Ken Krause, who teaches business and marketing at Fitzgerald High School in Warren, Mich., regularly asks his students whether they’d take $100 now or wait one full year to double their money and receive $200.
What do you think those high school students say? I bet many of us can predict the answer Krause most frequently receives: Take that single Benjamin right now and run. Like many adults who say take Social Security benefits right at age 62, and don’t even consider delaying to receive a larger monthly payout down the road, many students opt for the fast cash.
Fortunately, Krause is not handing out big bills as part of his mission to bring personal finance to high school students. But his story does illustrate one of the challenges of managing money — the basic urge to grab what you can while you can and not manage too far into the future.
The Michigan JumpStart Coalition, a group that promotes personal financial literacy in schools, recently held a conference in Detroit for teachers and other educators in the community.
Teachers shared their ideas on how to mix personal finance into some courses, such as economics. Kathryn Lloyd Gustafson, who teaches economics courses at Farmington High School, works parables from “The Richest Man in Babylon,” a book by George S. Clason, into the mix. She focuses on the book’s “Seven Cures for a Lean Purse” and students consider the idea of saving 10 percent up front, even when all you want to do is spend every dime you make and more.
As part of the project, students have designed brochures to explain concepts. One group showed how you can save a slice of pizza for later instead of eating the entire pie right now.
Such lessons, while they might seem simple, give students a chance to actually take time to consider how they’re going to allocate their resources.
Marilyn Capelli Dimitroff, director of wealth management and principal at Planning Alternatives in Bloomfield Hills, Mich., said many of us are not naturally wired to be good savers or investors.
She told the teachers that investors can be overconfident that they know the outcome of things ahead — say, that all tech stocks will forever double in value.
Or some of us are so afraid of losing any money that we do not take any risk and lose out on a chance to build more savings.
And then, Dimitroff said, there’s the “mental accounting.”
People who win $1,000 at a casino tend to be more willing to splurge than someone who earned $1,000 at a job. Someone who gets a $1,000 tax refund could be more willing to quickly spend all that money, too.
But in the end, that $1,000 remains $1,000. It’s not different because it’s money from a tax refund, casino winnings or earnings. What is the harm in getting $100 now instead of waiting for more money later or eating the entire pizza when it’s hot?
No harm, maybe, if one never hits a financial snag along the road.
But know that layoffs can hit, financial markets can collapse and plenty else can mess up your cash flow and influence how soon you could afford another $5 pizza.
LaDonna Cook, a financial counselor at GreenPath Debt Solutions, a nonprofit credit counseling group based in Farmington Hills, Mich., told the group that some of the root causes for financial hardship include a job loss, reduction in pay, higher medical bills, divorce and bad financial habits.
The bad financial habits include borrowing too much money on credit cards, loaning money or giving money to help family and friends, and a lack of savings. Only adult problems? Hardly. Such financial traps await college students, too.
Jennifer Wallace, an outreach manager for financial aid programs for the Michigan Education Trust, said many people want what they want now.
Wallace told the teachers at the JumpStart event that she went “way down on the list of grandmas” when she bought her newborn grandchild a prepaid Michigan Education Trust contract to cover college tuition in the future. The baby’s parents didn’t want savings for down the road; they wanted baby furniture now.
Many grandparents, of course, see the advantage of setting some money aside for bigger bills like college tuition, Wallace said.
“We don’t want these children knocking at our door wanting our retirement funds.”Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at firstname.lastname@example.org