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How do you keep a group of teenage Scouts interested in financial literacy for two to three hours?  Tell them they are about to learn how to become a millionaire by the time they retire.

I’ve been a Personal Management merit badge counselor for nine years now and it’s one of the activities I love most in Scouting.  Personal Management is one of 21 merit badges that are required to earn the rank of Eagle Scout, Scouting’s highest honor.  To earn this merit badge Scouts are required to do the following (note:  I’m paraphrasing here.  Merit badge requirements are very specific and Scouts are required to complete elements exactly as written).

  1.  Think about a major purchase and do some comparison shopping.
  2.  Prepare a budget then track income, expenses and savings for 13 consecutive weeks
  3.  Understand the emotions behind money including concepts such as buyers remorse, impulse buying, how advertising affects buying decisions and charitable giving.
  4.  Explore the differences between saving and investing, risk and return, and simple versus compound interest.  Understand the concept of diversification and explain why it is important to save and invest for retirement.
  5.  Explain these investments and how they work: common stocks, mutual funds, life insurance, bank CDs, savings account and US savings bonds.
  6.  Describe the following types of insurance and how they work:  auto, health, homeowner’s/renter’s, whole life and term life.
  7.  Explain what a loan is, what interest and APR mean, the difference between credit, debit and charge cards and why credit reports matter.
  8.  Track activities and tasks for an entire week in a seven-day calendar or schedule.
  9.  Prepare a written project plan to execute a trip or activity.  Define the goals, timeline, resources required and budget.
  10.  Research a career path and understand what qualifications, education, skills and experience are required to succeed in this career.

As you can see, this merit badge requires some real work.  The payoff, however, is that Scouts are exposed to financial concepts at an early age and they are encouraged to develop good habits such as time-tracking and budgeting. 

My favorite requirement from the above is the last one – researching a career path.  I tell my Scouts that they can certainly complete the requirement by spending a few minutes Googling a career that they find interesting.  However, they are missing a huge opportunity if that’s all they do.  If they want to really know about a career I encourage them to find people that have that dream job currently.  They might need to ask their parents or Scout leaders to connect them but usually someone knows someone else who is in that field.  Then I ask Scouts to reach out and call that person, or better, take them to coffee.  Ask them what they love about what they do.  What do they not like?   How did they prepare for that career and is there anything they would do differently? 

If Scouts take my advice and actually connect with real people, they have made a valuable contact.  I urge them to keep in touch with those people who might guide and counsel them as they continue on to college.  These contacts can help Scouts find internships and jobs and are invested in the Scouts’ success from an early age.  If done right, the Personal Management merit badge can teach the important skill of personal networking as well as time management and financial literacy.

So how do you become a millionaire by the time you retire?  The answer is time and discipline.

Most of these Scouts have a summer job.  If they did what I did at their age they would spend everything they made on movies and fast food.  But if they earned the Personal Management merit badge we discuss how they could, instead, fully fund a Roth IRA.  The contribution limit to a Roth IRA is $6,500 or as much as they earn from work (and pay taxes on), whichever is lower.  The Roth IRA requires taxes to be paid up front but then can grow over decades without any further income tax. 

So, if these Scouts contributed $6,500 to a Roth IRA at age 16, earned an average of 9% (typical of stock investments) and let that compound for 52 years until their age of retirement at 67, they would have $526,823.  Make another $6,500 contribution at age 17, let it compound similarly and never save another dime.  At age 67 the total account value would be $1,010,146 tax-free.  That’s the power of compounding over time and having the discipline to think about retirement as a teenager.  Imagine if these Scouts had the time and discipline to save and invest their entire working career!

Even though both of my boys “Eagled Out” a few years ago and are now off to college, they have told me how the most impactful merit badge they earned was this first introduction to basic concepts of money and time management.  They both feel more confident and comfortable about money, investing, insurance, loans and personal responsibility.  If it were up to me I’d require everyone to earn this merit badge, or take some instruction in basic financial literacy to graduate from high school.  It would make it a lot easier to “Do Your Best” (the Scout Motto) to manage your money and your time.