With the proper guidance and careful planning, achieving financial independence before retirement age truly is an attainable goal. The key is to start from a young age. Though not impossible to achieve when starting later in life, it relies on having a much larger income, thus limiting the possibility of success to high earners.
The current school curriculum does not in any way present early retirement or financial independence as a possibility. In fact, it barely covers any financial literacy at all.
Should we be doing more? Let’s examine the criticisms and counter arguments to the idea it should be taught at all.
Leave it to the parents to teach financial literacy and independence
The classic argument is that financial literacy & independence should be taught by the parents.
To an extent, that is true.
The problem is that two thirds of parents are reluctant to discuss financial matters with their kids at all (Rowe Price 2017). These parents themselves may not have had the necessary financial education in their life to pass on good advice.
In financially illiterate families, it is a cycle of ignorance that will continue passing down from generation to generation, if there is no intervention. I’d argue that education is there to break that cycle.
You might argue that teachers are equally Ill-equipped – but this is not necessarily true. There is a wealth of support available to teachers when learning how to teach a financial curriculum.
Teachers may not have had the wealthiest childhood, but more than half of teacher have a postbaccalaureate degree and this number is increasing. The bottom line is that teachers are intelligent, and more than capable of imparting the knowledge required.
For teachers, financial independence might not be a genuine or realistic goal
It is difficult for an underpaid teacher to advocate for financial independence when in all likelihood it is, unfortunately, an unrealistic goal for them. Only a high-level teacher or one with a side income might see it as a genuine possibility.
The school curriculum is heavily influenced by teachers. If they do not see it as a realistic or achievable goal, how can they teach it in earnest?
Why else is it not viewed to be a genuine goal for teachers? In his book The Psychology of Money, Morgan Housel argues that our views on investing, inflation & the economy are defined by the era we grew up in. The average age of teachers is 42.
These 80’s babies have known high inflation, rife unemployment, and poor investing environments. They might view the whole notion of achieving financial independence through investing as a risky strategy, as their childhood was not characterized by high growth and abundant wealth.
Their attitude to risk is different from someone born into a rich family or who enjoyed a strong investment climate in their formative years. They are less likely to engage in financial pursuits at all.
There’s not always a right answer in personal finance
There is also the argument that personal finance as a whole is a young & evolving discipline. The ‘science’ is unsettled when it comes to advice around how to manage your finances.
Becoming financially independent involves taking risks with your money. Advocating any kind of risk with someone’s money, is risky! Especially from teachers, who are not financial advisors. The advice they may give could also change; what you might want to invest in today could change in 10 years, when a student is ready to invest.
But putting aside financial independence as a goal, it’s more than fair to consider financial literacy as a basic requirement. The fundamentals of finance and investing are relatively static, and it is not too difficult to become literate in this field.
Some personal finance classes have been introduced in recent years. These existing personal finance education policies have already shown a strong impact on young adults (Urban, 2020). As a result of this education in high school, students tend to have fewer defaults and higher credit scores later in life.
Once again, the study points to teacher preparation as being at the heart of success:
“We conclude that well-funded teacher preparation may be key to successfully implementing financial education programs.”
Can we get teachers to the level where they can teach the fundamentals confidently? Almost certainly. But the leap from teaching literacy to independence is a significant one. Both because of the complexity in the subject matter, and the subjectivity in the strategies.
We have an obligation to our students to teach personal finance
You are still a young teenager when you are confronted with the decision to go to college or not. Agreeing to be saddled with a potentially lifelong debt without any financial literacy is borderline criminal.
If young adults want to be financially independent at some stage in their life, they must first be able to appreciate what a loan is, what debt is, what interest is and so on. They then must consider the return-on-investment of a degree, vs. something like an apprenticeship.
Both can equally lead to financially independence. A degree may have a higher upfront cost but better long-term earning potential in certain fields. But an apprenticeship can lead to equally lucrative opportunities.
None of this is presented to the students when they are making one of their biggest life decisions. Even if it was, they would lack the ability to comprehend the consequences of each path.
Will it change?
Financial independence is a difficult subject to teach. It is also still considered quite a taboo subject. Many 40-year-old retirees are almost embarrassed to share their success for fear of ridicule from those who are financially illiterate and working ‘till the wheels fall off.
More conspiratorially, a 40-year-old who has retired is not a productive member of society. Why would the government encourage a strategy which will lead to less spending and less production? It goes against our society’s capitalist beliefs to do so.
There is a lot of self-help and guidance on the web today. Many are stumbling across potentially life-changing financial planning information in their 20’s and 30’s if they’re lucky. But this is after they have already made some of the biggest financial decisions of their lives.
It’s too little too late. More needs to be done earlier in our children’s lives. We can only hope the school curriculum adapts faster than the current glacial pace.
Our guide to FIRE (Financial Independence Retire Early) can be found here.
