The financial health of Americans has been headline material of late and the prognosis is grim–69 percent of Americans surveyed have less than $1,000 in savings, and 3 percent have nothing put away for emergencies, much less retirement. And when it comes to financial health after college, many young adults are ill-prepared to handle their burdens.
Despite their best efforts, many parents are not equipped to help their children deal with a financial world that is more complicated than ever. And formal education is rare: only 17 states require personal finance classes in high school, and of those, just seven include a financial literacy standardized test. Not surprisingly, in 2015, the PISA financial literacy assessment found that only one in ten 15-year-olds achieved the highest proficiency level.
What this means is that students are heading to college without knowing the basics of money management, putting higher education institutions in a critical position to address financial literacy. And doing so is not just in the interest of the students. The 2014 National Student Financial Wellness Study found that 72 percent of respondents were stressed about their financial situation, and undoubtedly, such anxiety drags down their academic performance. Teaching financial literacy can lead to better grades, school loyalty, and financial success after graduation – a win-win for students and their schools.
If your institution is not yet teaching financial literacy, there is no time like the present. There are many free or low-cost ways in which you can have a significant impact on your students’ financial well-being. Here are a few suggestions:
1. Emphasize the “Aid” in Financial Aid
One way to differentiate your institution from others is by being transparent and resourceful when students come to you with questions or seeking advice on financing their education.
Financial aid officers represent an ever-increasing proportion of attendees at the Higher Education Financial Wellness (HEFW) Summit, which is testament to the fact that many institutions realize the importance of offering guidance to students as they consider their options for paying for school.
One of the easiest ways to be transparent once students have matriculated is to issue a “debt letter” annually to every borrower. The letter includes the total amount borrowed so far, as well as the expected monthly payment when the student graduates, assuming no more money is borrowed. Eight states (Florida, Indiana, Maryland, Nebraska, Oregon, Texas, Washington, and Wisconsin) will require that debt letters be sent by the end of next year. Indiana University was among the early adopters. Phil Schuman, director of financial literacy at Indiana University and co-chair of the HEFW summit provided this assessment of debt letters for this article:
“The beauty of the debt letter is the simplicity in which it provides students with their current student loan situation. Families appreciate the transparency that the letter provides. Total student borrowing has decreased 12 percent since we started issuing letters in 2012. While it is important to note the debt letter is a valuable tool it can only truly be effective if there is supplemental financial education that helps students and families make informed decisions regarding the loans.”
Schuman is referring to what I would call the “gold standard” of integrated financial literacy efforts at colleges and universities, where services may include counseling (professional and/or peer-to-peer), online resources, and in-person or online classes. IU – along with The Ohio State University, University of Minnesota, Champlain College, and Texas Tech – are just a few of the institutions with extensive financial literacy programs. These institutions are usually happy to share their experiences with others, and they gather annually at the HEFW Summit.
(Next page: 2 more ways to teach financial literacy)