Want to Be Your Own Boss Someday? First, Know Your Finances

Tim Ranzetta became a financially savvy entrepreneur early in life– at the age of seven.  A neighbor in his home town of Demarest, NJ, Mrs. Battiston, had broken her hip, and offered to pay him $5 a week to walk her Jack Russell terrier before and after school. Ranzetta was the fifth of six children in his family, and he knew he was going to have to save money to pay for college, so he opened a savings account and deposited a crisp $5 bill each week. Later he had a newspaper route and worked as a golf caddy. His father provided a certain amount of matching funds for each of the kids when they kept their money in savings, thus encouraging all of the young Ranzettas to be thrifty.

“I was lucky to have parents who were good role models when it came to making and saving money, but later it dawned on me that understanding financial matters is a real area of need for most young people,” says Ranzetta, now 51. To address that need, he founded Next Gen Personal Finance in 2014, a non-profit organization that provides students and teachers, especially at the high school level, with on-line games and other fun tools that impart lessons in financial literacy–which the Organization for Economic Co-operation and Development (OECD) and the International Network on Financial Education (INFE) define as: “A combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.”

Who wouldn’t want that kind of peace of mind? Yet when the National Financial Educators Council (NFEC) gave its National Financial Literacy Test to just over 24,500 people–adolescents through adults–across the U.S. in March 2018, close to 58 percent of the 15-to-18 year olds who participated failed the test. Financial literacy is important for all adults, but none more so than those who are their own boss, starting a business of their own or pursuing a creative dream, because your success will depend to a large extent on the soundness of your financial decisions.  And most Millennials and Generation Z-ers will probably work as their own bosses for at least part of their career. Intuit, the tax preparation software company, estimates that 43 percent of the workforce will be self-employed by 2020, only two years from now.

In Europe, the Association of Chartered Certified Accountants) (ACCA) and Barclays Bank held a conference in Brussels called “Financial education for entrepreneurs: how to get it right?” in 2014. A published summary of the conference says entrepreneurs often lack the financial literacy skills required for the complex business decisions they face, and “the earlier they learn about debt, savings and credit, the less likely they are to struggle in the future and the more likely they will become active and productive participants of the economy.”

The same situation applies in the U.S. –including, perhaps, an observation from the ACCA/Barclay conference that many politicians also need to improve their financial literacy.  The U.S. Council on Economic Education keeps pushing for states to require personal finance education in high school, but as of now only five states — Alabama, Missouri, Tennessee, Utah, and Virginia– require that high school students take a stand-alone personal finance course in order to graduate, although another 17 states require that high school students take classes that include personal finance instruction. A lack of personal finance education is part of the reason that many youth can’t pass a financial literacy test, but of course education starts in the home, and many parents aren’t comfortable talking about finances with their children.  In its 9^th annual Parents, Kids and Money survey last year, T. Rowe Price in 2014 found that 69 percent of parents said they had at least some reluctance to discuss financial matters with their kids–sometimes because they just don’t know the best way to bring up the subject.

Ranzetta, however, believes that the most effective way to improve financial literacy is to train teachers–not all of whom fully understand personal finance themselves–and make it a hands-on lesson that’s relevant to the students’ lives.

All of Next Gen’s games, available on the website or through apps, are free. Ranzetta ran three entrepreneurial ventures himself after earning an MBA from Stanford Graduate School of Business, and he runs Next Gen through an endowment that he set up with his own capital.

Among the games that Next Gen offers for the classroom–or to anyone who wants to try playing–is Payback, designed in partnership with the advertising firm McKinney. Payback helps college-bound students figure out how much money they’ll spend and how much they can earn, year-by-year. The game Let’s Make a Mutual Fund helps the class understand the power of stock diversification. Each student receives a card representing one publicly traded company and its returns over the past year. Then, in various rounds, students calculate the returns they’d get from combining two or more of the stocks.

A game called myFico Credit Score Estimator explains what the FICO (for Fair Isaac Corporation) credit rating is, then presents hypothetical profiles of three college students who range from  highly irresponsible spender to highly diligent saver, and asks players to predict the credit score for each fictitious student. There’s a trick here: one of the profiles is someone who is responsible with money but has never taken on any debt, and therefore has no credit score at all. When a class plays this game, says Ranzetta, it leads to a discussion of the importance of having a credit score; a landlord wants to see that you have a credit score when you rent an apartment or a space to start a business or a studio, for example.

Indeed, budding entrepreneurs and anyone starting a creative career is going to need a strong credit score, along with an understanding of how your college debts will affect your ability to keep your business afloat, how to budget, how to set short-term to long-term financial goals, how much will go into taxes, how to invest, how potential lenders, investors or grant-makers make their decisions, and much more. Fortunately, financial literacy is a skill that everyone can learn–and if necessary, something kids can teach their parents.