At one time, economics was a required high school course. Students learned the basics of maintaining a positive account balance, saving for retirement, and starting a business. As priorities have shifted, fewer states are mandating personal finance courses in high school, with only 20 states requiring it as of 2016, according to the Council for Economic Education.
The news is even worse at the college level. The 2016-17 “What Will They Learn?” survey revealed that only 3.2 percent of colleges require an economics class to graduate. With college loan debt continuing to rise, this means that many millennials are heading into the workforce without the basic personal financial literacy necessary to save, invest, and manage their debt effectively.
Experts have been pushing for mandated personal finance education at the college level for years. At the very time students are being enticed by credit card companies, personal finance courses could make a big difference, experts believe. Courses like English, math, and science are required of every college undergraduate since they equip graduates with the basics they'll need to work in a professional environment. But with millennial debt affecting the overall economy, the country as a whole can benefit from helping the next generation of workers.
Debt Affects Everyone
Millennials are exiting college in debt, according to a ten-year study by the National Center for Education Statistics. Of the 84 percent of millennials surveyed who went to college, about 60 percent were required to pay for it using student loans. Not only do they start out with an average of $30,000 in debt, but this generation also has difficulty finding a job in a tight employment market, requiring them to take jobs they don't want and move back in with their parents.
In addition to the parents who help support these recent graduates, millennial finances take a toll on the overall economy, as well. As these students struggle to stay afloat while paying huge loan debts on minuscule salaries, they put off buying cars and homes. They can't afford the luxury of turning their great ideas into a small business that would employ people and further boost the economy, so they stay in their dead-end jobs while hoping to find something better soon.
The $1.3 trillion in student loan debt has raised significant concerns from politicians, who closely monitor the default rate on those loans. Approximately 3.6 million of those who have federal student loans are delinquent on payments, at the cost of taxpayers. The government is losing money on student loans each year, with an estimated price tag of $170 billion over the next decade.
Financial Literacy for College Students
By the time they reach college, young adults have usually already had at least one part-time job. Whether it’s babysitting or working at a local fast food restaurant, they’ve earned income. If their parents taught them the value of setting some money aside, they might have even learned a few finance management basics. But even with that in place, the cost of college can set back even the most financially savvy student. Six months after graduation, when the first loan payment comes due, students often learn the hard way that basic expenses can easily wipe out a paycheck.
Even the most basic personal finance class could equip them with the skills they need to deal with a disappointing debt-to-income ratio. Instead of compounding that debt by purchasing items they don’t need, they could focus on living meagerly until they found a better-paying position. Once they have even a few extra bucks a month, a college-level personal finance curriculum would have them saving that money for a rainy day.
On a much broader scale, America’s failure to mandate a personal finance curriculum is taking a toll. Financially, the U.S. is seen as an economic leader, being a country filled with millionaires and successful business owners. However, our personal financial literacy is embarrassingly low. America ranked 14th for financial literacy in Standard & Poor’s Rating Services Survey, falling behind Denmark, Israel, Canada, the U.K., and many others. In fact, when asked questions that should be part of any personal finance education, only 57 percent of Americans passed, compared to 71 percent of those in Denmark, Norway, and Sweden.
It’s important to note that other countries don’t put the responsibility for a personal finance education on colleges. In 2013, the U.K. joined Australia and Singapore in requiring personal finance education in public schools. In Canada, students are taught personal finance as early as elementary school in most areas. With the U.S. relaxing the requirements on personal finance literacy at the K-12 level, that leaves colleges to pick up the slack.
What Should Be Covered?
While many experts may agree on the need for financial literacy for college students, they disagree on what a personal finance curriculum should include. Some are concerned about providing too much guidance when it comes to investments since opinions vary. But a personal finance class doesn't have to provide specific investment advice. Students merely need to know the options available so that they can choose for themselves.
Here are a few things that could be included as part of a basic personal finance class:
- Saving and spending
- Creating and maintaining a budget
- Reconciling a bank account
- Handling cash
- Introduction to credit
- Debt avoidance and management
- Saving vs. investing
- Basic investment options
- Planning for retirement
- Preparing for and paying income taxes
- Renting vs. homeownership
- Maintaining financial records
- Protecting financial information
Jumpstart, an organization that specializes in financial education for students, has compiled national standards to help teachers at the elementary through high school levels. These same basics could be applied at the college level to flesh out any of the above categories.
Although many experts agree on the importance of financial literacy for college students, disagreement often comes in the form of what should be taught. These small details could be worked out through the development of a recommended curriculum, similar to what is offered at the K-12 level. Instead of steering students toward an opinion-based personal finance education, teachers would then be equipped with the lessons they need to help students decide for themselves.