I Guest Lecture College Students On Key Money Concepts Every Young Person Should Understand. Every Year, The Simplest Way To Build Wealth Catches Them By Surprise.

Old Chapel on Middlebury College campus.

John Greim/LightRocket via Getty Images

• I've spent hours talking to college students about personal finance.
• Many of them don't fully understand how compounding works and, importantly, how to benefit from it.
• More high schools in the US are requiring students to take a personal finance class, but we need to keep talking about it.

Every January, Middlebury College invites me to its campus to talk to a group of students about money.

The guest lecture ranges between 90 and 120 minutes in length and is titled "Good Financial Hygiene — Lessons in Personal Finance."

I'm not a financial advisor, nor do I pretend to be, but in my decadelong career reporting on money and asking wealthy people, "What do you wish you'd known about money in your 20s?" I've learned some key lessons.

Most of these lessons — pay yourself first, automate your savings and investments, etc — are surprisingly simple and don't require a finance degree, or even a degree at all, to understand and use to your advantage. Had I understood them earlier and started building smart money habits in my late teens and early 20s, I'd be in a stronger financial position now at 32.

I try to convey that to the students: Time is on your side. Don't wait. Start now!

A two-part lecture: The reason we save is to invest

The crux of the lecture is that putting your money to work is a powerful way to grow your wealth over time.

But before we pull out the compound interest calculator and discuss investment strategies, we start with two prompts: How do you feel about money? How do you want to feel about money?

I ask them to pull out their notebooks and do two to three minutes of independent thinking.

The answers to the first prompt represent their starting point. Everyone has a different starting point — we all come from different financial backgrounds — but where they start from really isn't all that important. What matters is that they have some level of control over their trajectory, and they get from what they wrote down for prompt No. 1 to what they wrote down for prompt No. 2.

Next, we get into two components of personal finance that can impact trajectory: Saving — how to keep a portion of your income — and investing, which is the key to building wealth.

I acknowledge the importance of paying yourself first. When they ask how much, I point to the 50/30/20 rule of thumb, which suggests putting 50% of your income toward needs, 30% toward wants, and 20% toward savings. I emphasize that starting with a small savings rate of even just 1% is better than nothing.

Most students are familiar with the concept of budgeting, even if they don't actively budget. I challenge them to think about budgeting not as restrictive, as it's often portrayed, but as liberating. If they successfully divvy up their paycheck according to the 50/30/20 rule, for example, they have 30% of their income to spend on whatever fills their cup.

Part two is all about growing your savings by putting it to work, taking advantage of compound interest, and understanding that time is on your side as a young investor. Every year, without fail, this is the moment when the energy in the room shifts. Ears perk. Hands shoot up.

This is when I'm reminded that young people are fascinated by the concept of investing — and data shows this generation is curious enough to take action: Gen Z started investing at a much earlier age on average, 19, than baby boomers (35) and millennials (25), according to the 2024 Schwab Modern Wealth survey.

Still, a handful of my students don't fully understand how compounding works or how it relates to an investment account. They're smart kids, but chances are that they didn't engage with this material in high school: In 2022, just 23% of high school students in the US were required to take a personal finance class, up from 16% in 2018, according to research from Next Gen Personal Finance. That percentage has continued to increase: As of 2024, more than two-thirds of all states require personal finance classes for high school graduation.

We analyze compound interest charts that show just how much of an edge they have simply by starting young, including this one from the St. Louis Fed comparing an investor who starts at 25 and another who starts at 35. The one who starts early ends up with a significantly bigger portfolio, even though they invest for 20 fewer years than the investor who started at 35.

Federal Reserve Bank of St. Louis

We also plug numbers into a compound interest calculator and figure out how much money they'd have to save a month to become millionaires by 50. It's often less than they think.

The tricky lesson to convey is how to actually take advantage of compounding: How to start investing.

This is where there seems to be a significant lack of understanding. The common misconceptions I've picked up on are:

• Investing is for rich people
• Investing is for people who know a lot about finance and economics
• Investing means buying individual stocks
• Investing is risky

As we discuss passive investing strategies and how anyone can invest in funds that track the S&P 500 with a small amount of money, I can sense the eagerness and excitement as the students start to understand that they can actually participate — that investing isn't just for rich people — and that they can contribute starting today.

I'm reminded every year I step into the classroom that there's an appetite for financial literacy. We just need to keep talking about it.