More than 76 percent of college students report that they are not prepared to deal with the financial challenges of real life and wished that they had more help with making sound financial decisions. Despite the fact that financial decision-making is more complex today than ever before, 26 states have no financial literacy requirements at all in their K-12 education systems, and only four states mandate that students take a personal finance class in high school.
With the downturn of the economy as well as rising academic and living costs, students increasingly rely on debt to finance their tuition and daily expenses. In fact, according to the Federal Reserve Bank, the estimated total student loan debt is $870 billion, which recently surpassed total nationwide credit-card debt ($693 billion) as well as total nationwide auto loans ($730 billion) for the first time. On average, American college students owe over $25,000 in student loans, which is more than twice the amount of a decade ago.
A lack of financial knowledge induces ill-informed decisions, leading students to accumulate unnecessary debt. Thus, this increases default rates and creates an undue burden on students, society and the overall economy as students are increasingly being forced to begin adult life deeper in debt, delaying or preventing them from buying a car, purchasing a home or starting a family. To break this vicious cycle, it is essential for students to be educated early in financial literacy.
Some are skeptical of the power of financial education. However, programs aimed at young adults have also shown signs of success. For example, national savings campaign America Saves, found that — after taking advantage of classes, counselor meetings and program materials — three out of four participants in a Cleveland-based program enacted a savings plan and progressed toward their goal.
Some argue that it is the financial industry, not consumers, that needs improvement. However, improvements to these two market participants are complements rather than substitutes for one another. Despite the passing of consumer-friendly measures such as the Dodd-Frank Act of 2010, which created the Consumer Financial Protection Bureau, and the Credit Card Act of 2009, which required greater disclosures on credit-card statements, the Obama Administration has also released its own financial literacy program in 2012, increasing the number of high schools that adopt financial education programs.
Nonetheless, more needs to be done. Overall, research shows that increased financial literacy can increase government revenue from tax collections, mitigate rising debt levels and increase societal productivity. Given the high costs of financial illiteracy, schools and governments should immediately increase their investment in developing creative solutions to the issue of financial literacy — particularly at high school and college levels — to alleviate present social and financial concerns.
A finalist in the new category of Financial Literacy added to the Big [email protected] Contest this year, Cashify provides a sustainable business model for a fun and engaging social platform and a series of exclusive events that empowers students with the financial knowledge and long-term access to relevant resources necessary to make informed financial decisions. This innovative and grassroots effort to enhance financial literacy is a project, among many others, that students, schools and the government should further support.
To learn more about Cashify and to find out about how you can take action in improving financial literacy, please reach out to me, Cashify’s project lead.
Shuonan Chen is a UC Berkeley senior and an instructor for UGBA 198, the DeCal for Money Management Coaching.