Are American College Students Financially Literate?
Sending your recently graduated teen off to college can be scary on so many levels. It is hard to step back and watch them take those first real steps away from the nest. It is important for young adults to become independent, but they’re facing one of the most difficult hurdles: It is not schoolwork or attending classes, but becoming financially literate.
When a college student becomes independent for the first time, it is far too easy for him or her to take the newfound freedom and run with it. There are so many possibilities — and money can go so fast when a student is having fun. Besides the usual costs of tuition, housing, textbooks and transportation, there are very attractive extracurricular events. Yet, does this mean that American college students are not financially literate?
American students and financial responsibility
Research into the ability of American students to display their financial literacy have not provided a glowing picture. In a 2014 test that rated students from a variety of countries, around 18% Americans were unable to perform some of the most basic financial literacy tasks, including differentiating between wants and needs and recognizing the importance of common financial documents, such as an invoice. While overall American students ranked as average, there were definite areas in which they failed to indicate their ability to perform even the most rudimentary of financial tasks. This is even more disconcerting when the statistics reveal that students from many other countries performed significantly better in those areas.
Experts in this field agree that American college students are, in general, not as financially literate as they should be. While students may be faced with increased financial responsibility, many do not grasp the basics.
One in six U.S. teens are unable to make simple financial decisions according to a recent survey, Brendan Coughlin, the Head of Education Finance for Citizen’s Bank told Forbes.
“This can become especially dangerous in college when poor financial skills can lead to dangerous overspending and debt,” he said.
A survey from 2014 by EverFi and Higher One is in agreement on this point. While the survey revealed that more students were in charge of their finances, fewer were able to handle their money with competency. This included those who had attended mandated financial classes while in high school. In fact, the study indicated that the students surveyed in 2014 were less financially responsible or literate than those from 2012.
Can the Situation Be Corrected?
Students can become financially literate. The question is: How they can gain this skill without becoming overwhelmed with debt? While classes prior to entering college may be beneficial, many professionals in the financial and college worlds seem to think there has to be greater stress placed on parental involvement. While some see it as fine to give a college student a credit card, it is important to provide guidelines.
What is agreed upon by both parents and financial experts is that while students need the freedom to develop their ability to manage their own finances, they should not be allowed to do so without some oversight. In other words, let them pay their bills on their own, but, as parents, make sure they are paying their bills. This may well be the best way to set them up for success in this aspect of their life – not only during their stay at school but also beyond the university.