savings (since only 2/3 of Americans own homes) 
  • Save about $1,000 per year (assuming 30 year mortgage)
Lower insurance premiums by managing credit better (thanks Brian Page for these examples):
  • Report found that a couple with poor credit may pay $2,090 or more to insure two cars than a couple with excellent credit (Consumer Reports)
  • Let's be conservative and assume that a less extreme example of moving from a fair to an excellent credit score would reduce the cost of insuring two cars would save 20% of $2,090 or about $400 in savings per year. 
Investing in stock market:

What if they could lower fees on investments by .54%?

Please send along any of your ideas on additional cost savings items to tim@ngpf.org
 
 

 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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