By Jerry Roker
for Bahamas Press
How we manage our personal finances is a key factor in the standard of living we enjoy. It can influence the education we can give our children, the type of home in which we live and whether retirement is truly a period of “golden years” or a grim battle for survival. In short, good money choices lead to greater options. The stronger our financial situation, the more freedom we have in life to do what we want to do. In fact, personal finance plays such a pivotal role in life, it’s an oddity that it has not traditionally been a compulsory part of the high school curriculum. The question is: why not?
Personal finance is not so much about what income or wealth you may have, but what you do with your money and whether you live within your means.
Two examples from the United States illustrate this well.
Last year the National Bureau of Economic Research (NBER) published a working paper that showed nearly 16 per cent of National Football League players — the American football stars who earn sometimes astounding amounts — wind up bankrupt within 12 years of the end of their NFL career. Equally remarkable, and at the opposite end of the income spectrum, is the story of a gas station attendant and janitor, who died last year at the age of 92 after a modest life. His friends were stunned to learn his estate was valued at more than $8 million, most of it in the form of blue-chip company shares.
The NBER report pointed out that the NFL players have a very untypical income experience, with a major spike in earnings coming when they are just out of school, rather than later in life, as happens with people in less glamorous jobs. Immature spending decisions, vulnerability to hangers-on, as well as lack of plans for the post-playing years were all factors in their financial problems.
The gas station attendant and janitor, earned a relatively low wage all his life, but was frugal to the extreme. Rather than take it easy in retirement, he chose to work as a janitor in a department store. He invested in mostly large, well known American companies and reinvested the dividends into more shares. The compounding effect over the decades, helped by his longevity, allowed his humble investment to turn into millions. His is an extreme case, of course. Few people would see the purpose of accumulating such wealth and not spending it on some of life’s little luxuries. This case illustrates what is possible by saving small amounts regularly over several decades.
In my view, the time has come for compulsory personal finance tutoring in schools, to ensure that our young people leave school with basic knowledge of personal finance and investment, as this has the potential to seriously improve lives.