Two months ago, I came across a news article citing the passing of Senate Bill 1054 (2022) in the State of Florida — also known as the Dorothy L. Hukill Financial Literacy Act. Starting 2023–2024 school year beginning with Florida students starting 9th grade, a class on personal financial literacy and money management will be mandatory for graduation. This is a major signal to all of us that financial stability is no longer optional at a later stage in life, it must come even earlier.
Since the COVID-19 pandemic began, Americans are once again experiencing how fragmented and weak the supply chain is. Gas prices are running up to $7 per gallon, store and restaurant menu items are masking 8% inflation with less product and sometimes even higher price tags (AKA “shrinkflation”), baby milk formula shortage are hitting low-income families hard and close to 50% of Americans are spending over a third of their household income on rent. When the economy nose dives, it’s better to have planned ahead in high school, because even an Ivy League education doesn’t guarantee the “path that inflation would take” for this nation.
With personal financial literacy and money management, hopefully the future generations will be better insulated from economic woes. If there were financial tips I could give to my younger self, I would have told myself:
- A dollar today can become 50 cents tomorrow because the purchasing power can decline quickly with high demand and low supply. For example, you’ll see $7/gallon gas prices one day.
- If you are born healthy, consider yourself extremely lucky. As you age, your health will decline, so do your best to maintain it. If you have a rare metabolic disease like Maple Syrup Urine Disease, having just enough money to purchase baby-formula to treat it won’t be enough. The supply chain will break at anytime, and you’ll need the kind of money that lets you fly to another country to get supplies, Australia for example.
- If you have to choose between a private college education versus a public one, go for the one that will not put you in debt. Make sure their program is accredited by the profession or career path you take. However, if you do choose the private college education route, only attend the Ivy League ones. If you don’t want to go to college and take up a trade instead, that will work too. A lot of trade specialty jobs can lead you into starting your own business, earning you well over $250,000 a year.
- Financial stability requires setting out a plan to acquire assets and start generative positive cashflow as quickly as possible. Think like a bank though. For example, a bank will loan you money for what your property appraises for, but they will require you to purchase mortgage insurance if you don’t put 20% down. Why? Because in the event of an economic down turn and you fail to make your mortgage payment, they will still break even by foreclosing on your property. When’s the last time you heard a bank losing money? Only when they’re not lending money out.
- Leverage doesn’t have to bad, but it depends on how it’s used. Some people will use up to 45% of their monthly income to pay for their first property (good neighborhood with excellent schools), but they already have a stable job they love, are single, and are planning to stay in that city for several years. The smarter ones will be buying multifamily or ones with extra rooms, so they can rent out a room or two to offset that 45% down to 20% of their monthly income.
- No one knows when the stock market will go up or down, but in general, low cost index funds like Vanguard’s will cost you less than hiring a financial advisor. Diversify, diversify, and let your money compound early, but don’t put all your money in stocks.
- Money can be made if you can offer a service or product that saves them time, makes life more convenient, and/or relieves them from pain. By spending time reading market trends, you can up-skill ahead of everyone else and charge higher premiums when everyone else is not ready to meet the demand.
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