Parents surely worry about their student’s literacy—the ability to read, write and communicate effectively. But fewer of us are confident that our students have financial literacy.
As parents, we have good reason to be concerned about finances. College tuition is expensive, and the last thing we want is for our students to suffer financially by going to college. That’s why so many of our students apply for and receive financial aid.
According to the Education Data Initiative, 84% of college students receive some form of financial aid. This may be in the form of grants, discounts, loans and eligibility for student employment. And whether your student is receiving financial aid or not, they need at least a basic knowledge of the concepts—often referred to as financial literacy—if they’re going to have a firm financial future.
Our concern for their financial future is why we help our students plan budgets when they go to college, so they’re aware of what they’re able to spend. But they need a far deeper framework for understanding finances than just a simple budget.
We see financial literacy is understanding the basics concepts of finances, such as interest rates, how loans work, credit and personal finance and how to plan a budget. These are common to most parents, but many of your kids don’t have the same knowledge.
US News and World Report added that an understanding of financial literacy is crucial since even with generous merit aid and discounting, many students find themselves taking our loans to pay for college, yet few know the ins and outs of loans before they sign on the dotted line. Colleges have training in place to teach them, but I suspect for most students, that training goes in one ear and out the other.
To see how realistic students’ understanding of finances is, Inside Higher Education surveyed students and found that while a majority of them will graduate with student debt, a fifth don’t know how much debt they would graduate with. Further, many don’t know what their monthly payment would be, nor how those payments would be made.
Students start college with a limited understanding of finances, and feel unprepared to manage their own money in college. Fortunately, many colleges are picking up the slack with their own programs. Some have initiated financial literacy requirements, in much the same way that colleges push first-year students to visit the career center.
Other than how to budget, manage money, and how loans are structured, many students worry about their credit rating, even if they don’t quite know what that is. Their concern is valid: their ability to have the lifestyle they want may rely in part on their credit worthiness.
In fact, Incharge Debt Solutions, a 501 c3 offers self-paced modules on budgeting, credit, loans, consumer awareness, saving and investing. Simply searching for “financial literacy in college” will pull up several other groups offering similar instruction such organizations.
Courses on financial literacy can work. Christi Wann from the University of Tennessee-Chattanooga, reported on a study of students in a financial literacy course at a metropolitan university. After instruction on financial literacy topics such as: protecting credit, paying down debt, insurance, and planning for retirement, students saved on average $719 dollars, and many created emergency funds. Through the course “many students began to save regularly, planned to start investing at a younger age, began to budget regularly, and decided that they would avoid the pitfalls of credit cards.”
When it comes to speaking with your student about finances, many parents hold back, which is a mistake. We may hold back because we don’t want our students to feel unduly pressured about finances while they’re searching for a school. Further, while we want them to be aware of family finances available for college, we don’t want them to choose a college solely based on money if it’s the wrong choice.
And many current students worry about finances, too. Many have experienced food insecurity, and worry about financial set backs if something happens such as a car breakdown. We can reduce their anxiety by being straight and transparent with them about our own finances. Start from what you know. Share with your student how you plan your budget, what you’ve saving for retirement, and why you chose the insurance you did, be it for health, your car or your home. Walk them through the everyday decisions you make about credit, what to purchase and when and how you manage debt. And if you’re having difficulty saving for retirement, share that with them as well, so they can start planning to be on strong financial footing in the future.
Financial literacy is a concept we may have ignored or pushed to the side as our children grew up. Helping them prepare for college is a great time to change that.
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