We at Card Hub are building on our initial look at how personal finance is being taught at colleges and universities with a series we’re calling “Financial Literacy on Campus.” Every couple of weeks, we’ll highlight a particular school, analyzing its financial curriculum and sharing insights from administrators, faculty, staff, and students alike.
Well, it’s no secret that the lack of financial literacy among U.S. consumers is a big problem. Not only do we continue to rack up debt in record numbers, despite the obvious cautionary tale told by the Great Recession, but more than half of all consumers say they don’t keep a budget and 42% give their financial know-how a grade of “C” or worse, according to the National Foundation for Credit Counseling’s 2012 Financial Literacy Survey. An even higher percentage of people – 80% – say they could use some professional help managing their finances.
The prospects for the future aren’t bright either. Despite how financially ill-prepared we are as a group, 44% of people say they learn about personal finance from their parents. Perhaps that’s why more than 70% of parents say their kids don’t know the basics of money management, according to Visa’s 2012 Global Financial Literacy Barometer.
Are you beginning to see the problem? Would you expect a doctor to operate well if he or she learned the trade from an ill-informed parent, rather than going to medical school? Would you rather represent yourself in court or have a trained attorney do it for you? Then why should we expect people to make sound financial decisions if they never properly learned right from wrong?
Better financial education is clearly needed if we are to break out of this vicious cycle of failure breeding failure. The good news is that there are a number of really good financial literacy initiatives already in place, and by learning from them, we can work to create a brighter financial future.
We’ll start with the University of Kentucky. It’s January (i.e. college basketball season), after all, so it only makes sense to kick things off with the Wildcats, who not only are the defending NCAA champions in men’s basketball, but will also garner considerable attention in the weeks ahead.
Kentucky is, unfortunately, the fifth least financially-literate state in the U.S., according to Kiplinger, which ranked the “Bluegrass State” 41st in “financial capability” and 50th in “financial behavior.” In other words, Kentuckians are more financially savvy than residents of states like Arkansas, Mississippi, Louisiana, and West Virginia, but they don’t always translate what they know into action. Luckily, officials at the University of Kentucky are working to change that, and with roughly 75% of the student body hailing from within the state, the tides could change rather quickly.
There are four primary ways in which personal finance education manifests itself at Kentucky: 1) K Week; 2) UK 101; 3) Courses in personal finance; and 4) Resources like MoneyWi$e.
1. K Week
K Week is UK’s orientation program for incoming freshmen and transfer students. Held every fall, it features more than 200 events over a nine-day period and is designed to ease “the transition to college by offering social activities, educational sessions, and opportunities to learn about UK traditions,” according to Nancy S. Stephens, the assistant director of New Student & Parent Programs.
“Knowing that college students struggle with money management, the K Week staff invites our colleagues at the UK Federal Credit Union to present ‘Common Cents’ to new students and their families. This session offers basic money management tips on budgets, credit reports, credit scores, and more,” Stephens told Card Hub. “The Credit Union also provides money management tips every year in the K Book, UK’s new student handbook. They are a valuable partner to us in educating our students about their finances.”
2. UK 101
UK 101 is an introductory course that all University of Kentucky freshmen are required to take. While it’s not dedicated exclusively to personal finance, UK 101 does introduce young people to the subject matter, giving them a knowledge base as well as practical tips that can benefit them during their collegiate career. The people teaching the personal finance portion of the curriculum also really know what they’re talking about. Officials from the University of Kentucky Federal Credit Union are often asked to take over the class for a day in order to help students better understand credit and budgeting.
“We explain the difference between a bank and a credit union since many students may not understand the pros and cons of each. The main focus of our class is on budgeting, credit reports, and credit scores. Now is the perfect time for students to start developing and practicing smart money management skills,” said Megin Morgan, a member development specialist at the University of Kentucky Federal Credit Union who helps teach the personal finance aspect of the UK 101 course. “I find that many students’ parents still help them or take care of all of their money for them. Helping the students learn how to develop this life skill, on their own, is very important.”
Interestingly, one of the main lessons Morgan tries to impart on students is necessary primarily as a result of what one could certainly argue is a main strength of young people today: their technological savvy.
“Typically, I find that students do not keep a check register of any sort,” she said. “They only use online banking and don’t keep track of their balance themselves. I stress the importance of this and why only using online banking or your ATM receipt to know your balance isn’t the best way. For example, let’s say you go to five stores and use your debit card, then you go to the ATM to get cash and you see the balance on your ATM receipt, you may think ‘Oh, I have more money than I thought.’ That may not be the case. Most likely those five other transactions haven’t cleared your account yet, and this is how overdrawing your account can happen quickly.”
3. Courses in Personal Finance
The University of Kentucky’s status as a federal land-grant university necessitates that the institution undertake a three-part mission: 1) Teaching; 2) Research; and 3) Outreach. Part of the “outreach” involves state-appointed officials helping to offer resources and information to students and citizens alike throughout the commonwealth. One such official, Dr. Jennifer Hunter, teaches the FAM 402: Issues in Family Resource Management course, which focuses on basic financial education (e.g. budgeting, saving, and managing expenses) in order to help students gain a sense of what it takes to run a household from a financial perspective. It is junior/senior-level course that is open to all majors and required for those majoring in Family Sciences.
“As I tell my students, it is designed as a life skills class, regardless of their future path,” Hunter told Card Hub. “The skills taught in class involve life’s day-to-day decisions. Examples include how to compare credit card offers, how to build and maintain your credit score, investing for your future, understanding insurance, buying your first car, buying your first car, and the list goes on.”
Another course, FAM 251, is dedicated to personal finance and covers budgeting, investments, retirement planning, cash flow, and more.
4. MoneyWi$e & Loan Counseling
The University of Kentucky makes a number of helpful resources available to students through its MoneyWi$e website, which is run through the Kentucky Cooperative Extension Service, in addition to entrance and exit counseling for all federal student loan borrowers through Student Account Services.
“The University offers some outlets for assistance, particularly with finances related to higher education affordability,” said Stephen Bilas, the UK student body president. “I personally think it is important for students to understand the long term implications of ‘compound interest’ so that they can better gauge the weight of their decisions.”
This type of largely ad hoc assistance begs the question of whether it’s realistic to expect college students to proactively seek out answers to their financial questions.
“Yes and no,” Bilas said when asked to gauge whether or not there is a general thirst for knowledge about financial management among the students. “I feel there is an increased interest in financial management due to the economy. I feel it is mainly targeted toward grants and scholarships though.”
Asked the same question, Morgan says she believes that students’ desire to learn about personal finance builds as graduation grows nearer. That makes sense, after all, because students recognize that they’re about to hit the “real world” and take on “adult” responsibilities.
“When it’s the older students who are graduating, they have a lot more questions,” she said. “They seem to really pay attention because they’re about to really start needing to know this information. They’re about to start paying on their student loans and maybe having to sign a lease for the first time on their own.”
At the end of the day, we’d certainly like to see more time and effort devoted to improving financial literacy at the University of Kentucky, especially when it comes to getting students to internalize the idea that you can’t wait until graduation to grow up. It’s important to start using credit responsibly well in advance in order to have good credit standing and hit the ground running because, as I’m sure many students are unaware, your credit history impacts more than just your loan rates and credit card terms. It also plays a big part in determining whether or not you’ll be able to land a job in the financial sector or a field that requires a government security clearance, whether you’ll get approval to rent an apartment, whether you can lease a car, and what insurance premiums you’ll wind up paying.
That’s why it’s encouraging to hear that UK plans to supplement its personal finance curriculum with the “It’s Your Reality…Life Skills Simulation” — a campus-wide personal finance event designed to help students gain a measure of experience with a variety of different financial products and real-life situations. Basically, it’s like a giant version of The Game of Life.
“Students will enter the event and be provided the average starting salary for their major,” Dr. Hunter explained in an e-mail. “They will then proceed to different booths in the room to make lifestyle choices (paying taxes, where to live, what will they do about transportation, clothing, utilities, etc.) . Students will encounter all of the day-to-day life decisions and expenses that we encounter and they will need to make choices on what they can afford based on their income. The target goal is 300 students for the event.”
With the personal finance education programs already in place as well as those coming up the pipeline, UK grads are truly ahead of the game compared to the general population, and that – as they say – will certainly pay dividends down the road.