Students Need to Work to Get Their Credit Major
By Nick Morrison
One of the most important things students can learn at college is how to manage a budget. Yet new evidence suggests they have much more work to do to pass their credit major.
For many students, their years spent in higher education are the first time they have lived away from home and taken responsibility for their living costs.
Even for those who live at home, it is a often a time of greater financial freedom as they work and pay their way through college.
But many have only a limited grasp of the fundamentals of how to manage their money. And when student debt is at record levels–and today’s graduates can expect to be paying off their loans well into middle age–that should set alarm bells ringing.
The latest sign of financial illiteracy comes in the form of a nationwide survey carried out by student loan providers Sallie Mae in conjunction with pollsters Ipsos.
The study, the result of online interviews with 800 college students, found some commendable financial practice. More than three-quarters said they paid their bills on time and 60% said they never spent more than they had.
In encouraging news for the future, more than half–55%–said they managed to save some money every month, while a quarter had an emergency fund they could call on.
But it was in their understanding of credit that the cracks really started to show. The students were asked three questions to test their grasp of how credit works. Worryingly, less than a third got them all right.
The questions were not particularly taxing. They called for a basic grasp of how interest accumulates and the importance of paying off debt as soon as possible.
Given how large a part credit is likely to play in their lives, this knowledge gap is a cause for concern. So many people rely on credit, and the consequences of falling behind in repayments and being hit by punitive interest rates are, in some cases, horrendous, that ignorance of how it works is a recipe for disaster.
But if students’ financial literacy is inadequate, the question is how and where should it be improved.
To this there is no easy answer. High schools should be–and often are–doing their bit to educate their students on personal finance, while elementary schools have a role to play in teaching simple budgeting.
We should also not absolve parents of responsibility in this area, particularly as they will often be the ones having to bail out their offspring should things go wrong.
But perhaps there is also scope at university to teach students how to look after their finances. Traditionally, many universities have shied away from this sort of education, preferring to focus instead on a narrow definition of academic learning.
Yet for many students it is only when they are in higher education that these issues move from the abstract to the concrete, and it is only when an issue becomes real that the incentive to learn is strong enough.
Some may see this as over-involvement, a paternalistic approach just when students are moving into adulthood and responsibility. But if higher education is about preparing young people for the rest of their lives, then an understanding of credit may be one of the most important things they can teach.
This article was written by Nick Morrison from Forbes and was legally licensed through the NewsCred publisher network.