Are You Smarter Than a 5th Grader? 10 Money Rules You Should Have Been Taught in School

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By the time you’re old enough to open a credit card or sign a lease, you should be armed with the knowledge to make sound decisions about your finances. But many schools skip over the lessons that matter most.

From budgeting and credit to taxes and investing, here are some basic money rules you should’ve learned early and still need to know now.

Know How To Create a Budget

Knowing how to create a budget is one of the most fundamental rules a young person needs to know. It’s a system of planning how to use income to cover expenses, avoid debt and work toward financial goals.

Learn the Difference Between Assets and Liabilities

Knowing the difference between an asset and a liability can shape how a person handles money over time. Assets add value or generate income, while liabilities take it away. Understanding the difference is important to building wealth.

Understand the Cost of Debt

Debt can pile up quickly due to compounding interest. Not only that, but credit card issuers allow cardholders to make the minimum payment, which can keep them in debt for years.

For example, paying only $30 per month on a $1,000 debt at 24% interest will take four years and eight months to pay it off and will result in interest charges of $664.42. However, if you pay $200 per month on the debt, the payoff will take only six months and will result in about $600 less in interest charges.

Understand the Importance of Credit Scores 

Credit scores may seem like something you won’t need until you’re older, but data that goes toward your score can start forming at 18. Paying late, maxing out a card or applying for too many accounts can all ding your scores.

Additionally, credit scores can help determine the APR for a car loan or whether you’ll get approved for an apartment. Unfortunately, someone with poor credit might end up paying hundreds more a year in interest compared with someone with a higher score.

Learn What Taxes Are and How They Affect Your Paycheck

Getting your first real paycheck can be a thrill, but it’s also the moment many people realize they don’t get to keep everything they earn. Federal, state and payroll taxes can take a big hit on earnings.

Understanding why (and roughly how much) money is taken out helps set realistic expectations for when you get paid.

Understand the Value of a Side Hustle

A side hustle is a way to earn extra cash that can be saved or invested at a young age to get a jump-start on financial goals. It’s also a way to test entrepreneurial savvy and build valuable skills that can be applied throughout life. 

Understand How Investing Works

Understanding how investing works means knowing the basics, like how compounding can help build money over time, why risk and diversification matter, and how different types of investments behave over the long run.

The earlier you understand, the earlier you can start a solid investment plan. 

Understand How a Bank Account Works

Although plenty of people are unbanked, having a bank account is a way to keep your money safe while building a financial history. Learning how to manage one early also can contribute to better financial decisions and help avoid unnecessary fees.

Know How To Comparison Shop

Being able to successfully comparison shop can save a lot of money each year. That includes checking unit prices for savings and comparing product quality to know when a cheaper brand is a better buy overall. 

Recognize the Value of Charitable Giving

Giving back to the community or a worthy charity is an important part of a sound financial plan. It reinforces the idea that money has a purpose beyond personal spending or saving and can be used to support something beyond yourself. 

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