Back again for an update about my personal finance class at an East Palo Alto High School.  How to engage students today?  We kicked off class today asking students to estimate the economic value of a college education.  Remember the audience:  these are 9th grade students who have enrolled at a rigorous college prep program motivated by the desire to be the first in their family to graduate from college.  As I wandered around the classroom, I sensed some confusion.  I got the sense many had not necessarily thought about college completion in these terms.  They knew they wanted a college education to make a better life for themselves and their families but hadn’t necessarily thought about quantifying the benefit that comes from that education.  Their estimates for the lifetime value of a college education ranged from a few thousand dollars to my favorite answer:  infinity.  I am always humbled by what I learn from my students.  When I asked her to explain this answer, she spoke succinctly and with confidence:  “college opens up infinite possiblities.”  How right she is!  

We (I am co-teaching with a friend, Bill) then proceeded to have students interpret a killer chart (interpreting data is definitely a skill I want students to pick-up) which showed median weekly earnings by level of educational attainment.  The students immediately made the connection:  the more educated you are, the higher wages that you can expect to earn.  Their task now was to use this chart to calculate how much more a college educated person could expect to earn over a 40-year career compared to a high school graduate.  They worked on this in pairs which worked well as they had to explain to each other how to take weekly income and convert to annual and then multiply that to reflect a 40-year career.  Interestingly, many didn’t request calculators but rather did the calculations by hand.  I could hear the conversations perk up as the results started to come in and students found that the incremental value of a college degree was close to……a million dollars.  This dovetailed nicely with a statement we made on the first day of class that the best investment the students can make over the next four years is to excel in the classroom to ensure that they are prepared to succeed in college.  Now they have a way to quantify exactly what the value of that investment in their education will be worth.  Another great takeaway from the chart is the added value of some college (but no degree) is minimal at about $1,000 more per year in earnings (vs. high school graduates).  This makes sense when you consider that most student loan defaulters come from this cohort; they have taken on student debt but have not substantially increased their value to employers.

We then shifted gears to the basics of savings.  Students prepared flash cards from an online personal finance program called EverFi.  We had the students pair up to quiz each other on the flash cards.  Chatter filled the room as they quizzed each other on principal, interest, interest rate, savings plans, savings vehicles.  After five minutes, I slowed walked them through a few of the terms including principal, interest and interest rate and provided them with some context for understanding…if you open a savings account with $100 that is the principal…the bank will pay you to deposit your money…they express this as an interest rate and the interest earned is calculated this way:  Principal X Interest X Time.  Context matters in understanding vocabulary, a heckuva lot more than memorizing definitions.  Will continue to refine this with future classes.  Looking back, the natural flow would have been to do interest rate problems as I had just walked through this formula (note to self:  change this for next year!).  Instead, we moved on to a few quick slides highlighting the benefits of saving (why save?) and also the abysmal state of saving in the US as seen through a chart mapping the last 90 years or so.

Quick question to students, which led to a decent discussion:  What is the right level of saving?  Asked students who had earned money at jobs, what percentage they saved.  It became clear that those raising their hands were “savers” as answers included “all of it since I am living with my parents I don’t have any expenses” to “I save 50% and spend 50%.”  Good opportunity to make the point that every dollar a student saves for college is a dollar that they won’t have to borrow since most will have to take out student loans.  The more they can save, the better and building those savings habits early can set great patterns for the future.

Next, we set up a role play to set up an account at a bank by asking those who had an account what they remembered of the process:  what did they need to bring, who did they meet with, etc.  Before they met with the bank official, they first needed to come up with 4-5 key questions they wanted to have answered.  They did a nice job of figuring out what was important (FDIC, interest rate, minimum deposit, fees).  Also told them to ask for the savings disclosure statement rather than relying on the bank manager’s word.  The role plays went well with Bill, the bank manager, prodding them to sign up before getting all the information.  The other student’s watched attentively and chimed in when the student in the role play needed encouragement or left out a question.  Good opportunity to teach students how to walk away from situations when they felt pressured (we all have been in this situation):  “I need more time to think about this…”  I also hope students walked away feeling empowered and more confident in financial situations like this.

Banks not only sell at the branch level but their advertising is intended to persuade consumers also.  After watching three commercials (Ally, ING and BofA), students pointed out how the banks were positioning themselves vs. other banks.  Observant students also saw FDIC when it flashed across the screen at the end of these commercials.  I hope to provide students with the critical thinking skills while being bombarded with marketing messages on a daily basis.

Finally, we closed with some interest rate problems, which included the rule of 72 and compound interest for the later classes.  Playing with a online compound interest calculator definitely got students attention as we walked through some scenarios and had the students guess the outcomes prior to (drumroll please) revealing the answer.  So, what if students could save 10% of their pay for forty years..what would their retirement nest egg be if they chose a savings account vs. investing and earning a market return?  Bill pointed out that if you chose an aggressive investment strategy, your nest egg might start to approach the value of your lifetime earnings which had been calculated earlier.  That generated some buzz as the students filed out of the classroom.

So, how to improve this lesson:

1)  Link the flash card exercise to the interest rate math.  It is a more natural progression.   Also, contextualize the vocabulary words to help students understand them.

2) If we am looking to save some time; just tell students what they need to bring to open an account and what questions they need to ask.  Not sure it is worth the 4-5 minutes saved as students seemed engaged in trying to figure this out and came up with most of the right questions.  Also, provides opportunity to correct them if they have misconceptions.

3) Students confused by interest rate math.  Talk to math specialists about how best to teach this.  Might make sense to show 2-3 different ways as students may think about solving these problems in different ways.

4)  Too many students still don’t have savings accounts.  Provide an incentive to get them signed up during the summer?  Students won’t have a similar class again until their senior year.

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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