Colleges must encourage greater financial literacy
It is once again that time of the year — college students across the nation are scrambling to assemble their financial information in time to complete the Free Application for Federal Student Aid and College Board’s CSS profile. This renewed interest in finances calls attention to the need for greater financial literacy among college students. Along with navigating the maze of loans, credit cards and rent payments, students need to consider the long-term effects of their monetary decisions.
Financial literacy is about more than just saving up for a car or selecting the best student loan; it relates to making intelligent choices and forestalling financial collapse. Students between the ages of 18 and 24 spend about one-third of their income repaying debts, according to The Street. This should come as no surprise given that the average college student graduates with $25,000 worth of debt. Yet even after college, the majority of Americans do not improve their financial statuses.
A study conducted by the Securities and Exchange Commission reveals that Americans do not have a strong grounding in “financial basics.” The SEC provides a list of the most commonly confused terms and cautions that lack of knowledge can lead to unwise monetary choices. Furthermore, less than 20 percent of parents talk to their children about finances. This “money taboo” impairs students’ ability to make sound financial decisions and increases their risk of incurring debt. U.S. News reports that students often commit to loans that they cannot repay, and more than seven million have defaulted on loans.
Though students are partially responsible for falling into predatory loans and making unwise pecuniary choices, the student loan industry is also at fault. Last Wednesday, the Consumer Financial Protection Bureau filed a lawsuit against ITT Educational Services for allegedly luring students into signing predatory loans, most of which had interest rates of more than 16 percent. Though it appears that the ITT officials took advantage of students’ financial confusion, this situation could have been prevented if students were more financially literate. Financial literacy courses, along with home economics and trade classes, seem to have fallen out of favor, students need to master these valuable skills.
Colleges are proactively educating students about money management. The Montana University system requires students with “above average” debts to complete financial literacy courses, coordinated by the university’s financial aid department. These courses allow students to put their loans into perspective and make plans to achieve financial stability.
Private universities are also taking steps to educate their students. The Yale Daily News reports that alumni have started hosting financial literacy forums to help address the issue. Even though home economics classes may not be the future of higher education, there is a clear need for basic financial education. Financial ignorance is not just an issue for college students — it plagues many demographics. The Society for Human Resource Management notes that in states with the lowest financial rankings, people tend to have lower incomes. Though it is unclear how much individual savings habits relate to personality, it makes sense that states with low financial literacy rankings should educate their populations about monetary matters.
Kentucky, which was given a grade of “C” in financial literacy by The Center for Financial Literacy, plans to establish a statewide financial literacy commission. This commission, outlined in House Bill 223, would help educate people about financial planning and hopefully improve the state’s financial health. People without sufficient financial knowledge rely on payday loans, take out high-interest mortgages and usually do not have retirement savings. Increasing financial literacy would increase financial stability and allow individuals to make wiser investments. Similarly to Kentucky’s effort, the Consumer Financial Protection Bureau is encouraging financial literacy by urging credit card companies to provide credit scores free of charge. According to CNN Money, most consumers do not understand the importance of their credit scores and do not know how to improve their financial reliability. Credit scores determine how much money lenders will give, influence interest rates on loans and can even be viewed by potential employers. This number provides a brief summary of an individual’s financial reliability and usually starts becoming prominent during college, when individuals apply for loans or lines of credit.
College is an ideal time to gain personal and economic independence. Aside from striving to graduate debt-free, students should take the initiative to master their finances. Financially literate individuals have the flexibility to invest in their education, expand their businesses and contribute to their community’s economic stability. Students must realize that financial knowledge is just as important as a college education — it is one topic they cannot afford to neglect.
Veronica An is a sophomore majoring in narrative studies.
I read with great interest this article on financial literacy. As a financial educator, I was pleased to read that young adults like Veronica are realizing the importance of financial literacy. Slowly but surely efforts such as the ones noted in Veronica’s column are taking hold, but the messaging must start with the young adults. Without buy in from you, the millenials, the effort will fail.
Nonetheless, it is extremely encourage to see that the message is beginning to resonate with your generation. Taking steps in your college years to learn all you can about money, credit, and debt management will teach you lessons that you will carry for the rest of your lives. Start securing your financial future and improve your financial literacy.
For starters…potential college students need to find out which majors translate into something you can earn a living with after graduating.