It's Business, It's Personal
When my boys were young, they received an allowance like a lot of kids. However, I was that ‘crazy high school business class teacher’ / Mom that made them maintain a check register in 3rd grade and if they couldn’t find it, they didn’t have any money to spend. I will admit there were some tears shed when they occasionally misplaced it but luckily the lesson of knowing your current financial status stuck with them.
Obviously, as technology has changed everything, the requirements of being financially literate have evolved and check registers are all but obsolete. But regardless of the tools, understanding basic monetary concepts, and how to manage money and one’s financial ‘life’ is essential for students. It is so critical that 21 states have made a course in personal finance a graduation requirement.
As a business and marketing teacher, I often had up to four “preps” and adding a new one, high school entrepreneurship, required more work, but was well worth it in this case. As an INCubatoredu teacher, I loved the cross-curricular teaching opportunities it gave me—marketing, business, finance. When I told my sons that I was going to be teaching the course, they gave me the ‘eye roll’ and asked if I was going to make the students keep a check register... But to their point, when I was teaching, I did often use the strategy of 'make it personal' when introducing new concepts in finance. It resonated with me and with my students to teach this way to achieve deeper, relevant learning.
A Framework for Financial Literacy
Now that I have retired from teaching and joined the Uncharted Learning team, it’s ever more clear to me the value of the volunteers who support the learning experience in these courses. These volunteers, as part of the teaching team, bring to life the lessons (like forecasting for example) with real-world application.
I was curious about the most current and effective ways to support financial literacy among students, and I sought out an expert opinion from the field or ‘industry’ as we call it.
We sat down with Burke Groom, Executive Vice President at Barrington Bank & Trust AND committed financial expert in our INCubatoredu and ACCELeratoredu student entrepreneurship programs for several years. According to Groom, financial literacy is all about money, savings, investing and borrowing. He says that many of those concepts can be flipped and used similarly when talking with individuals.
“When I consult with students, I try to explain to them how business and personal financial literacy is intertwined.”
~ Burke Groom
Understanding Balance Sheets
This relationship between business and personal finance rang true to me! In fact, when I taught the basics of a balance sheet from a net worth perspective, I asked students to ask themselves two things, “What do I own?” and “What do I owe?”. Then I discussed that business owners face the same financial challenges. Just as an individual would reference their net worth to help qualify for a car loan, business owners and entrepreneurs use their balance sheets to help secure funding from banks or potential investors.
As Groom points out, entrepreneurs must have a financial plan to secure funding in order for the business to grow and thrive. Balancing assets and liabilities, cash flow management, and evaluating returns on investment are a few of the financial concepts that entrepreneurship students learn.
The Five C's Relate to Financial Literacy
Groom shared that in banking the 5 C’s, which are cash flow, credit, collateral, capacity and character, are important when evaluating a business. When teaching cash flow statements, I had students consider their own personal budgets first. I had them determine their own cash flow. They looked at their income for the month and what bills they had to pay to see if they could pay their bills on time. The looks on their faces when they realized that they 'ate' most of their paycheck and the rest went into the gas tank was always a favorite teaching moment for me. Understanding that personal credit ratings live and die by cash flow is akin to understanding that businesses live and die by cash flow. Making payroll is what will keep a business owner up at night.
Banks and investors love to see a good Return on investment (ROI). It is another concept taught in entrepreneurship that I loved to make personal for my students. Students instantly understand that an investor is looking for a positive return on their investment. However, applying ROI to their own lives and investments isn’t as evident to them.
I asked students to consider ROI when choosing where to attend college. One’s passions and interests should always be considered when choosing what to study but often students do not consider their future salaries when determining how much to invest in their education. Many are unable to financially recover from assuming large amounts of college debt, so the ROI concept can be useful.
I used an example of a student whose passion was for music education. He wanted to be a high school music teacher and is currently living his passion. However, he attended a private university for his education and accumulated $200,000 in student loan debt. If he had considered the business concept of ROI when determining his college choice, he may have chosen a public school option. I did the same with my youngest son when was applying to colleges since he wanted to go to a private school. As an entrepreneurship teacher, I wanted to make sure he understood his ROI. We told him we would pay public tuition and if he chose the private school he would have to finance that. We sat him down, showed him the loan amounts, amortized it and then compared it to FREE as in “on us”. He understood what his payments would likely be and estimated his future salary. He chose private but did so understanding his ROI and how it would affect his personal financial situation post graduation.
Business owners and entrepreneurs launching a business face the same decisions when considering where and how to spend. Will a new marketing campaign generate revenues or will a new product line increase their ROI?
Burke Groom is passionate about teaching fiscal responsibility to a new generation of entrepreneurs and has spent years volunteering in INCubatoredu and ACCELeratoredu classrooms helping students understand the importance of managing their startup business’s finances and in turn their personal finances—which drives agency and empowerment. I share his passion for financial literacy and value the cross-curricular connections between entrepreneurial and personal financial concepts.
Clearly, people and businesses benefit from understanding how to manage their money and make informed financial decisions. And when they do make good ones, we all win. Although I would have chosen differently, my son does not regret making his private school investment. I wonder if he will make his future children keep a check register, just for old times sake?