Benefits from Promoting Financial-Literacy
MEMO
TO: California State University Chancellor Timothy P. White FROM: Max Rotter DATE: 10 November 2017 SUBJECT: Financial Illiteracy Among University Students
There is a serious problem among university students in recent years, and that problem being they are not financially literate and do not comprehend basic financial concepts. There has been a steady rise in the number of young persons who believe they do not have a clear understanding of what it means to be financially literate. These financial concepts include: building and keeping good credit, apply for a loan, budgeting effectively, how make financial goals, etc. Many university students do not know basic economic principles such as: what compounding interest is, what inflation is, and what diversification means. These are all direly important to know upon graduation and as ‘real-life’ beings.
These are serious topics that should have been taught as these persons were growing up, so that they are better prepared to make well-off financial decisions. However, I have a solution to this problem that is low-cost, effective, and should have no problems implementing it. I propose that we implement a mandatory class teaching and developing personal financial management, create counseling services for student loans (so student know what they are getting themselves into), and to promote a culture on campus that revolves around making responsible financial-decisions.
The Problem with Financially Illiterate Students
Financial literacy includes various topic having to doing with personal finance, managing debt, building credit, loan application and management, effective budgeting strategies, basic investment strategies, etc. Many university students do not feel comfortable discussing these topics because they lack the knowledge and resources to do so (Williams, 2015).
This may not seem like it is even your problem to fix, right? Wrong. The culture we live in today promotes struggle and hard-work to achieve financial success. However, university students should have a foundation of financial knowledge upon graduation, which they are now lacking. According to the US Financial Literacy and Education Commission, “…Students felt less prepared to manage their money than they did to keep up with coursework, manage their times, and to stay organized” (2015, p.43). Many students have to work, apply for multiple credit cards, and take out loans in order to afford higher-education; the key is teaching them how to do all of this responsibly. Many university students feel a moderate-to-severe amount of stress due to their financial situation and not all student know about resources available to help them through this time. Many students see debt as a necessity (MoneyMatters, 2016, p.22). This should not be the mindset students have; these young persons should not see debt as something everyone has and needs for schooling. Only about 51% of Cal State students receive financial aid (Five, 2016). This means that there are thousands of students who have to take out student loans to afford their
education, and they should be taught how to do so correctly. They should also be taught other financial principles that they will encounter in college and have to deal with throughout their lives. This is part of the problem, students are not taught to see finances as something fun and necessary, instead they are taught to see it as a burden and something that can only hurt them.
Financial literacy affects a person’s entire life. These students need more knowledge of the topics mentioned above because it goes above and beyond budgeting and building credit. It goes further into how to buy a car, how to rent an apartment, how to buy a house, how to apply for a loan, how to plan for retirement, etc. (Williams & Oumlil, 2015, p.640). Every aspect of their lives will be touched by principles of financial literacy. Many of the resources university students use to make financial decisions come from the media, internet, newspapers, etc. (Amari & Jarboui, 2015, p.211). This is worrisome because a lot of what is in these sources are generalized and not specific to each person’s need (ex. loan selection). These students graduate from university with crippling debt not knowing how to pay it off and what can be done to minimize their debt. MoneyMatters, reiterates the fact that many of these students do not know their own credit score, what can be done to improve it, and how it effects their financial future.
Proposed Solution for Financial Illiteracy Among University Students
Financially literacy is so important because it goes beyond budgeting and saving. All of the topics mentioned above must be covered so that students know how to be financially responsible adults. The time and resources available to college students makes college the perfect opportunity to teach them how to make responsible financial decisions. My proposed solution includes implementing various resources among the campuses.
One of the easiest ways we can improve the financial literacy of these university students is to make the resources we already have more visible. Many campuses already offer workshops and make informational packets available to students. However, many students are not aware of these resources. If campuses were to hold a financial literacy fair, for example, and heavily promote the event and its importance I am sure many students will show up and then know that these options and resources exist.
I believe that adding a required freshman course dedicated to teaching and improving financial literacy has immense potential to help solve this problem. Similar to how UNIV 100 is supposed to help students assimilate to college life and help prepare them for their college carerr, a course designed around teaching and promoting financial literacy will impact students in positive ways. This knowledge will not only help them manage their money effectively in college, it will help them realize what they can start in university that will help them prosper financially upon graduation. Not all students will see a need for this course, but financial literacy is something that must be taught. Below is a list of pros and cons of making a financial literacy class mandatory (which is from the article “Should College Students Be Required to Take a Course in Personal Finance”).
– Pros – Basic financial knowledge is needed to strive in today’s world – Students need to fully understand student loans – Having successful alumni is good great exposure for the university
– Cons – Financial strategies change to often to make a mandated course about them – It is easier to learn by doing, not buy reading or being lectured about financial
practices
Mandatory academic advisement is quite useful in determining classes to take, so if we made each student undergo a short financial-advisement they would be more willing to take action and better their own financial literacy. Loan counseling (in-person) would be more effective than going through an online process, because I know from personal experience that students click through the screens without reading the information. This is horrible and forces students into a situation they were not prepared for. If we made this mandatory is would be immensely more meaningful and more students would be able to actually learn from it and comprehend the material.
Cost Breakdown
Creating a mandatory financial literacy course seems like it will be costly, however, it will not be. Most campuses already have personal finance courses, so if we use those professors to teach this course it adds no additional cost. (However, if more professors must be hired, the average salary ranges from $75,000-$110,000/yr). Students pay per-semester, not per-course, so it should not put additional costs on them too (MoneyMatters, 2016).
Making resources more visible will again, cost nothing. Campuses can get guest speakers from their local neighborhood to volunteer their time to give workshops. Also, the financial aid office on each campus should be able to initiate events that promote financial literacy.
Mandatory loan counseling is the only proposed solution that will cost both time and money. The average cost of a loan counselor is about $42,000/yr. If were to hire multiple for all campuses that will be quite costly, but ultimately will be beneficial to all students who must take out student loans to afford their education. It will also take years to make this program implemented, functional, and beneficial (which is why this is not my main solution to the problem of financial illiteracy with college students).
Benefits from Promoting Financial-Literacy
Students are the main beneficiaries of receiving a personal financial education. They will be better prepared for the future and all of the financial decisions they will have to make. These students will also be able to guide others in being more financially responsible. The U.S.
Financial Literacy and Education Commission reports a positive correlation between favorable financial behavior and academic success (2015, p.46). Students performing better academically reflects well on the university and university system.
Not only will the students benefit from the implementation of financial literacy programs, the school will as well. It is in the university’s best interest to teach financial literacy because, “producing successful alumni reflects well on the college” (U.S. Financial Literacy and Education Commission, 2015, p.46). Producing successful alumni makes the college and university system look good and makes other colleges want to emulate what the system is doing right.
Conclusion and Recommendation
Understanding fundamental financial concepts is needed to thrive in today’s world, and it is the job of higher education to prepare students for post-college life. Many students do not feel like they are completely financially literate, and they make financial decisions without fully understanding what they are getting themselves into.
I recommend implementing a mandatory financial-literacy/personal-finance course for freshman students in order to promote a responsible financial-culture across all CSU campuses. As well, as making already-provided resources more visible and known to students. If fiscally possible, making mandatory financial-advisement sessions will also help students prepare to make financially-responsible decisions.
Many university students need this information and these are easy ways to give them what they need to be financially responsible and able to make well-informed decisions that will affect their financial future. Improving the financially literacy of students will not only benefit the students, but the school they attend and therefore CSU system as a whole. If my proposal is accepted I will be able to provide more in-depth analysis of the problems and how these solutions should be implemented. I hope you now see the problem more clearly and the immense potential this solution has to positively impact students. I look forward to meeting with you to further discuss this program, its benefits, and answering and questions you may have.
REFERENCES
Amari, M., & Jarboui, A. (2015). Financial Literacy and Economics Education Among Young
Adults: An Observation. Journal of Business & Finance Librarianship, 20(3), 209-219.
Five Facts About CSU Financial Aid // . (2016, May 23). Retrieved November 10, 2017, from
https://www2.calstate.edu/csu-system/news/Pages/five-facts-about-csu-financial-aid.aspx
MoneyMattersONCAMPUS. (2016). Money Matters ON CAMPUS Examining Financial
Attitudes and Behaviors of Two-Year 2016 and Four-Year College Students. Report was
prepared by MoneyMattersONCAMPUS.
U.S. Financial Literacy and Education Commission. (2015). Opportunities to Improve the
Financial Capability and Financial Well-being of Postsecondary Students. Report was
prepared by the US Department of the Treasury.
Williams, A., & Oumlil, B. (2015). College student financial capability. International Journal of
Bank Marketing, 33(5), 637-653.
Willis, L. E., & Lusardi, A. (2017, March 19). Should College Students Be Required to Take a
Course in Personal Finance? Retrieved November 06, 2017, from https://www.wsj.com/
articles/should-college-students-be-required-to-take-a-course-in-personal-
finance-1489975500
https://www.wsj.com/
