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Challenging Higher Education to Meet
Today's Need for Financial Education
Our economy is in a financial crisis. In the last
year, a record number of families defaulted
on mortgages and lost their homes to
foreclosures; credit card debt continues to
increase each year; and hundreds of thousands
of workers have lost their jobs due to company
downsizing and cutbacks. Although the reasons
for these economic concerns are complex, one
contributing factor that cannot be ignored is the
financial illiteracy of many Americans. Multiple
studies have revealed that adults and youth score
low on financial literacy surveys (Hilgert,
Hogarth, and Beverly, 2003; Jump$tart, 2008;
Lusardi & Tufano, 2008; NCEE, 2005). For
example, Lusardi and Tufano found that only
about "35% of respondents figured out that
making minimum payments equal to the interest
payment on outstanding credit card debt will
never eliminate debt" (p. 6).
However, we know that financial education
can make a difference. Lusardi & Tufano (2008)
found that individuals who have greater
knowledge about financial concepts are more
likely to have control over their finances. Many
organizations have risen to the challenge to
teach Americans financial education and these
organizations have found positive results in
changed financial behaviors and positive
financial outcomes for participants (Lyons,
Palmer, Jayaratne, & Scherpf, 2006). Some
studies have found financial knowledge is linked
with positive financial behaviors, such as cashflow
management, investing, and saving
(Hogarth, Beverly, & Hilgert, 2003; Hogarth,
Hilgert & Schuchardt, 2002). The National
Endowment for Financial Education (NEFE)
developed a high school financial planning
program. Their evaluation of the program's
success showed increases in students'
knowledge and confidence and produced
changed behaviors two months after completion
of the course (Boyce & Danes, 1999; Danes &
Haberman, 2005). Individual Development
Accounts or IDAs are a recent financial tool for
low-income individuals to save towards and
acquire an appreciating asset, such as a home,
small business, or a post-secondary education. A
key component of the IDA is financial education.
During the demonstration project on IDAs,
participant savings increased as financial
education hours increased (Schreiner, Clancy, &
Sherraden, 2002). All of the above programs
illustrate the value of financial education, but we
must also consider when the best time to begin
financial education is and at which point in a
person's life such programs can have the greatest
impact?
We argue that financial education is most
relevant for young adults (18-24) who are just
beginning to establish financial independence.
One obvious location where large numbers of
people in this demographic can be reached are
colleges and universities. College students are
faced with a gamut of financial questions:
Should I take out a loan? If I take out a loan
should I do so with my school or a private
lender? Which lenders can I trust? What does
interest rate mean? How much money do I need
for tuition? How much money do I need for
food? Do I need to work this semester? If so,
should I save some money for next year? Should
I open a credit card? If so, with which credit card
company? These questions are particularly
difficult for the neediest students who must
consider other means to successfully maintain
their college career. Low-income college students
have to come up with $3,500-$8,000 of unmet
financial need on average (Cook & King, 2007).
And research has shown that low-income
populations display high levels of financial
illiteracy (Lusardi & Mitchell, 2007; Lusardi &
Tufano, 2008; Martin, 2007).
The IDA-PAYS research team conducted a
survey suggesting that higher education is not
playing a part in addressing financial literacy (See
www.usc.edu/dept/chepa/IDApays for more
information on the survey). We found that little
financial education is happening on college
campuses and when financial education does
occur, it is a one-time event. This is inadequate.Effective financial education is comprehensive and multi-faceted.
Experience, tools, and teachable moments are important components of
financial education programs (Hogarth et. al., 2003; Lusardi, 2008;
Lusardi & Mitchell, 2007). Student financial education needs to include
opportunities to experience the financial world. Assignments that bring
students in contact with financial institutions and that help them to consider
their current financial situation are beneficial. These experiences are best
when designed to coincide with critical points in students' lives.
Freshman and sophomore year are times when students are figuring out
how to finance their college career, while during junior and senior year
students have to consider the future of paying back loans and being
financially independent. Postsecondary institutions need to take
advantage of these teachable moments by incorporating financial
education into various aspects of their services.
Below we highlight ways that campus leaders can rise to the
challenge of educating students about personal finance, but first we will
discuss some common ways that financial education is currently
incorporated at colleges and universities (Also see the experts speak
column on pp. 6-7). Some campuses have included an optional personal
finance session during freshman orientation, while others offer a class
through their business department. The most significant occurrence on
college campuses has been a recent upsurge in student money
management services, which are separate from the financial aid office.
However, such programs are few and far between. What can
postsecondary institutions do?
SERVICES
The financial aid office, the on-campus credit union/bank, or the
academic advising office, among others, can incorporate financial
education as part of their services to students. These offices can take
responsibility for implementing a financial education program,
organizing campus-wide events related to financial literacy, or
developing brochures, websites, and other related materials for
distribution to students.
CURRICULUM
Although integrating financial education into the curriculum may be
a most difficult task, it also has the greatest potential pay-off.
Comprehensive integration beginning in the freshman year and
continuing throughout the college experience provides students with
the skills they will need to effectively manage their personal finances.
If full-scale curricular implementation is not possible, then schools
can start small by offering a financial education element in their firstyear
experience course. Larger tasks like integrating financial
education into the general education requirements can be
undertaken later.
CO-CURRICULUM
Financial education can be incorporated into the co-curriculum as a
session during freshman orientation, or as a workshop in the
residence halls, women's resource center, or student support services.
We realize creating or finding a complementary financial education
program can be a huge endeavor. Therefore, we will briefly describe one
program below, but recommend that you also check out the details of
the GEAR UP financial education program on page 5 and the 'on the
web' sidebar on page 4 for a list of financial education programs.
Decision Partners, Inc. designed a Financial Literacy 101 online course
for college students. The curriculum has a high degree of personalization,
tailoring the learning experience of each student to his or her personal
goals and learning needs. An assessment component-a pre- and posttest
measure of the participants' financial knowledge and behavior-is also
provided. A wed-based program such as this one offers many options to
individuals planning financial education programs for college students.
Financial Literacy 101 could be integrated into various programs, such as
a financial planning workshop for students in the residence halls or in a
first-year experience course. The cost for unlimited use of the program is
$1500.
We have explained the challenge (financial illiteracy) and offered one
possible solution (financial education) shown to be effective in addressing
the problem-we now encourage you to go out and advocate for financial
education programs on your campus.
--Adrianna Kezar and Hannah Yang
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