This work is licensed under an Open Educational Resource-Quality Master Source (OER-QMS) License.
Any veteran of higher education can tell you that thematic changes in goals occur on a regular basis. I have often joked about the “term of the year.” These usually arise out of political necessity; the lawmakers that control the purse strings want to improve higher education, and they decide on a magic pill that will accomplish dramatic improvements. The methods that we should use to make higher education great again are most often vague platitudes grounded in an uninformed hunch about what is “wrong” with the way we do things. As far back as 1776, Sir William Blackstone noted (somewhat bitterly) that while society tends to defer to experts on most things, everyone reckons himself a lawyer. That seems to hold true with lawmaking as well.
The most recent round of innovation seems to be different: it has substance, it has a strong moral appeal, and it can work. Traditionally, the ivory tower has been among the most elitist of any society. In its earliest form, it was a means of preparing the wealthy elite to assume their birthright of ruling the rest of us (and developing the next generation of the clergy). Since the Industrial Revolution, there has been a concerted effort (at least in some circles) to expand what college is and who may attend. Women and minorities struggled for the right to an education, and after many bitter battles, they won. The real revolution came in the latter half of the 20th Century when government programs made college viable for nearly anyone willing to assume the financial risk of attempting it. At that point, everyone technically had access to higher education, but the elitist tradition still held sway.
Currently, the deck is stacked against many young people because of that elitism. To get a college degree, you need to be bright. You also need to have a learning style that depends on reading, writing, and assimilating information that is present orally at a rapid pace. Educators in the K – 12 system have long understood that different people learn in different ways, and broad success depends on accommodating those different learning styles. Higher education, for the most part, would have none of this. If you could not learn from “talk and chalk,” then you just were not “college material.”
This takes us back to our “term of the year,” which is currently “student success.” The basic idea is that the professoriate can no longer get by merely being subject matter experts (SMEs). They must also become teachers. Most of the public would be surprised to find that we learned professors have zero formal training in how to teach. All of my graduate classes revolved around becoming an SME and conducting research. Any expertise that I can claim in teaching has been gained through trial by fire, informal (very) mentoring, and self-study. Many veterans see efforts to make teachers out of us as an assault on a proud tradition that dates back at least 1,000 years. This seemingly endless debate caused me to pause and think about what “student success” really means.
I concluded that, at the undergraduate level, our primary task is to do whatever is necessary for our students to be successful in their future lives. When I examined the “general education” curriculum, I found it wanting. It focuses on making students “well rounded critical thinkers,” but it leaves out vital swaths of information that everyone needs to be successful in life. Much of this dates back to the elitist nature of university life from its conception. Wealthy aristocrats came from wealthy families and grew up watching wealth preservation and appreciation take place.
Back in those days, every college student likely understood wealth generation and management. Of course, we no longer exist in a social system where there are nobles and commons, but we do live in a society where there are “haves” and “have-nots.” I don’t believe that a reasonable argument can be made that disadvantaged college students have the same scaffold on which to build a successful adult life as do the children of affluence. America is indeed a land of opportunity where anyone can break the cycle of poverty and rise in socioeconomic status, and this success can be transmitted to future generations. For many Americans, that dream will remain merely a dream without help.
The best predictor of a young person’s future economic success is the status of their family. Understanding money is not something that we teach in the public schools or in our universities (except finance and business majors). Middle-class kids may grow up understanding the merits of hard work and frugality, but they have no idea what the “market” is or how they can use it to provide financial security to their families. Those growing up in families where income never rises above the poverty line have no idea how money works, how it can be earned, how it can be protected, and how it can be made to grow. My point is that the American Dream is only theoretical if we don’t give the youth of America the knowledge and skills they need to make it happen.
I am an avid supporter of liberal education. In the academy, the term “liberal” means broad-based (not becoming a Democrat). That is, you should learn as much as you can about everything you can. It is an excellent thing to read the great literary works of the English tradition, and it is wonderful to learn to appreciate art. All students should learn how our democracy works in action. Yet our disdain for the practical concerns me. We need to teach our students the social norms of the business world. You need to show up on time. You need to focus on your work and keep your phone in your pocket. You need to call your boss Ma’am until instructed to call her something different.
We also need to teach them to read a pay stub. We need to show students what it means to be financially secure, and how to retire with enough money to preserve comfort and dignity. We need to teach them that student loans are an albatross, and should only be entered into when all alternatives have failed and only to the degree necessary. We need them to understand how conspicuous consumption is a recipe for financial ruin, and that credit cards are the economic equivalent of nitroglycerine.
Part of my sympathy for the economic plight of my students stems from my own upbringing. My parents were adherents to the idea that hard work and more hard work would lead to financial success. Yet, they didn’t have the financial understanding to thrive or prepare for a comfortable retirement. They were naive when it came to money, and they made big mistakes like believing in the federal government to provide a decent retirement income. In the name of frugality, they wasted vast sums of money, not understanding how to compare costs and determine real value.
When I became of age and determined to improve my lot by pursuing higher education, I began to perpetuate the same mistakes my parents made, albeit on a much grander scale. My college experience was a case study in what not to do. I took all the money that financial aid would let me have under the misguided assumption that paying back student loans would be painless on the high salary that I’d earn given my college degree. I filled out “student” credit card applications for free pizza and a few t-shirts. I was surprised and delighted when the predators sent me shiny new credit cards to my campus post office box. I could go on and on ad nauseam with my sad tale of financial mismanagement and bad choices.
Conventional wisdom says that when nominal adults with “sound minds” make contractual decisions like taking out massive student loan debts, they do so intelligently and are responsible for the debt. This sounds nice as a legal theory, but it fails miserably in practice. There are over a Trillion Dollars in defaulted student loans. A generation of thirty-somethings is still living with their parents because they can’t afford to pay both usurious student loan bills and a mortgage. I will save my political diatribe about how the United States Government has failed a generation of Americans and subjected them to debt slavery, and how we are in the midst of failing another generation. Suffice it to say, that the Universities have been complicit, and any real changes will come from the professoriate and not Washington.
All of the above thoughts led me to consider what I could do. I wanted to try to help my students avoid the mistakes I’d made and not be dragged down by a 20% education tax for their entire working lives. As a professor of criminal justice, I know that most of my students will choose jobs based on a desire to make the world a better place and that they will suffer financially as a result of that noble decision. Americans have an ambivalent view of public service; we want the best teachers, firefighters, and police, but we are unwilling to pay for that quality. To achieve the American dream of financial freedom, my students will have to consider limited income as a severe barrier and develop strategies to overcome it.
Luckily, our curriculum is set up to allow for “special topics” courses. These can be about nearly anything that is of interest and importance to the field of criminal justice. I chose to develop a special topics course entitled “Personal Finance for Helping Professionals.” Such courses are always offered at the senior level and are required to challenge students with advanced standing. The result is that these classes are often small. (Most seniors contract “senioritis” and the last thing they want is a challenge).
I was delighted and a bit shocked on the first day of class when I walked into the classroom and saw that nearly every desk was occupied. I had feared that students would avoid the course because students generally avoid anything involving numbers. Much to my delight, I was wrong; these students generally understood that this was vital information that they desperately needed.
One of my most significant reservations about doing this course was the fact that I am an expert in criminal justice and criminal justice research, but I have no credentials in personal finance. On the face of it, I was uniquely unqualified. I took solace in the fact that I do understand my students and where they come from. I was also comforted by the fact that (as every criminal justice professor knows) students love war stories. My students don’t usually deal with theoretical abstractions; the trick to teaching abstract theory is to give them a story that lends a sense of practicality to the theory. I had many stories of terrible financial decisions and their aftermath with which to engage my students.
An additional positive factor is that wisdom tends to come with age and experience. I had spent a lot of time and effort studying personal finance, starting with my retirement paperwork when I got my first “real job.” I knew what a stock was, I knew what a bond was, but I had no idea how to construct a portfolio with those tools. I, of course, did what any self-respecting academic would do; I began researching it.
Aside from my practical experiences with what not to do, I am a competent researcher. A characteristic of social science researchers is that they will read everything ever written on a subject, and draw conclusions about the “state of the art.” With that fact in mind, I want to make it explicit that very little (if any) of the insights contained in this text are my own. Instead, they are what I believe to be the consensus of expert opinions about the various topics discussed herein.
When I was preparing to do my Special Topics course in finance for underpaid helpers, I spent most of the summer before doing the course putting together copious notes on the topics that I would cover. I quickly realized that those notes were approaching book length. I am a big fan of Open Educational Resources (OER), which are free books made available to the public free (usually under a creative commons license). I’ve written several such books, so it wasn’t much of a stretch to extend my class notes to an OER book entitled “Fundamentals of Finance for Helping Professionals.” I’ve made the HTML version of my texts free on my website, and print copies available at a low cost.
One of my hard-won lessons about teaching students in these days of blogs and tweets is they just will not read passages that they consider to be unnecessarily long. Also, I had to assume a complete lack of knowledge in financial matters. By trial and error, I have determined that the optimal length of required readings is six chapters packed full of pedagogical aids, such as explicitly defining essential terms in text boxes. With the material on finance, I realized that there was just too much information to do a good job. Thus, I resolved to split the growing content into three books instead of one. I suggest that if you really want to master this material, you read all of the texts, in order, as follows:
Fundamentals of Finance for Helping Professionals. This text assumes little knowledge of finance and money management and provides strategies for maximizing income, minimizing spending, and controlling debt. It also provides an introduction to investing for retirement and related concepts.
Fundamentals of Market Investing. This text provides an overview of long-term investing and deals primarily with investing within the context of a tax-sheltered retirement account. The basic idea of this text is to provide a clear and concise treatment of a complex topic in plain English.
Fundamentals of Market Income. In the first text in this finance series, I extol the virtues of secondary income streams and passive income in particular. This text explores the feasibility of the idea and spends considerable time on high probability options trading and the most likely candidate. Because options are derivatives of stocks and other financial instruments, it is essential to understand the basics of stock investing before you read this final book in the series. I also evaluate the familiar thesis that options investing is something akin to casino gambling.
Writing textbooks without an eye to profit is often a thankless task. If the movement toward free and extremely low-cost textbooks is to continue, the academic community needs to do a better job of offering thanks to these altruistic authors. Since these books are not professionally edited (what competent editor works free?) you will likely find some mistakes and inconsistencies. I am always happy to hear that someone read the text and hopefully got some good out of it. If you have a comment, criticism, or suggestion, please direct it to [email protected].
Ultimately, this book is designed to provide you with a broad-spectrum introduction to the important and fascinating world of investing for the long term. Think of this book as a diving board that will prepare you to dive deeply into the subjects you find relevant.