How we manage our personal finances is a key factor in the standard of living we enjoy.

It can influence the education we can give our children, the type of home in which we live and whether retirement is truly a period of “golden years” or a grim battle for survival. In short, good money choices lead to greater options. The stronger our financial situation, the more freedom we have in life to do what we want to do.

In fact, personal finance plays such a pivotal role in life, it’s an oddity that it has not traditionally been a compulsory part of the high school curriculum. The question is: why not?

Personal finance is not so much about what income or wealth you may have, but what you do with your money and whether you live within your means. Two examples from the United States illustrate this well.

In April this year the National Bureau of Economic Research (NBER) published a working paper that showed nearly 16 per cent of National Football League players — the American football stars who earn sometimes astounding amounts — wind up bankrupt within 12 years of the end of their NFL career. Equally remarkable, and at the opposite end of the income spectrum, is the story of Ronald Read, from Brattleboro, Vermont, who died earlier this year at the age of 92 after a modest life spent working as a gas station attendant and janitor. His friends were stunned to learn his estate was valued at more than $8 million, most of it in the form of blue-chip company shares.

The NBER report pointed out that the NFL players have a very untypical income experience, with a major spike in earnings coming when they are just out of school, rather than later in life, as happens with people in less glamorous jobs. Immature spending decisions, vulnerability to hangers-on, as well as lack of plans for the post-playing years were all factors in their financial problems.

Mr Read earned a relatively low wage all his life, but was frugal to the extreme. Rather than take it easy in retirement, he chose to work as a janitor in a department store. He invested in mostly large, well known American companies and reinvested the dividends into more shares. The compounding effect over the decades, helped by his longevity, allowed his humble investment to turn into millions. His is an extreme case, of course. Few people would see the purpose of accumulating such wealth and not spending it on some of life’s little luxuries. But Mr Read’s case illustrates what is possible by saving small amounts regularly over several decades.

Through these past six years of recession, many Bermudians have been forced to hone their own money management skills just to make ends meet. The stock market plunge over the past week that has sparked some alarm among those with pension plans or equity investments once more brings into sharp focus why personal finance matters.

If investors can behave logically to this turn of events, as opposed to panicking and selling holdings on the dip, they are likely to be much better off in the long term. As Robert Pires, chief executive officer of investment manager BIAS told this newspaper: “Although scary, we have been through numerous meltdowns and know that in the long term these things play out in your favour. The operative words are long term and unless an investor is committed for at least 18 months, but preferably three to five years, they should just stay out of stocks.”

If you have a pension fund with equities as part of the investment mix, it likely took a hit in the week through Tuesday during which the S&P 500 Index lost 11 per cent of its value.

The other side of the coin is that your next monthly payment into that fund will buy more shares than the last one did. Hence if you are investing for the long term, today is a much better time to invest than a week ago, as you will get more for your money.

However, as Nathan Kowalski, the chief financial officer of Anchor Investment Management, pointed out this week, the behaviour of the average investor buying stocks tends to be the opposite of the behaviour of the average shopper in the stores.

“When markets decline — and are presumably cheaper and ‘on sale’ — investors often panic-sell,” Mr Kowalski said. “But when markets have done well, investors chase returns and increase their stock holdings aggressively at relatively more expensive prices.”

The Oxford Communiqué, a long-standing investment newsletter, this month outlined how it would be possible for a 25-year-old, even with relatively modest savings, to accumulate more than $1 million in time for retirement, as long as the saving was consistent over time. Alexander Green, the newsletter’s author, explained: “If you earn nothing more or less than what a diversified portfolio of common stocks has delivered with dividends reinvested for the last 200 years, that would be 10 per cent a year. Plug the numbers into a calculator and you’ll see that you need to save $190 a month. That’s because $190 a month compounding at 10 per cent a year will turn into $1,017,710 in 40 years.”

Though the rate of return might seem optimistic to some, Mr Green’s simple calculation again shows that you don’t have to earn a huge amount of money to be able to save an impressive sum, if you have time on your side.

The movement for compulsory personal finance tuition in schools has gained traction. Seventeen US states now require that students at public high schools take a personal finance class before they graduate, according to the Council for Economic Education. Bermuda should follow suit. To ensure that our young people leave school with basic knowledge of personal finance and investment has the potential to seriously improve lives.