HSFPP Weekly Update # 161—Smoking Your Investment Money Away

Message from Bob & Chris: As the school year is nearly over, the last two updates have been about planning for life after high school graduation. Smoking, a bad habit that often begins during high school, is not only bad for your health; it also is a financial drain, as smokers’ money could be used more wisely.

The cost of cigarettes is lower in Kentucky than in most states, but, even here, a pack a day costs smokers dearly: the average is $3.61 per pack, for a total cost of $1317.65 (365 x 3.61) per year. And many smokers’ habits “progress” beyond a pack a day. The smoking habit will cost students even more if they move to a nearby state such as Ohio, where a pack averages $4.58; this is $1671.70 per year for a pack-a-day smoker.

If students invested $1317.65 every year for 40 years at 9% interest, they would have $485,279.78! Besides cutting out smoking, there are many other ways for students to find extra money. Students just have to be creative (cut neighbors’ grass, etc.) and look at their spending habits. Most of us can find at least one thing we spend money on that doesn’t really matter that much to us; and, by saving that money, we can save it for what really does matter.

As possible answers to Discussion Question # 2, you can say that smoking is like burning money. Smoking is financially costly, in various ways that might not be obvious. Life insurance, for instance, will be more expensive for smokers. And smoking is terrible also for your health. Your health insurance premiums will be higher if you smoke (if you are not on a group plan) and you will likely get sick more often and take longer to recover from illnesses. Health problems such as these become expensive to employers in the form of lost productivity and increasing premiums for group health plans; in fact, many employers will not hire smokers and many have dropped health coverage entirely, passing on those costs to their employees, who will have to pay more for coverage and will be denied coverage for preexisting conditions. Looking at current trends, more employers will drop insurance plans, and many individuals and families will not be able to afford coverage on their own. We all pay when the uninsured must visit the emergency room because they couldn’t afford preventive care. So, when the real effects of smoking are taken into consideration, we see that this bad habit can be quite expensive, and not only for the smokers themselves. It is a societal problem that must be addressed.

Chem Heritage’s Web site features this worthwhile activity for figuring out the cost of a pack-a-day smoking habit. Remember, however, that Kentucky’s average cost of $3.61 per pack of cigarettes is significantly higher than the example of $2.50 per pack given here; and the cost of cigarettes in Kentucky is among the lowest in the nation! Students’ savings by not smoking will, therefore, be considerably more than this exercise indicates!

If I remember when I was in high school, and I think I do, I know teenagers who have had some financial education will be asking the question: “Where do I get money to invest? I just have enough for my car and a few other things, but surely you can’t expect me to begin investing now?” I also know that some, but not all, teenagers smoke (even though it’s illegal under the age of 18). The average cost of a pack of cigarettes in Kentucky is $3.61. If you smoke a pack a day, you can multiply $3.61 by 365 to estimate the money you spend on cigarettes each year at about $1317.65. Did you realize that many of you are spending that much on cigarettes?

For those of you who don’t smoke, congratulations—you made a very intelligent decision. You must be wondering, however, if you can’t quit smoking to find money to invest, where can you get the money? Look at your spending. How often do you buy fast food after school? Do you pay for the group every time you go out with friends? Do you always pay for dates? Do you pay for alcohol (also illegal at your age)? Do you buy the trendiest and most expensive clothes? What do you do with money from a part-time job? If you don’t have a part-time job, is there something you could do to earn money? (Examples: Mowing lawns or babysitting.)

The chart below shows the financial cost of smoking, both in terms of how much you would spend on cigarettes and how much you could have by investing the money. The chart does not account for inflation or tax increases, however; so be aware that this is a conservative estimate of how much you can save and how much you can earn on investments, simply by not smoking. If you think the price of cigarettes will not increase, you are kidding yourself. Even if you don’t smoke a pack a day or you get your cigarettes for less, you are still burning your money and flushing your health down the toilet by smoking. Nonsmokers also can see how much money they could have by saving $3.61 per day in other areas; this also, for instance, is about the same as the price of a cup of specialty coffee (mocha, cappuccino, etc.) at many coffee shops these days. What could you save by fixing your own?

Time	Cost of Cigarettes	If You Invested at 9% Interest
5 years	$6588.25	$8595.47
10 years	$13,176.50	$21,820.67
20 years	$26,353.00	$73,478.13
30 years	$39,529.50	$195,770.13
40 years	$52,706.00	$485,279.78

Perhaps you noticed the sharp rise in the investments in the right column? This is the magic of compound interest. The longer you invest, the more your investments bring in. This is why it is so important to begin early. $485,279.78 is not enough for you to retire on, but every little bit helps; and, added to whatever else you manage to save, it could help you earn a comfortable retirement.

1.) For a pack-a-day smoker in Kentucky, a week’s worth of cigarettes, at $3.61 per pack, costs $25.27. What could you do with this money if you didn’t spend it on cigarettes?

2.) Besides being a waste of money, how else could smoking affect your financial health? (Hint: Think about your physical health and look at Questions 3 - 5.)

3.) Would you buy a used car in which a cigarette odor is evident? Why or why not? Could a seller get as much money for such a car as for one without a noticeable odor?

4.) Did you realize that smokers pay more for health insurance? Do you think the extra charge is justified? Yes ___ No ___. Why?

5.) Smokers get sick more often and take longer to recover from illnesses. Do you think the extra costs for medical bills will be worth it? Yes ___ No ___. Why?

Business Class: Complete the activity at the Web site below. Remember that Kentucky has one of the lowest average costs for cigarettes at $3.61 per pack, which is still $1.11 more than the example of $2.50.

History Class: Research and write a paper on the history of smoking. To be considered: tobacco use by Native Americans; its spread to American colonists and then to Europe and beyond; tobacco as a cash crop; the tobacco industry; various forms of tobacco (cigars, cigarettes, pipe tobacco, chewing tobacco, snuff); chemical additives, tobacco addiction, and the health effects of smoking; taxes and government regulation; tobacco advertising, the “coolness” of tobacco (peer pressure), and tobacco use by kids. Three pages plus end notes and bibliography. Provide at least three sources; only one of these sources may be an encyclopedia, and at least one must be an article from the last three years. As for encyclopedias, Americana and Britannica are to be preferred over World Book.

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of the HSFPP weekly financial updates and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP and the weekly updates meet Kentucky core concepts. The Web site and weekly updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.

Kentucky High School Financial Planning Home Page

HSFPP Weekly Update # 161—Smoking Your Investment Money Away

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