Why Teaching Finance in School Is So Critical

[Chris Seveney]

This was posted online. This is what people are selling now with all the FIRE hype. Yes lets take $50/mo over $1M right now....

What is unfortunate is many people are followers and will believe the below is true... Do not believe me? Look at how many people are doing seller finance right now lending money at stupid low rates and not taking the cash... Yes time and place for everything, but also just because your buddy does it does not mean its right.

[Joe Villeneuve]

The problem in school is the poor way they teach basic math, Algebra, and Geometry.  All are the basics for how money works.

Take your example.  The idea of taking the monthly cash over the lump sum can be a better choice, but not in all cases.  

1 - Let's start with the question of how old a person is, and how long they will be taking that $50/month, or $600/year.  If a person is 20 years old, and their life expectancy is another 60 years, then that $600/year adds up to a whopping $36,000,...total.  A far cry from $1M.  It gets less than that the older the person is from the start.

2 - What's $600/year worth now, and what will it be worth in the future?  By establishing a set return of $600/year, there is no ability to adjust that number to future inflation.

3 - Now, the big one.  What return could you get, if you took that $1M, and invested it?  A simple 5% return per year gets you $50k/year...and you still have the $1M to adjust to inflation by reinvesting into different vehicles along the way.

Focusing on taking the long term returns ($$$/year) can be a better choice, but you have to look at the long term impact with all your options, compare them, and then make a choice.

Do you think they teach that in school now?  That's a basic story problem, that way too many people have hated, because they don't understand how to do them.  As a result, they may pass math in school, but not in life.