This post was originally published on this site.
One day, a young person lives under the financial umbrella of their family; the next, they are handed a credit card, a student loan disclosure and a key to an apartment. We are expected to navigate increasingly complex financial systems with little to no formal preparation.
Unsurprisingly, college students often default to the financial behaviors and assumptions modeled by their families or absorbed from society. These patterns are often ill-suited to long-term financial stability or meaningful economic success.
With over 40% of college students feeling unequipped with financial literacy knowledge and skills, there is a clear fundamental lack of understanding of how money works. Much of which is due to systemic shortcomings in the American education system such as how we are not taught about credit cards, student loans or budgeting.
Credit cards are one of the most immediate dangers. Companies are spending a record amount of money on advertising normalizing credit cards in American society. Meanwhile, many students sign up for their first card without fully understanding interest rates, minimum payments or compound interest. This can lock students into a cycle of debt before they graduate college, all while the credit card companies profit.
Student loans also present a significant challenge. For some students, loans are the only way to access higher education. With that said, many students don’t understand the terms they agree to when signing promissory notes at eighteen years old. Interest accrual, repayment timelines and income-based repayment options are rarely discussed in depth in schooling prior to enrollment. As a result, students often graduate with tens of thousands of dollars in debt and with little clarity on how it will shape their financial futures going forward.
Budgeting — or the lack thereof — ties these issues together. Without a clear understanding of income, expenses and saving, college students are more likely to rely on credit, overdraft accounts, or defer financial decisions entirely. Students who understand how to allocate money intentionally are better positioned to avoid debt, handle emergencies, and plan for long-term goals.
Sugata Ray, associate professor of finance and real estate and William Carey Hulsey Faculty Fellow, said he is eager to teach his students about personal finance.
“In my finance classes, I generally dedicate two to three classes to personal finance,” he said. “Uniformly, in my SOI [Student Opinions of Instruction] evaluations, students are immensely grateful for those classes, as many of them have not been exposed to personal finance concepts such as IRAs, 401ks, mortgages and interest payments.”
Ray’s work exemplifies the need for high schools to implement financial literacy programs. Financial coursework at the high school level would significantly reduce the issues students face in college. Teaching practical financial skills such as credit management or avoidance, loans, budgeting and saving would allow students to enter college with a fundamental foundation of finance.
“Coming out of high school, I had a lot of questions about my personal finances. I had worked a summer job and knew how to do my taxes with TurboTax, but that was just surface level,” said Elijah Lamb, a sophomore studying marketing and psychology.
Lamb continues that he made mistakes regarding filing his scholarship refund check, forcing him to refile. As he had to learn all of this while also struggling to make friends, keep his grades up and live on his own for the first time, he believes that it is necessary for us to talk about personal finance in high school.
Financial literacy must be treated as essential — not optional. It is imperative that we teach the next generation these skills especially as tuition rises, credit becomes more accessible and economic uncertainty prevails.