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Brittany Tyler, who graduated college in 2007 on the cusp of the Recession, said on a scale of one to 10, her financial literacy was a four or five upon entering college. Almost a decade later, the Texas native believes it should be a requirement for all students.
The economic effects of the Recession along with rising student debt levels have proven that financial education among adults is of utmost importance. Several experts say consumers are major contributors to the current problem, but who should be responsible for providing the appropriate financial education to these people?
College is a great place to begin financial literacy, especially since many students are not getting this education earlier. Impending loan repayment combined with students striking out on their own financially creates a perfect storm for the need for sound financial advice.
"A course on financial literacy should definitely address the transition from high school to college life," she said. "I didn’t know how to fill out the financial aid forms because my mom did it for me, initially. When you’re in high school, your parents give you a little money to spend, but when you’re in college you may be in a position where you get a lot more money — like from loans."
Tyler said many students blow their loan money because they’re not thinking they will eventually have to pay it back plus interest.
"I think it’s important to be taught about investing and saving. I recently met with a financial planner and she told me things that I knew nothing about."
Some higher education institutions already offer programs on financial literacy; however, none of them are required as a stipulation for graduating. Until financial literacy 101 is seen on equal footing with accounting or English, students may not opt to take these classes, but the possibility is still on the horizon.
A Lack of Confidence
A recent survey examined the financial knowledge, behaviors and attitudes of 40,000 first-year college students, and how that factored in to the increasing loan debt and delinquency rate of graduates.
The survey found that 23.7% of students who owned a credit card had more than $1,000 in credit card debt and 35% said they typically only make the minimum payment on their credit card.
Although the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 requires student applicants under age 21 to have a co-signer unless applicants can show evidence they can repay credit card charges on their own, many young adults still find themselves in substantial credit card debt.
Other findings from the survey were a bit more encouraging — 86% reported having a checking account — a positive sign because of the impact having a checking account has on other finance-related behaviors, such as following a budget, paying the entire credit card bill each month, and paying student loans on time and in full.
Good or bad, these types of behaviors are all reflections of the financial education, or lack thereof that students receive. Numerous states have recognized the need for financial literacy and introduced legislation at both K-12 and collegiate levels and one of the key themes of The President’s Advisory Council on Financial Capability (PACFC), created in January 2010, was that financial education should take its rightful place in American schools.
Results from a national study of K-12 educators found that while teachers recognize the importance of financial education, only 37% of K-12 teachers had taken a college course with financial education-related topics. Less than 20% of teachers and prospective teachers reported feeling very competent to teach any of the following personal finance concepts: income and careers, planning and money management, credit and debt, financial responsibility and decision making, saving and investing, and risk management and insurance. Teachers who had taken a personal finance course in college were 50% more likely to rate themselves as competent in teaching financial literacy.
What Students Need To Know
Courtney Washington graduated in 2011 with a bachelor’s degree in business but has had difficulty in finding a job — for many positions she’s either overqualified or under-experienced.
"I took classes on finance because I needed them for my major, but I think a mandatory course should touch on topics of student loans, how to take care of your financial responsibilities while paying student loans, paying a car note, how to take care of your family, how to make big purchases such as a house, and how to live outside of that," she said. "I’m in a position where I need to find a job where I can make X amount of money and be a provider for my family, too."
Washington cited a recent example: since she’s currently not working, Washington and her boyfriend were planning on using his income tax earnings to take care of their finances. Unfortunately, his earnings were intercepted because he had not paid back his student loans.
"A financial literacy course should not only include information about financial aid but our students have questions regarding credit cards, interest, and paying off credit cards," said Gina Sheeks, vice president for student affairs and enrollment at Columbus State University. "They also have questions about student loans and how they have to be paid back, and information about their credit score. In our financial literacy workshops, we touch on these topics as well as spending habits and savings and how to take employment — whether it’s part-time or full-time — and make the most out of it."
Tyler echoes the notion that a financial literacy college course should cover proper use of a credit card.
"Students don’t realize if you have a card with a $2,000 limit and you charge that much, you may end up paying way more in the long run if you’re not informed about the best way to make payments," she said.
What Some Schools Are Doing
Champlain College, based in Vermont, has taken a unique approach to financial literacy among its students. With the creation of its Life Experience and Action Dimension (LEAD) Program — which includes a component specifically about financial sophistication — Champlain has managed to ensure its graduates have at least some level of exposure to areas such as employee benefits, student loans, and buying their first car.
LEAD is not part of the academic curriculum, is not graded, and does not appear on student transcripts, but it is still a requirement of all Champlain undergraduates.
"There are some colleges that make a personal finance course an elective. What we’re doing is a little bit different," said John Pelletier, director of the Center for Financial Literacy at Champlain College. "There are certain life skills students need to have access to in the classroom, but they don’t. Financial literacy — or sophistication as we refer to it — is one of those."
In order for students to fulfill their financial sophistication requirement, they must attend one workshop or event during each of their first three years at Champlain. If students do not complete those requirements, they are not allowed to register for the next year’s classes.
"Coming from a background in debt counseling, I see financial literacy education as a type of preventive measure against poor financial decision making," said Michael Fife, LEAD financial sophistication coordinator. "What I see most commonly among college students is a lack of planning analysis in decision-making, creating a financial picture or perception in which people move from one mini crisis to the next rather than having an ability to plan ahead for their financial goals, whether those be planning a vacation or buying a new home."
LEAD’s financial sophistication program includes six live workshops, two online workshops, and two large events. Workshops cover areas such as goal setting and budgeting, understanding employee benefits, repaying student loans, buying your first car, making your money work for you, living off campus, and reviewing credit.
Fife said students seem to lack knowledge in many of these areas, and said he and others are conducting incoming and outgoing surveys of the students.
"I think it’s very hard for many students to grasp the more habit-based subjects such as the importance of setting goals as well as budgeting and tracking their money," Fife said. "It’s hard for many students to see past the next year and plan in advance."
Educational outcomes are tracked by conducting pre- and post-tests on knowledge and comfort of the subject. Fife said although students sometimes begin the program resenting that the workshop is required, they often leave recommending workshops to their fellow students.
Columbus State University, based in Georgia, was awarded a grant in 2012 to establish a program to help students better manage their personal finances. The program, called Cody Counts, allowed the school to create a student Financial Literacy Council, an accompanying website, and stage workshops offering students advice on handling their finances.
The financial literacy workshop is non-credit and experts are brought in from the community’s banking institutions to lead them.
"Personally, as a parent of a college student, I would say yes, a financial literacy course should be mandatory to graduate, but to require a financial literacy course it would have to be discussed across campus and cleared across several different levels," Sheeks said. "We see students struggling with [financial literacy]. I think the school could move toward a mandatory course. I think this is allowing us to see the interest level. The best thing we can do right now is offer opportunities like the workshop to these students."
List of Financial Literacy Resources
It’s been recognized that financial education for young adults is necessary, but it may be overlooked if given as an option in school rather than a requirement.
For now, mandating a for-credit college financial education program is just an idea, but advocates can do their best to encourage students to use the resources already available to them.
Here is a list of some free online resources for college students to improve their financial literacy:
- Institute for Financial Literacy: This nonprofit organization offers programs to assist clients directly in areas which include financial counseling, financial education, and bankruptcy. The INFL website also contains a blog which provides useful information on budgeting, credit cards, family, money management, and retirement planning.
- Money Smart: Money Smart is a comprehensive financial education curriculum available in four formats to help low- and moderate-income individuals enhance their financial skills and create positive banking relationships. Curriculum is available for adults, young adults, and small businesses.
- MyMoney.gov: This U.S. government site has organized financial education help from more than 20 federal websites in one spot. Visitors can search content categorized by where they are in life, who they are, and by specific hands-on tools.
- One For Your Money: Financial literacy expert Mary Johnson addresses students’ financial questions through this online community. Features of the site include tips on budgeting, managing debt, controlling spending, managing a bank account, and saving.
- iGrad: Created in 2008 by a group of former financial aid professionals, this interactive online community partners with colleges across the U.S. to provide a customized financial literacy program.
College graduates are entering into an uncertain workforce and many are not equipped with the knowledge needed to make sound financial decisions. Making a financial literacy course mandatory for graduation is the only way to ensure college graduates are exposed to this necessary financial education.