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.
|Total Student Loan debt in the U.S. has surpassed $1.45 trillion.|
|In 2016, average student loan debt was $26,700.|
|Of 2016 college graduates, 70 percent have student debt.|
|Average debt of these graduates is over $37,000.|
|42 percent of millennials have used Alternative Financial Services (like payday loans) in the past five years.|
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)
2. Consider Free, Online Resources and Courses
You don’t need to start your program from scratch. There are many organizations in the higher education financial literacy space, from non-profits to for-profits, insurance and credit card companies, and banks that offer their programming to others. Even some universities make elements of their proprietary financial literacy programs available to others for free. For example, The Ohio State University actually offers its online lessons through iTunes.
Some of the good non-profit organization financial literacy sites include the National Endowment for Financial Education (NEFE), which has an online program called Cash Course. Cash Course can be offered as an independent self-paced class or can be instructor-led, and it can be customized for your institution. Another resource is American Student Assistance, which is aimed at helping students with school financing. Institutions can partner with ASA to offer the full array of features in their SALT program, including online courses.
Banks also offer financial literacy education. For instance, the online lender OppLoans offers OppU, a concise MOOC that is aligned with national standards and can be tracked by instructors. Bank of America offers Better Money Habits, which covers different life stages and lots of topics but is harder to navigate.
3. Offer Your Own Personal Finance Course—and Make It Truly “Personal”
Over my six years teaching personal finance, the content details evolved, but the basic subjects covered did not vary. This is what I suggest be included in every course:
- A discussion of the psychology of money and how we make spending decisions.
- How to physically manage money: banking, paying bills, safe use of debit cards, ID theft, helpful apps and fintech.
- Concepts of budgeting and the notion of “paying oneself first” (saving).
- How compound interest works on both investments and loans.
- How credit works – specifically, credit scores, credit cards and student loans.
- Savings and investment basics – from emergency funds to retirement accounts.
- Enough about taxes, insurance, and housing costs for students to navigate in the world when they graduate.
- Optional: job hunting and careers, which can include a discussion of negotiating salary and evaluating benefits.
Remember that every student comes into a class with a different level of financial knowledge, a different attitude about money, and a very different experience with money. One size will not fit all when it comes to creating a meaningful personal finance class. Here are some of the ways I make my class more personal:
- Give credit for asking questions: have students post questions each week and address them during the following session.
- Assign research projects that allow students to choose a topic of personal relevance.
- Have students create a realistic financial plan for themselves.
Every effort an institution makes to help a student understand financial literacy will pay off in multiple ways. It can help reduce the student’s financial stress so they can concentrate more on their academics. It can help them get out of debt faster after college and help them build savings. And it can give them a solid base of knowledge that will enable them to make good financial decisions well into the future. And as the students win, so do the schools that teach them. By helping each student develop a strong foundation in financial literacy, institutions are setting them up to be a part of a financial success story, rather than the next negative headline.
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