educating the whole student: unexpected ways … · unexpected ways financial education pays off...

Educating The Whole Student:

Unexpected Ways Financial Education Pays Off

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2 Educating The Whole Student | Unexpected Ways Financial Education Pays Off

While few would argue the critical role colleges and universities play in preparing young people for post-graduation success, one area that even the most rigorous undergraduate programs often overlook is financial education. Financial confidence and competency clearly helps students pay for their higher education, but it actually does much more than that—it also helps them navigate major life events such as buying a car or home, getting married and starting a family, or even starting a business.

Of course, in order to help students achieve a financial mastery that will serve them well throughout life, it’s crucial they are exposed to financial concepts and constructs as early as possible, beginning with their student loan borrowing decisions… As so clearly stated by David L. Eisler, President of Ferris State University and Scott Garrison, Library Dean at Ferris State in College & Research Libraries News:

“Student debt can be a catalyst to increase financial literacy efforts both inside and outside

the classroom on college campuses.”1

Overview


Students lack the real-life money skills they need

A study looking at what first-year college students know about finances shows most can only answer about a third of general financial questions correctly.2 “The results of the survey are disappointing, but not unexpected,” said Tom Arnold, professor of finance at the University of Richmond. “Most money habits come from experience and example. Incoming freshman are not very experienced and have more than likely relied on their parents for financial guidance and financial support.”3

Unfortunately, things don’t improve during the college years. The textbook rental company Chegg found that students and graduates aren’t able to perform these kinds of tasks in real life situations either. They, “were lacking skills in areas such as organization, leadership and personal finance…”4 It turns out researchers weren’t the only ones who noticed. “Creating a budget or financial goal,” for example, shows a 22% gap between students’ perceived skill at the task and their employers’ perception.

Cost of college vs. income

FIRST YEAR STUDENTS WHO USE A BUDGET

FIRST YEAR STUDENTS WHO DO NOT CHECK THEIR ACCOUNT BALANES

39%

12%


Setting graduates up for future success?

The overwhelming evidence from sources such as the Bureau of Labor Statistics, National Center for Health Statistics and so on, is that for most people, education beyond high school provides tools that help them live healthier and more satisfying lives, to participate actively in civil society, and to create opportunities for their children.5 Financial education would certainly build on that.

But if freshmen lack the knowledge, and colleges don’t teach it, it’s easy to predict how students’ entry into the adult world of finance will turn out. Perhaps nobody has yet summed it up more succinctly than former Fed Chairman Alan Greenspan when he said, “The number one problem in today’s generation and economy is the lack of financial literacy.”6

“The number one problem in today’s generation and economy is the lack of financial literacy.”6

Former Fed Chairman Alan Greenspan

AVERAGE TEST SCORE FOR “FINANCIAL WELLNESS” OF INCOMING STUDENTS 30%


Some surprising ways financial education helps during—and after—college

Beyond the obvious benefits of helping students manage their loans and setting them up for success later in life, financial education and responsible borrower programs help educate all sides of a student and complete their skillset in a variety of ways. Here are 15, but there are surely more.

1. Borrowing less - Students tend to borrow more for college than they need to and spend the excess on clothes, cars and vacations7. “Overborrowing” creates a strain on finances during repayment, as it requires higher payments for a longer amount of time. Indiana University tries to combat this by sending students their accumulated debt totals every year in school and has seen loans drop by 12.4%.8

2. Budgeting - A budget is the foundation of financial wellbeing, yet according to a study by the AICPA, only 39% of students follow one.9

3. Planning for goals - Learning how to set money aside to defray the cost of specific goals, like Spring Break, is a skill that will be helpful for life.

4. Marketable skills - Basic money management skills come into play in many jobs that require billing, forecasting, creating a “scope of work”, or a contract. The ability to show mastery of these topics will put graduates ahead of people who can’t.

5. Stretching that entry-level job paycheck - Let’s face it. The first job seldom pays enough, so understanding how to balance income with expenditures will be extremely valuable.

6. Better credit rating - 84% of students have credit cards and 20% graduate with over $7,000 in credit card debt.10 Financial education helps students manage credit cards better during school, which translates to a better credit rating.11 Which also translates to…

7. Lower insurance rates - Low credit scores peg you as someone who engages in riskier behavior. Insurance companies price coverage based on how risky you are across a variety of behaviors, including your finances.12

20%

PERCENTAGE OF STUDENTSWITH CREDIT CARDS

GRADUATE WITH OVER $7000 IN CREDIT CARD DEBT

84%


Some surprising ways financial education helps during—and after—college (continued)

8. Better job security - Did you know some companies can fire you for too much debt? It may not be fair, but it doesn’t mean it doesn’t happen.13

9. Lower student loan payments - Many recent graduates are unaware of loan modification options, such as income-based repayment. But those with proper financial education know all the options—and how to take advantage of them.

10. Life balance - Students who know how to borrow less can often work less during school. They achieve a better school/work balance14 and perhaps…

11. A degree - Half of all students who leave school do it because they can’t handle the financial side of college. Financial education helps them borrow smarter and make it to graduation.15

12. Self confidence - Feeling in control about money helps students feel in control about other things too. 29.1% of students believe high debt has affected their academic performance.16

13. Understanding of scientific and business concepts - Understanding compounding interest, risk and risk diversification are invaluable throughout life to help with investing, purchasing homes and cars, and more.17

14. Higher net worth - Studies show students who receive financial education are able to translate it to higher net worth between ages of 30-49 than those who don’t.18

15. A graduate degree—or not - Financial education allows students to make a cost/benefit analysis of whether they should continue on the graduate school, incurring more loans. Median salary increases 25% with a graduate degree, so it may make sense.19

Role Colleges Play in the Lives of Their StudentsWhen asked, college Presidents felt this was their most important role:

20

Promote intellectual and personal growth Provide knowledge and training for the working world

4-year private

4-year public

2-year private/public

36 85

71 28

72 25


SALT helps schools deliver a more complete education

As stated by George D. Kuh and Paul D. Umbach in College & Character: Insights from the National Survey of Student Engagement, “as colleges and universities prepare students to conduct their lives…they would do well to stitch into their policies and practices activities that give students firsthand experience with issues that the larger society is grappling with.” Given that student loans are most peoples’ introduction to borrowing, and that 50% of Americans are moderately or very worried about common financial issues,21 colleges have a unique opportunity to deliver an invaluable education on real world matters—namely finances.

At American Student Assistance®, we have found that financial education programs empower students and alumni to make smarter financial decisions and foster management skills that last a lifetime. A survey of active student members of SALT® report that:22

As the same skills required to manage student loans also apply to so many aspects of adult life, it stands to reason that improving the financial know-how of students on your campus will have both an immediate and lasting effect. Schools are at their best when they provide the tools for the practical application of knowledge. SALT delivers immense value for student loan management, employment prospects and meeting life goals.

In short, there has never been better time—or way— for colleges to educate the whole student.

49%Have taken meaningful steps

to decrease expenditures

41%Have taken steps to

increase their savings

73%Will continue to track

expenditures and income

60%Have a better understanding of the trade-offs of financial

decisions

83%Reported they were

considering or had already taken steps to reduce their

monthly expenses

80% Report they are

considering or had already researched more about

maintaining a budget

83%Agreed that salt made

them think twice about how borrowing/debt may impact

their future


SALT: A responsible borrower program

With almost 60 years of experience working with over a million student borrowers, the not-for-profit American Student Assistance® (ASA) created SALT®, a free-to-the student program that provides options for anyone who wants to pursue a college degree in a financially responsible way. SALT incorporates the best practices ASA developed with neutral advice, practical information and interactive lessons to help students gain money knowledge for college and beyond while positioning them well for future success

CONTACT SALT 877.290.6937 [email protected]


References

1. Eisler, David L. and Scott Garrison. “Addressing college student loan debt. Strategies for success.” College & Research Libraries News. vol. 75 no. 7 374-391. July 2014.

2. Metinko, Chris. “College Students Fail When It Comes to Financial Liter-acy.” MainSt. November 2015.

3. Metinko, Chris. “College Students Fail When It Comes to Financial Liter-acy.” MainSt. November 2015.

4. Dostis, Melanie. “Degree alone not enough to prepare grads for work-force.” USAToday. October 2013.

5. Bureau of Labor Statistics, National Center for Health Statistics, U.S. Census Bureau.

6. Hoffmire, John. “Why our children need financial literacy.” NewsOK. June, 2015.

7. Sheehy, Kelsey. “Undergrads Blow It With Student Loan Refunds.” US News & World Report. July 2013.

8. McInerny, Claire. “How Can We Reduce Student Debt? IU Uses A Letter.” IndianaPublicMedia.org. March 2015.

9. Nagler, Allegra. “Survey: Most College Students Think They’re Financial-ly Savvy.” Accountingweb.com. September 2015.

10. “College Students and Credit Cards – Some Statistics.” College Parents of America.

11. Nagler, Allegra. “Survey: Most College Students Think They’re Financial-ly Savvy.” Accountingweb.com. September 2015.

12. “Your credit score doesn’t affect your rate: partially debunking a car insurance myth.” esurance.com.

13. Farrington, Robert. “8 Freaky Ways That Student Loans Can Get You Fired.” The College Investor. June 2014.

14. “How – and Why – to Help Your College Student Create a Budget.” CollegeParentCentral.com.

15. Pew Research report “Is College Worth It?” 2011.

16. 2007 University of Minnesota College Health Survey Report

17. Lusardi, Annamaria. ”Three Reasons to Teach Financial Literacy in Schools.” January 2010.

18. Infographic: The Value of Financial Literacy. Edutopia. April 2012.

19. Simon, Cecilia Capuzzi. “R.O.I.” Education Life. The New York Times. July 22, 2011. Web.

20. Pew Research report “Is College Worth It?” 2011.

21. Saad, Lydia. “Americans’ Money Worries Unchanged From 2014.” Gallup. April 2015.

22. ASA Proprietary Data

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