In our quest to empower high school and college students with financial literacy, and ultimately financial freedom, we have developed the +Club program that seeks to answer the elusive, age-old question: How can one achieve financial freedom and pave the way to a fulfilling and good life? At the heart of our program is the concept of Living Within Your Means — or LWYM. To make this idea resonate, we turn to the appeal of popular culture, offering cautionary tales of celebrities who, despite their vast prior fortunes, faced financial ruin by spending beyond their means. We also emphasize the importance of saving early in order to have the “miracle” of compound interest work effectively for young people.
Another goal: Don’t copy celebrities — who come with numerous cautionary tales.
Consider Antonio Brown, a potential NFL Hall of Famer who earned more than $80 million through his career, plus endorsements. Despite his substantial earnings, financial missteps led him to bankruptcy. Similarly, Toni Braxton, a celebrated musician with seven Grammy awards and over 70 million records sold, declared bankruptcy twice due to unfavorable record deals and financial mismanagement issues. Then, there’s Nicolas Cage, who earned over $150 million from a highly successful acting career, but found himself in trouble with the IRS after purchasing extravagant items like a $150,000 octopus and 15 homes.
We also discuss with the students the financial struggles and strategies of local role models who have embraced the LWYM approach, providing tangible evidence that financial freedom is possible for those born and raised in underserved communities.
These stories serve as powerful reminders that, no matter how much money you make, failing to manage it wisely can lead to dire consequences. The +Club teaching moment? Even if you make thousands or millions of dollars, if you don’t spend less than what you make, you could wind up in financial trouble. Live within your means and you’ll have your money work for you instead of against you.
The key to mastering the art of LWYM is having the proper mindset.
Living within your means is not about deprivation; it’s about understanding your spending habits and making conscious choices. It’s about distinguishing between needs and wants and making sure your lifestyle aligns with your income. Purchasing a cherished item may act as a motivator, providing it can be afforded. This approach encourages you to ask critical questions before making purchases: Do I really need this? Will I use it in six months? By being mindful, you can avoid unnecessary expenses and enjoy a more stable and less stressful financial life.
A common budgeting strategy in financial literacy articles is the 50/30/20 budget rule, which allocates 50% of income to needs, 30% to wants and 20% to saving. Students and their families from disadvantaged communities may, in extreme cases, start their budgeting with close to 100% of their income spent on needs, with a much smaller amount devoted to wants or savings. For students, needs might include essentials like a cell phone bill and food, while wants could be aspirational items like saving for expensive sneakers. Eventually, devoting a portion of income to savings may help build wealth over time through interest-earning accounts or investments.
If someone is starting from “Ground Zero” by spending virtually 100% of their income on needs, an intermediate step is to gradually get to the point where some money can be spent on wants, followed by a portion to savings. For example, a person in a challenged financial position may begin with 80% spent on needs and 20% on wants. They can then aspire, through hard work and smart spending behaviors, to get to a budget allocation closer to the 50/30/20 budgeting rule.
For those in a somewhat stable financial position, our +Club approach introduces a modified 50/20/20/10 budget rule, which maintains 50% for needs and 20% for savings but reduces wants to 20% and allocates 10% to helping others. This adjustment encourages students to give back once they are financially secure, promoting a sense of community and responsibility. We liken it to the airplane safety instruction: Secure your own oxygen mask before assisting others. Also, giving back includes helping your immediate or extended family.
In our recent pilot program in Newark, we have been impressed by the willingness of students with limited resources to allocate their scarce funds to the benefit of others. In our pilot program, students pledged to give roughly as much to helping others as they allocated to their personal wants. This generosity reflects the core values of our program: financial stability, community support and personal growth. Helping others also provides positive mental health benefits for the giver, according to professor Laurie Santos, who developed the enormously popular Psychology and the Good Life class at Yale University.
By embracing the Living Within Your Means approach and the 50/20/20/10 budget rule, students can achieve financial independence while fostering a spirit of generosity. Our financial literacy program aims to provide the tools and knowledge necessary for students to navigate their financial futures with confidence and purpose. It is our hope that they achieve financial independence and enjoy a fulfilling and good life.
John Longo is a distinguished professor at Rutgers Business School, investment professional and author. Mark Pearlman is a business strategist and nonprofit activist. The authors co-founded Intelligent Money, which is a multimedia platform offering practical financial literacy education.
