## KinderEconomics

Today we’re getting started in our economic literacy program. This is the part that has generated the most curiosity, enthusiasm and fear when I describe my school to people. Economic literacy to kindergarteners? Sounds strange, sounds a little overly capitalistic, but I really think that it makes sense.

He says that the average net worth of an African American family is eight thousand dollars. A Caucasian family is worth about eighty thousand. Thanks incredible. Kinda scary. 80% of African American and Latino families have 0 net worth. They owe more than they own. Not only that, but they’re backsliding. If that’s true, it’s an incredible statistic.

Here we go with the examples, the “If you invested a dollar a day” stories. If you invested one dollar per day @ 11%, which is the stock market average (is that right?), for fifty years, you’d have \$674,000. Wow. Think about that when you’re in line for your daily Starbucks. That’s only one dollar per day. If the interest rate was 7%, it would be 158,000. Now that may be a huge amount of money, but it really shows you how much that 4% is worth in the long run.

What if they invested one quarter per day for 55 years at 8%? Just a single quarter. He’s even saying that some places will match that sort of micro investments. Invest a quarter, they give you a quarter. Don’t know if we’ll get an answer to this one, we’re off on a major sidetrack.

There’s a book along these lines called “Assets and the Poor” by Michael Sharraden. http://gwbweb.wustl.edu/people/fac/sherrade.html . The point is that we need to get people to switch from income to assets. His idea is to create an IDA, Individual Development Account. For every dollar someone saves, there will be federal funds to match that at least 1:1 provided we can find a third party to provide an initial match. He’s saying that if we started in kindergarten with those accounts. Kindergarteners invest one penny per day, with two more cents being matched. By the time they leave high school, they would have 20,000 dollars. Wow. Picture that. Every high schooler leaving with a net worth of 20 grand. Now, that can only be used for higher education, first home purchase or towards starting a business. Well, hopefully every one of those students will do two out those three things at some point in their life. If nothing else, it’s a down payment right there. 20% of a 100,000 dollar house.

It also changes how people view themselves, how they see the world. The stock market doesn’t care about the color of your scheme. They start thinking a little more long term. They normally might not because it’s a good survival strategy to always worry about today, but it won’t help you get ahead in the long run.

Interesting activity. Take a map of the state and put a pin on the map in the location of every pay day loan is. You can guess what happens. They’re all in low income areas. Why? The average APR of a credit card is around 15%. Many payday loans have an APR of 400%. That’s right, you pay back four times what you borrowed if you take a year to pay it off. Would make a good social studies discussion.

Income is your paycheck. You might make \$100,000 and have no assets. Assets are things that will hopefully gain in value, like real estate or stocks.

His point is that even with very very basic savings skills, every person in this room could eventually be a millionaire. Of course, it might not mean the same thing at that point, but you get the idea. A little investment can go a very long way.

If you invest 2,000 and then put in 3,000 yearly for 37 years at 9% interest, you’d have around 900,000 dollars. Three thousand a year would be 125 per paycheck. We could do that. It’s realistic I think. It might be hard sometimes, but I think we could do it. And just imagine, by the time I’m 70 I could possibly be a millionaire. Pretty crazy.

The idea is to get these kids saving. Right from the beginning. Even if it’s just a tiny little amount, it gets kids into the habit.

We’re talking briefly about why finances are such a taboo subject, whey it makes people so uncomfortable to talk about. People would rather talk about their personal sex lives than their financial situation.

I’m not really sure whether this whole conversation is depressing or enlightening. I actually do feel depressed. I’ve made some pretty serious mistakes in my life, some of them rather obvious and some of them rather subtle.

When asked to consider financial mistakes that I’ve made, the first thing I usually think of is the Trans Am that I bought from a total scammer. The car was a piece of junk and not only did I buy it from him, I paid in cash. I was totally hoodwinked. However, despite its problems I drove it for a year and had my cousin fix it up until it was just about reliable. Then I sold it on eBay for only 1,000 less than I paid for it. Don’t worry, I was totally up front about the condition of the car and recommended that it only be bought by a mechanic who would be able to work on it themselves. All in all, it was a miserable situation and a total crisis at the time, but in reality I didn’t lose very much money on the deal.

Want to hear a major mistake though that has probably cost me tens of thousands though? I never participated in my school’s pension plan at my last place of employment. They had a pretty darn good matching plan that I didn’t participate in my first few years. At the time, I didn’t think I was making enough money to invest into it. Then it just kind of got backburnered and I never got started in it. Later, when I was making a pretty decent salary as a Director of Technology, I just never made the phone call to get myself signed up. Why not? I really have no idea. I just didn’t get around to it. I didn’t get hoodwinked, I didn’t get scammed. But that mistake probably cost me ten or twenty times the amount I lost in the car deal.

However, what I should be considering is how much I still stand to gain by starting now. It’s not too late to turn things around. I’ll probably be working in education for another 30-35 years. If I start right now and be diligent about it, it’s not too late for me to amass a million dollars by retirement.

I am very good at making money. I manage to come up with all kinds of interesting ways to make money, from buying and selling on eBay to playing poker online to doing computer work for people on the side. If I really want to earn enough money to buy something, I always find a way. If I apply that same attitude to savings, I could always find ways to put aside enough to really have a good chunk of change at retirement.

So I’m going to choose to put my focus on what I still stand to gain rather than what I’ve lost. Hear that family members who are reading this blog? Go easy on me, I feel bad enough about it already!

I know I’m way off topic, but if you’ve read this blog for any decent amount of time you know I’m prone to that. You get my thoughts and ideas along with the facts. Heck, sometimes you even get a surprise confession. Consider it a freebie. Learn from my mistakes boys and girls.

We’re post lunch now and just starting to talk turkey about how we put this in the school setting. A lot of this revolves around teaching delayed gratification, if you just hold off needing gratification right now you’ll be able to have a lot more later. It’s tough enough for adults, but really tough for many kids. Earlier in the day he provided an interesting example of a study somebody did. In a nutshell, they put a marshmallow in front of a class of kindergarten kids. Then the teachers said that he had more marshmallows in the car, and if the kid could wait 15 minutes for him to run to the car before eating it, they could have a second one. About half the kids just crammed the marshmallow in their mouth and couldn’t wait. They revisited those kids in 20 years, and apparently the kids who were able to wait the 15 minutes (delayed gratification) were much more better off financially. I don’t have the exact details, but you get the picture.

We’re talking about how to introduce this to kids. He suggests that we start off talking about different kinds of banks and why people would put their money into a bank. Also the difference between regular banks and community banks. Anyway, from there you can introduce the concept of interest. It’s a tough concept, but the best way might be to do a concrete example, like putting fifty dollars in a jar and adding interest to it every morning and charting the growth.

Once we get past the savings conversation, then you can move along to “is there any way we can make our money grow more?” Key point, it’s not about making it grow faster, but getting more growth. It’s not a race to a certain dollar amount. It’s a marathon.

He envisions three parts to the program. 1) Daily savings, every child bringing in SOMETHING every day, even if it’s just a penny. Also some visual representation of it as well to provide reinforcement for how much is there even when the money is locked away out of sight. 2) A class account, where the class invests \$50 as a group and tracks it’s growth. 3) Meetings about money, discussing it. To discuss the details, about 45 minutes to an hour per week. This is where the actual lessons come in, including stories worksheets and vocabulary. Most of the program in general will take place during circle time in the morning.

Well, much time has passed. Fortunately for me we’ve been actively working on what the economic literacy program is going to look like here at our school. Unfortunately, since it’s been a lot of group work, I don’t have any notes from it. Suffice to say, we’re coming up with practical ideas to use. It’s definitely critical for our students to understand this stuff and could have a profound influence on their lives. Since it will be a new program, many of the activities will look pretty similar between grade levels. Everyone needs to learn the basics of savings and earnings. In a few years though, the fourth grade curriculum will look vastly different than this year. I have no doubt that this will be challenging to create, but I think it’s definitely worth the effort.

If any of you know of any programs similar to this out there or any good suggestions of economic programs for elementary students, let me know! The more ideas, the better.

By | 2005-08-19T14:36:56+00:00 August 19th, 2005|Musings|3 Comments

1. Terry Freedman 8/19/2005 at Aug 19, 05 | 4:29 pm

Steve, the problems with those \$1 a day stories is as follows, as I see it:

1. \$1 50 years ago was worth more than it is now. Even without talking about what you could buy, another way of looking at it is in terms of work time, ie how long would it take someone to earn \$1? It would have taken a lot longer 50 years ago than now, on average

2. All those stats assume some sort of perfect investment, and no unfoeseen outgoings. I’ve been saving money for years, and I’m pretty sensible, but things like cars suddenly dying and stuff like that mean you have to make sure your money is liquid, which attracts a lower rate of return, plus you have to withdraw some ever so often

3. Given that you could get run over the next time you cross the street, you might as well enjoy the starbucks now and not worry about the fortune you could have made in 50 years’ time!!

2. Terry Freedman 8/19/2005 at Aug 19, 05 | 4:31 pm

Sorry, I entered the wrong website address! duh

3. MarcoPolo 8/24/2005 at Aug 24, 05 | 12:25 am

Hi. I’m a firstime visitor. I don’t teach little kids, nor do I know much about economics, but I’m a big fan of Robert Kiyosaki, who has been saying “the rich don’t work for money” (i.e. don’t focus on earned income) and “the rich buy assets, the poor and the middle class buy liabilities” ever since Rich Dad, Poor Dad first came out. His board games are great: Cashflow 101 (there’s a kids version too), and I especially recommend book #4 in the series Rich Kid, Smart Kid