When heading off to college, students must start making important financial decisions – many for the first time. How will they spend their money? Will they keep a budget? Should they get a credit card? How much student loan debt is enough?

Yet, many of these college students do not have the skills necessary to make wise choices, and it shows. 

The most recent numbers show that Gen Z, those who make up a majority of your student population, carries a significant amount of debt. Experian found that this cohort carries $2,312 in credit card debt1, while Lending Tree found that Gen Z has an average of $9,176 in non-mortgage debt2, which includes student loan debt.

Keep in mind that for students who have graduated from college, this number is likely higher because the average student loan debt for recent graduates is $31,1003.

Here are five reasons why colleges and universities should add financial literacy to their curriculum. 

#1. Students Don’t Have Basic Financial Knowledge

A majority of students come to college without even a rudimentary knowledge of financial concepts. It is not uncommon to hear students ask questions about student loans and tuition, but just as importantly, they have questions about simple things like: 

  • How do you create a budget?
  • When do I have to start filing taxes?
  • What is an emergency savings account?
  • Do I pay interest on a credit card if I make my minimum payment each month?

Even for students with a bit of understanding, it is not uncommon for them to leave out important aspects when budgeting. For example, when determining a budget for post-graduation, many students forget to add in student loan debt or health insurance.

Your students will need the answers to these questions to be successful upon graduation.

#2: Parents Can’t Teach Them

Colleges need to step up and teach students because many parents can’t. These parents also suffer from a lack of financial literacy. A recent GoBankingRates survey found that four out of five adults lack sufficient financial knowledge4. 

These adults state that their lack of financial information has caused them to make poor financial decisions: 

  • Avoided investing – 44%
  • Paid high interest rates – 21%
  • Taken on too much debt – 15%

Although parents want to see their children succeed financially, they do not know where to tell them to start. If the education isn’t coming from the home, then it is up to educational institutions to provide that knowledge.

#3: Teaching Financial Skills is Essential for Success

Financial literacy is an essential life skill. Imagine this scenario: A student eats out twice a week during their four years of college. This costs them $8,000.

They paid for these meals with the refund money on their student loans and with credit cards. With the accrued interest, these meals now cost $10,000. Simply cutting back to two meals a month would have cut the debt by 75%.

It is difficult for students to be successful when they start their adult adventure already in debt and ill-equipped to make sound choices.

Financial success is not defined by the amount of money a person has. Instead, financial success is determined by how well a person is in control of the money they have. This is evident by:

  • Establishing goals
  • Understanding where you are and where you want to be
  • Creating a plan
  • Having savings
  • Investing wisely
  • Staying out of debt
  • Establishing good credit
  • Continually learning

#4: Reduce Student Loan Defaults

The Education Data Initiative uncovered some disturbing data about student loans5. It turns out that student loan delinquencies and defaults are the norm. They found that:

  • 10% of Americans with a student loan have defaulted
  • 10% of graduates default in the first year of repayment
  • 20% of graduates are delinquent in the first year of repayment
  • 75% of graduates make at least one late payment in the first five years

Why? The main reason is that students do not understand their student loans. However, students who participate in financial education are more likely to pay their student loans on time and far less likely to default6. 

#5: Reduce Financial Anxiety

A CreditWise survey found that 82% of Gen Z were stressed about money7. This stress leads to mental health issues, physical issues such as inability to sleep and stomach problems, relationship issues, and poor self esteem, not to mention poor grades and higher dropout rates8.

By providing students with a financial literacy program, students learn to

  • Keep track of spending: Financial stress decreases as students budget9.
  • Stay out of debt: Internal iGrad data found that 28% of users pay off their credit cards each month after using the program for one year.
  • Save for emergencies: Internal iGrad data found that those who increase their emergency savings funds decrease their level of stress.

A strong financial wellness program, like iGrad, can help students learn the right financial skills that will help them throughout their adult lives.

 

 

1 - https://www.fool.com/the-ascent/research/credit-card-debt-statistics/ 

2 - https://www.lendingtree.com/debt-consolidation/debt-by-generation-study/#generationZers

3 - https://educationdata.org/average-student-loan-debt-by-year 

4 - https://www.gobankingrates.com/money/financial-planning/80-percent-americans-lack-of-financial-education-has-been-costly/

5 - https://educationdata.org/student-loan-default-rate 

6 - https://www.finra.org/media-center/news-releases/2015/finra-foundation-funded-study-documents-effectiveness-state-financial 

7 - https://www.prnewswire.com/news-releases/survey-reveals-tension-between-financial-stress-and-optimistic-financial-outlook-among-us-consumers-300940048.html 

8 - https://news.osu.edu/70-percent-of-college-students-stressed-about-finances/

9 - https://www.cfp.net/-/media/files/cfp-board/knowledge/reports-and-research/consumer-surveys/consumer-views-on-cash-flow-planning-january-2019.pdf