Financial Literacy: College Students Need to Learn It
College is a time of freedom for many students, but it can spell trouble if that freedom applies to personal finances too. Students need to understand basic money management skills such as living within a budget and handling credit and debt. According to the first annual High School Borrowing Survey conducted by the Credit Union National Association (CUNA), nearly 50% of high school seniors in the U.S. can’t even guess how much money they will need to pay for college. What’s more, “even greater numbers appear unable to understand the basic terms of a student loan,” the survey concludes.
These troubling findings not only suggest students have a lack of awareness of college costs, but they also lack basic financial knowledge and money management skills. While most people recognize the importance of teaching personal finance, only four states require a minimum of one semester of financial literacy education, and only 20 states require that the topic be taught within another subject area in order for students to earn a high school diploma. Experts agree that schools and colleges often wait much too late to start teaching kids about the realities of the financial commitments they’re making.
Senator Kay Hagan aims to change that. The former banker and current chair of the Subcommittee on Children and Families recently reintroduced the Financial Literacy for Students Act. Under current federal law, individual school districts and states are left to create and implement money management education. The Financial Literacy for Student Act would create incentive grants for states that agree to provide financial literacy education in Title I public elementary and secondary schools. In addition, the bill encourages states to provide professional development for teachers so they can teach money management. In a subcommittee hearing on financial literacy in April, both Republican and Democratic senators expressed support for financial literacy education.
“Financial education isn’t rocket science. We just haven’t had money management in the past,” said Sen. Hagan.
Here are a few tips to help your student be more financially responsible:
- Teach Your Student About Credit Cards – Many college students don’t understand that using their credit cards for Starbucks every morning will affect them for the rest of their life. Give your student the facts. Paying only the minimum amount due on a card with a balance of $4,000 and an APR of 12% will take 109 months. Put it into perspective for your student; ask them if those luxuries are worth nine years of being in debt.
- Encourage Your Student to Live Within Their Means – While credit cards can be handy in an emergency, every person must learn to live within their means. This means no $500 shopping sprees, even if it’s for Christmas vacation or Spring Break. Living without a daily espresso now means they will be financially secure later in life.
- Teach Your Student to Only Borrow What They Need – Many college students graduate with a heap of student loan debt. While student loans can be a good way to pay for college, it can be a tempting way to use a little extra cash for things like partying and eating out. If your student is a high school graduate, teach them to only borrow as much student loan money that they absolutely need. Acceptable needs include tuition, books, supplies and housing. If your student sticks to student loans for the real school necessities, they will still have debt, but it will be less than if they borrowed more for the keg party or road trip.
What other tips do you have for students to help them be more financially responsible?
Westface College Planning can help you navigate the college saving and funding process from start to finish. To learn how we can help you call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.
Photo Credit: jollyUK
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