In the midst of the current economic dilemna, some colleges are taking the initiative to educate their students in the realm of personal financial responsibility. Inside Higher Ed reports that California State University at Northridge requires all students to attend a non-credit seminar in financial literacy as a condition to receive a student loan. It is a one hour course that focuses on personal financial planning and is in addition to the federally mandated loan entrance counseling. CSU-Northridge also plans to extend its efforts into the classroom this year, offering a voluntary, for-credit freshman seminar entitled Financial Literacy 101.
Barnard College, an all-women's school in New York City, offers a financial fluency program for both students and alumnae. Barnard's program teaches basic personal finance, covering topics such as budgeting, credit card management, insurance, savings and investments. The program is offered through its career development office.
It is quite ironic to read about this today, as I was having a conversation with a neighber en route to the office this morning concerning the need to provide early personal finance education. My ideal concept would be to introduce basic financial literacy to all students, not just those that are college bound, at the high school level. This could be done in a fashion similar to the sex education week that many of us have had to endure, as a number of topics could be covered in this amount of time. This knowledge is especially important to those high school students who intend to enter the labor market immediately, as they will soon face important financial tasks, such as finding and maintaining a job, managing a checking account, preparing a budget, paying taxes, managing debt levels, purchasing a car, the rent vs. buy decision, and the importance of credit scores, among others.
In the past, we have left this responsibility to the parents, or the process of trial and error. The problem with this approach is that many parents are financiall illiterate themselves and too many young people are making horrible financial decisions that will have a negative impact on their ability to borrow money, rent an apartment, open a bank account, or even obtain a job for many years to come. The credit card companies and payday loan companies have profited big time on the financial illiteracy of many Americans by doling out loans at outrageous interest rates (up to 500% APY for a payday loan). This can lead to an endless trap of debt with no light at the end of the tunnel. And I don't believe there is a need to adress the issue of bad mortgage decisions at this point. You can pick up any newspaper and read about that.
As an undergraduate, I took on a second major in finance for one reason, to try and understand the complex array of financial decisions that would soon need to be made. I had no desire to become a banker, insurance mogul, or to work on wall street. I merely wanted to learn how to understand and manage my finances and make good investment decisions, because this was not part of my inheritance.
Back to the issue at hand and topic of this blog, higher education. The efforts, although somewhat reactionary in nature, by CSU, Barnard and others that I may be unaware, deserve some acclaim. Now is a momentous occassion, moving forward with the financial crisis, for institutions to understand the importance of financial education and to implement new programs aimed at providing students with a basic introduction to personal financial matters, although I hold my ground that this needs to begin at the high school level and reiterated in college. I do not propose that we attempt to turn everyone into a day trader or financial economist, but rather that everyone be given the chance to learn how to do suchs things as:
Balance a check bookWe need(ed) to educate our society today (years ago) in order to progress out of this historic crisis and deter it from happening again in the future. It is time that we arm our citizens with the basic knowledge to defend themselves against the predatory actions of mortgage lenders, credit card companies and the repo-man.
Develop a budget and pay bills on time
Plan for the future (retirement contributions, saving for down payments)
Basic comprehension of insurance terminology (premium, deductible, co-pay, etc.)
Understand the difference between fixed and variable interest rates