Why Can We not Learn about Financial Things in School?
Water – remember that stuff – the stuff that we use everyday? It comes out of our taps, we swim in it, we sail on it, wash the car with it, etc., etc. It is very useful stuff and we cannot live without it – actually we are mostly made of it. Did we learn about it in school – did we learn how to use it properly, how to care for it, and how to make sure that we leave lots of perfect water for our children and all of those who will follow us?
Of course we didn’t learn any of that stuff – we learned that water is made up of two hydrogen atoms and one oxygen atom. We learned how much it weighs, how to determine the temperature at which it boils, or freezes. Learning how to use it – wow – who would think about that??
This thought process hit me when I started to think about why we don’t learn about money or anything financial and I realized that there are many things that we don’t learn about that we need everyday – like water; and money!
Money – More of an essential ingredient that we imagine
Now I don’t want to try to make such a strong statement that we need money like we need water because that is certainly not the case, yet money works to make things happen in our lives and without knowing how to find, keep, and enjoy our wealth we will likely have a harder time in life. Just to give you a couple of examples to get you warmed up. Not to discourage you, but you will likely need somewhere near a million dollars – yes $1,000,000 just to pay for a place to live if you live in the western world. You will also likely need in the vicinity of another $1,000,000 just to feed yourself. So now you are up to $2 M just for room and board – do you think it is a good idea to start out in life without a good knowledge about financial things?
So I asked myself what would be useful to know about financial stuff – the things that would be important enough for us to take some time away from learning about which parts of which country get the most rain, etc., and the list of things that are more useful about finances can get quite long – let’s have a look:
- What will it cost for our housing cost – rent, mortgage, etc. – whatever approach we take
- What about food – we will definitely need to eat, yet we don’t learn that
- What amount of money people are earning that live a certain lifestyle – it would be nice to know the cost of a certain lifestyle we might like to try.
– How much money do people make doing different jobs – our money has to come from somewhere.
If we get some teaching about things like this in our school years, we will be able to start out our life a little on our own with a bit of a clue. Sadly though, we don’t get any of pieces of information given to us, we therefore start life in trouble already.
Cost of living
So let’s have a look first at the cost of living – honestly people have no idea about this and that is part of what gets people into financial trouble in the first place and I think is one of the major causes of children living with their parents long after they are children.
So, how do we figure out what the cost of living is? Well, like everything else these days, our first step could be to “Google it”. And as is often the case, there is a website that provides us information on that – it is as close as our computer screens (which of course are not free yet nearly everyone has one or more). The site I found first was something called http://www.numbeo.com which will let us find the cost of living in any country (or most I assume).
I live in Canada and therefore will look at this from a Canadian point of view. The Numbeo site allows you to look at data at a fairly detailed level so you can likely choose your own city or someplace nearby to determine some numbers. Of course there are other websites that we can look at to help us get a better sense of specific items in our costs of living – let’s have a look for Canada.
Ok – so here is a simple table that I have created with some information that is based in Canadian historical costs. This is not in full detail of all the costs you might have to deal with in a month or a year, but will give you a idea. We find a total of $3,183 for a month is what will be needed to live that lifestyle and this is of course “after-tax dollars” meaning that it is your net amount after taxes have been deducted from your paycheque. If we look at the Numbeo website we will see that the average “after tax” month income in Canada is $3,047 so we are in the ballpark of what a typical Canadian budget might look like.
Analysis of budget table
If we stop here for a while and have a look at the numbers in the table, we will see a number of things that will further help us plan what we want from our life. Firstly, since the numbers are “after tax” we will have to determine how much the gross salary will be to produce this. Of course tax calculations are a little complex, but this would likely be in the ballpark of a $50,000 salary. If we divide this a little further, we will find that we would need about $24 per hour for a 40 hour week to generate the $50,000 salary.
So far we are learning a little!
Let’s go further. You will see in the table that there are no expenses for entertainment, Christmas presents, smartphones, new skates, etc., etc.. If we think about that budget with the missing “fun” things we start to get a sense of how we might be unhappy with a budget like this. That being said, we can then think about how we might change it to make it more fun, or more interesting. As an example, if we wanted to have perhaps $300 a month for entertainment, presents, etc., we would have to either reduce our costs somewhere else in the budget to free that money or alternatively make an extra $300 a month after tax – likely in the ballpark of $400 a month before tax.
We have seen that we would need around $25 an hour for a 40 hour week in Canada to live an “average” lifestyle. We can also see that a 10% increase in the cost of living other than savings will result in having no savings – this is certainly an issue and is something that is affecting many, if not most, Canadians.
Another thing we learned from this analysis is that if we make $55,000 a year to cover this cost of living, that will be $2,200,000 over 40 years, which is in the ballpark of what I had suggested earlier in this post would be the cost of room and board for your life. As you can see, none of this is exact, or even accurate for your own life, but will give you an idea of things. As an example, you can’t live this lifestyle if you plan to work 20 hours a week at the mall making $10 an hour – life will take more planning than that. You could also work as a doctor in Canada and make in the ballpark of $80 an hour for 40 hours a week and thus an annual salary of $165,000 – now that would change the budget!
One of the things that I have not talked about here is what happens with the other time in our lives. We talked here about 40 years of working to support the budget but there are other times in our lives. The early part of our lives, when we are children, is a time when we don’t have to worry about these numbers – our parents generally take care of that time. The other important time though is the time that we are not working when we are older. Our society tends to call this time “retirement” but for me that terminology is too much centred on working (as in we are now done working). I think for me I will think of that time as “freedom at last” rather than retirement. My point here however is to simple say that there are likely another 15 to 30 years of time that we will want to be doing fun stuff and we will not have a monthly salary from work to support that budget – we will need another approach to have month for that time. I will talk about that in a later post – it certainly is important.