30 Apr Financial Literacy Terms
Written by: Jacquie Carroll, ED.D., Campus Engagement and Education Consultant, American Student Assistance® (ASA)
April was Financial Literacy Month, and this year it seems that the events in the last decade have generated not only a national discussion, but also more educational community discussions about the importance and impact of student financial literacy, personal finance, and financial responsibility. Many times these terms are used interchangeably, and that tends to make things a little muddled for everyone—particularly for students. Too often, students equate financial literacy with financial aid. That’s why before we embark on the discussion and try to provide potential solutions, it’s important to understand these terms as they represent the roadmap to success.
First, financial literacy is the foundation, and it provides key concepts, principles, and technological tools that are fundamental to being smart about money. These key concepts are more easily digested by students when they relate to events that have an impact in their lives. If there’s no immediate connection, the information doesn’t seem to stick. For example, many financial aid administrators have experienced that students aren’t interested in their student loan repayment options during the entrance counseling process—but these same students perk up significantly during exit counseling. People in general will pay attention when their world changes. So what’s important in these initial stages is to identify truly teachable moments for students. Many institutions are wrestling with this issue and trying to figure out which financial competencies are essential in students’ lifecycles; what should students know at the end of the first year, second year, etc.? They’re primarily focused on student success while students are attending their institution. Once students have that basic financial knowledge, the next step is to understand how those financial facts and concepts relate to students’ personal and family resources. That’s all about personal finance, and many times that focus tends to shift to after college.
Individuals spend, save, protect, and invest their resources in an effort to achieve financial success. In their first few years after college, students’ resources are largely monetary. Also, typically students equate financial success with wealth; they don’t realize until later in life that that’s not necessarily the case. Financial success should be defined as achieving one’s financial goals, and this is where they move from knowledge and understanding to action and changing behaviors.
The next big step for students after graduation is to achieve their financial goals. Again, even for an optimistic student, this process is easier said than done. Students who’ve been subsisting on a variety of Top Ramen delicacies soon realize that “real life” takes much more of their income than first suspected. It seems like everyone is putting a hand out for a piece of that paycheck: taxes, insurances, student loan repayment, basic living expenses, etc. It all goes very fast! Again, as part of the college community discussions, institutions are trying to identify ways to help support and create student financial success after graduation, in part because alumni’s personal finances impact institutions; financially successful alumni are much more likely to give back to their alma maters than those who aren’t (Melior 2011).
Ultimately, personal finance provides the foundation for financial responsibility. And financial responsibility is the action that puts people and organizations on the path to financial success. Financial responsibility also implies that individuals have accountability for their financial well-being, now and in the future—a long-term commitment. Institutions are helping students be accountable to themselves and their communities by providing opportunities for learning about financial literacy, personal finance, and financial responsibility. Opportunities can range from providing formal financial literacy education to informal education such as helping students understand goals. There are several no-cost or low-cost programs and platforms available to schools to achieve these goals, from MyMoney.gov resources provided by the U.S. Department of Education to SALTTM from American Student Assistance® (ASA), a nonprofit with a public purpose mission to help borrowers manage their educational debt. Many of these programs offer similar tools and resources. Often the one leveraged depends on institutional goals and resources.
Financial responsibility is defined by action and accountability for one’s financial well-being, now and in the future. And there’s no better time than the present to help students understand the basic terms—the first step on the road to financial success.