30 Jun Financial Literacy—Why Wait?
by Tom Bailey, Sr. Financial Literacy Trainer, ECMC (firstname.lastname@example.org)
Anyone who has turned on the news recently or who has attended any financial aid conference in the last few years already knows that combined student loan debt has topped $1 trillion. But more startling than the $1 trillion debt are the details surrounding the debt:
- 13.7%, or $137 billion, of those loans are currently in default—that’s around 7 million borrowers who are not paying back their student loans.
- Default rates on student loans have been climbing since 2003, and by 2012, student loans registered the worst delinquency rates of any consumer credit, worse than mortgage debts and credit cards.
- According to finaid.org, student loan debt grows at an alarming rate of $2,853.88 per second—and that’s just the principal amount and does not include accrued interest.
- Students account for almost $300 billion is credit card debt.
- Students are also the fastest growing segment of the population filing for bankruptcy.
Another reason financial literacy is so vital is that reauthorization is approaching and there are many different proposals are on the table. One such proposal involves institutional risk sharing for schools where the schools would be held partially accountable when their student borrowers default.
Given the seriousness of the statistics and the proposals in reauthorization, it is apparent why financial literacy in higher education has to be given more attention and a greater sense of urgency.
But where to start? Often times when asked what an institution does for financial literacy, a lot of people talk about the importance, but a large number of them still do not know where to start. On occasion there is an explanation of what the school does for default prevention that is often confused with financial literacy.
In order to reign in runaway debt, leaders in higher education realize they must do more to provide basic money management techniques to their students. Many institutions have started incorporating financial literacy basics into the curriculum of student success courses or by offering for-credit money management courses.
Teaching students basic financial literacy does not need to be difficult or even time consuming. A few simple steps can transform your students into financially capable adults. Schools that have implemented active financial literacy programs report that their efforts have been met with success in the form of reduced borrowing and lower cohort default rates. Recently, a representative from Indiana University testified in front of a congressional committee about the results of their efforts. Borrowing among their student population is down by 16% resulting in a savings of $44 million to students.
What does a successful financial literacy program look like? Other than offering basic debt counseling, financial literacy programs could include information on topics such as budgeting, how debt works, savings, payroll taxes and investing for the future. Although financial literacy may be “owned” by financial administrators, a successful program involves partnering with administration, faculty, staff and peers. Educate your team with financial literacy talking points. Use various methods to reach your students and include in-person one-on-one counseling, peer-to-peer counseling and group events. Provide materials in both electronic and printed formats and make them accessible and convenient. Another successful strategy is repetition—reach them early and often as a way to keep the subject alive and part of their daily routine. You can start slowly and build upon the program as you begin to see what is working and what needs to be adjusted. And lastly, celebrate success as a way to maintain campus-wide enthusiasm and support.
The time for putting off development and implementation of financial literacy programs has passed. Implementation does not need to be intimidating or costly for schools. A little effort can achieve life-changing results. If resources within the institution are limited, partner with other schools that have already implemented successful programs. You can access downloadable financial literacy resources at https://www.ecmc.org/FAB. Daily financial literacy tips can also be found on Facebook at ecmcfab or on Twitter @ecmcfab. Financial aid conferences are great sources for additional information and materials as well as financial literacy best practice sessions.