More than 19.9 million students enrolled in American Private and Public Universities and colleges in the fall of 2019 (National). If we are to look at the trend, even more students will enroll in the higher education system next year. A pew research survey conducted in 2011 tells us that the major reason for 47% of students to attend college was to ‘gain work-related skills’ (Pew Research). And even if 39% of them say it was to help them “grow intellectually and personally,” we can safely conclude that they, too, have to do something to support themselves financially in the future. So, in conclusion, everyone who goes through college, in fact every person in the modern world, has to work to earn money which will in turn help them survive and, if possible, afford comfortable living. Despite this overwhelming influence money has in our lives, most of us are never taught how to understand and manage it properly.
This ignorance about money contributes to many graduates spending their whole life paying their college loans off, having problems with their mortgage, and getting into grievous spending habits. Though these problems do not have one solution that would magically make them all disappear, there is a tool that we can use to prevent these problems from taking the monstrous form that they have now: financial literacy. “Financial literacy is a measure of the degree to which one understands key financial concepts and possesses the ability and confidence to manage personal finances through appropriate short-term decision-making and sound, long-range financial planning, while mindful of life events and changing economic conditions,” according to Remund (2010, 284). Financial literacy means the basic knowledge of management of your financial resources. It gives people guiding principles to makes decisions related to money in their life. As students flock to universities to help them secure their financial future, I believe financial literacy should be made one of the mandatory courses that students should take in order to graduate. For Miami University, this course should be included in the Miami Plan. This would help our students approach student loans more carefully, plan properly for their retirement, and get rich in general; the university would benefit with donations from a richer pool of alumni.
The number one thing that hampers the financial health of students in the United States are Student loans. Roughly 44.7 million people in the United States have student loans. The whole student loan debt amounts to $1.52 trillion dollars and the average student loan per borrower is $32,731 (Average). Teaching students about finances won’t completely solve this problem, but it will help reduce it. A recent study conducted in 2013 found that “most young adults make financial decisions and deal with complex financial products despite lacking basic financial and quantitative knowledge” (Scheresberg 1).This means that most college students have no clue how their loans work and what is the best way to pay interest on them. They don’t know the difference between private loans and federal loans (Scheresberg 1). Having no knowledge of these basic information can lead students to make serious student loan mistakes that could affect their whole life. Financial literacy programs will teach our students the basic terminologies associated with loans, which will help them make informed decisions whenever they are borrowing money from anyone.
According to one study by Lee et al. the problem is more profound with First Generation College Students. They state, “First Generation students, more so that continuing-generation students lack the necessary decision-making skills in the student loan process” (716-717). Even more serious is the fact that students from ‘poorer, less educated, and immigrants households are more likely to make financial errors’ than their counterparts from well-educated, well-off households (Lusardi et al. 21). So, not imparting financial education to students in school contributes to widen the gap between the high-income and low-income families. And as a university, it is my belief that we should try and stop that from happening.
We can now see that financial literacy helps students with financial planning and saves them from the headaches of a bad student loan. This knowledge of financial planning comes in handy at another important aspect of life: retirement. A survey conducted by gobankingrates, a personal finance site, revealed that 1/3rd of Americans haven’t saved for retirement plans at all (Kirkham). Also, financially illiterate people don’t take advantage of plans like 401K and lose substantial amount of money that they could have used in the future (Powell). The less people are educated about different aspects of personal finances, the less likely they are to take retirement planning seriously. And failing to save for retirement is a mighty pain that people who have to work well into their 70’s can share. Funds from Social Security is not enough to live on for most people. A study stated, “financial literacy is strongly and positively associated with planning, and the results are statistically significant” (Lusardi et al. 13, 2011). Data has shown the problem of people not planning their retirement can be solved by teaching them about personal finances.
Furthermore, the need for financial literacy becomes even more crucial when you learn that about 75% of students don’t save for retirement because they don’t have enough money after paying for student debt (Bidwell). So, the problems of retirement and student loans are somewhat intertwined. And financial literacy is a part of the solution for both of them.
Another important need for financial literacy is simply to learn how to get rich. Accurately recognizing your potential purchases as potential assets or potential liabilities is an invaluable skill that can determine if you will be wealthy or stay poor in the future. Assets are purchases that won’t lose their value and possibly gain their value over time. Liabilities are purchases that lose their value with time. That skill of identifying which purchase is which can only be gained if you learn what assets and liabilities are, and you can learn them in a financial literacy course. As the great businessman, Robert Kiyosaki, once said, “Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.” What this quote means is that rich people are rich because they use their knowledge about money to make decisions in their life and that alone makes them rich.. This further supports the need of financial knowledge in one’s lives.
Now, a question may arise, why should the university help students get rich? Because having a rich pool of rich alumni means greater potential donations in the future. That means better facilities, the ability to attract more students, and a stronger public presence of the University. I believe these factors are mighty beneficial to the university.
Some people argue that just like any other class, we won’t retain everything we learned in the Financial literacy class and hence those classes cannot be effective. I have to admit, we do forget some of the things that we learn in classes. But the amount we forget depends upon our interest in the class and our perceived application of the information presented in that class to our lives. When you know that the information in that class will be useful and can be used in your daily lives right away, you tend to forget it less. And when you are teaching students grappling with crushing life-altering future debt how to deal with student loans, it’s very unlikely that they will forget about it. Even if they do, they are now well informed that there are techniques and etiquette to follow when securing and managing student loans.
All in all, financial education is crucial for the survival of people from all races and ages in this economy. To be financially independent in the future, a person must learn about the resources available to them in the present and the resources that will be available to them in the future. An individual should be able to make the necessary calculations and decisions based on the information they have about their finances. The goal of Financial education is to help people build skills like calculating the net cash flow, planning out your budget for the month, to make effective decisions. These small skills help tackle massive problems like the student loan debt, the growing gap between the rich and the poor, and retirement planning crisis. The university administration should take actions to help the students in our university gain those skills to ensure that they won’t be part of the aforementioned problems. I urge the administration to make Financial literacy one of the mandatory courses in the Miami Plan. If the university fails to do that, it fails to deliver its promise to prepare its students for the un-foreseeable future.