The college crowd is among the most active users on the web, one can only hope they find resources like this out there.  We’ve looked at how to teach personal finance to high schoolers, but how does it differ from the money management skills needed in college and beyond?

My university offered a personal finance course, but it wasn’t even close to being required.  The class only satisfied the most basic of elective credit; I’m talking about the same category as scuba diving, golf, and nature appreciation.  You took it for an easy “A”, not because it could help you later in life.  I loved my chemistry class, but I challenge anyone in the world to tell me its more important than basic personal finance.

Operating under the assumption that our students did not have personal finance classes in high school, the course outline would follow a similar path to my high school curriculum.  The most profound way to start the class is to explain the magic of compounding interest.  Showing how quickly you can make a million by investing is great, but for the college crowd an example of how painful credit cards can be over time would be the perfect complement.  But this sort of thing is like “opening week” stuff.  People skip a few classes and spend more time looking at the syllabus than the professor, so lets look at the stuff you’ll actually be tested on.

You’ve got to start with budgeting.  Whether its a bit from the parents or a part-time job, college students must budget.  I think the professor should use a pie chart like the one below to outline the typical college student’s budget.

Obviously tuition and beer are the big expenses.  Ping-pong balls always get lost, and as a retired beer-pong champion I can tell you there must be room in the budget for more balls.  Perhaps the goal of the course is to address what can be helped in the budget and to learn how to handle the more difficult  and less flexible expenses.  This would create room for a typical budget to carry into the final year(s) of school and the first few years after college.  We would of course still have room for beer and ping-pong balls, see below.

Student loans, credit cards, and car payments probably make up the largest part of any college student’s budget.  The class should cover how a loan works, explaining how banks make money off the interest rate with a special emphasis on how painful high interest rates can get.  The management of credit is important; its most important to college students because many of them probably carry a negative net worth.

Once the kids learn how to effectively manage their credit, an introduction to cash savings should follow.  I may have been the only guy with an emergency fund in college, but no one needs it more than a college kid on his own.  If in trouble I had my parent’s pocketbooks to bail me out.  Most of my friends didn’t have this luxury, so car repair and that extra book went on the credit card.  Spring Break?  Visa is apparently everywhere you want to be, so I guess it’s coming on the booze cruise.

Many students in the class could be a matter a months away from making good money.  That means they’re just a few months away from being eligible for a 401(k).  As with many youngsters exposed to this, they either ignore the free money or put everything into a money market fund.  Investing via retirement and long term savings should probably take up 1/3 of the entire course.  Mutual funds, ETFs, 401(k), Roth, IRA, stocks, bonds, calls, puts, hedges, capital gains, and dividends are all buzz words that must be covered.  If you can’t cite a specific definition and practical use for each, you’re not ready to start investing.  We aren’t here today to discuss them, but you should be tested on how all of these work together.

Everyone’s favorite word, taxes, is also a necessary evil.  Many of the people in the class won’t know how to fill out a tax form, much less how to get some deductions.  While taxes are also my weakness, I’ve learned enough to read the legal speak and hire a CPA.

Finally there are some miscellaneous financial terms to cover for our college folks.  Of the hundreds of types of insurance, its important to learn whats needed and what is not.  The basics of whole life vs term and how to shop for auto insurance are good subjects.  Also of interest would be the different types of health insurance likely available to them when that first grown-up job comes knocking.

I never got the chance to take a personal finance class in college.  Because my major was finance, taking the basic course wouldn’t have even gotten me elective credit.  Scuba diving was always quickly taken by the athletes, I got stuck with the un-fun kinds of geography.  Forget maps, nope my prof started each class by turning off the lights and saying “goodnight”.  I promptly did as told and went to sleep.  Requiring personal finance should be on the same level as math, English, and the sciences.  Like in high school, even if it helps one student turn around their situation, the class is a success.  Sorry Shakespeare and Einstein, but we need to make room for Orman.

By The Weakonomist

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categories: college of weakonomics, personal finance