Across the board, college students lack financial literacy. To fix that, the federal Financial Literacy and Education Commission (FLEC) released a new report recommending that colleges and universities make financial literacy courses mandatory for every student.
By forcing students to take such courses, the FLEC hopes to protect them from making poor financial decisions that may haunt them for years to come.
“Along with preparing the workforce, institutions of higher education can prepare their students to make financial choices throughout their lives that enable them to effectively participate in our economy, build wealth, and attain their goals,” the authors wrote in the report.
Let’s be real. When colleges and universities have made courses “mandatory” in the past, students often shrug them off with a yawn. In this case, however, they have reason to be excited.
Today, students are being forced from a young age to make financial decisions — mainly regarding student loans — that can have a permanent impact on their financial record.
In fact, more than 44 million college students borrow to pay for their education, according to Forbes, and students in the Class of 2017 graduated with an average student loan debt of $28,650.
And, unfortunately, many borrowers are seemingly in over their heads.
According to a 2018 National Financial Capability Study, 42 percent of student loan borrowers have been late with at least one payment in the past year. And 51 percent of student loan borrowers did not estimate what their monthly payments may be before taking out loans. And perhaps what’s most concerning is that nearly 40 percent of borrowers may default on their student loans by 2023, according to the Brookings Institute.
Perpetually making late payments and defaulting on loans will set students up for disaster and make it harder for them to finance big-ticket items later in life, like a car, apartment, or house.
So, although personal finance isn’t as attractive as many other courses, students should embrace the opportunity to improve their financial literacy and protect themselves from making devastating financial mistakes.
Annamaria Lusardi, the Endowed Chair of Economics and Accountancy at the George Washington University (GWU) School of Business, has been teaching personal finance to GWU students since 2013.
At the end of each semester, every student who’s taken her class leaves her by saying, “everybody should take this course.”
“What I tell my students is that this is a happiness project,” said Lusardi. “You’re learning the skills to be financially secure and achieve your dreams.”
In her opinion, making financial literacy courses mandatory is a great idea.
Firstly, she believes that if a financial literacy course isn’t made mandatory, not every student will take it. Such classes are already widely available to college students, but either due to a lack of interest or a busy schedule, many students are bypassing them.
The authors of the report seem to agree.
“Optional classes may not reach students who may be unaware of them or who do not value the benefits of financial education,” the report said.
Secondly, Lusardi points out that when a student loan borrower defaults, it falls on the taxpayers. Therefore, taxpayers should be eager for students to improve their financial literacy.
Thirdly, If financial literacy courses are made mandatory, they will become more advanced and rigorous, said Lusardi.
And finally, Lusardi suggests making financial literacy courses mandatory in high school as well. This will help prepare those who are entering college to develop some financial savvy before applying for student loans.
And, perhaps most importantly, making financial literacy a mandatory subject in high school would help increase the number of minority, low-income, and female students who are financially literate.
“We want everyone to start on a level playing field,” said Lusardi. “If we leave it to the parents, if we leave it to the church, if we leave it to other institutions, we are going to have a more unequal society going forward because (financial literacy) is a fundamental of the workings of the economy.”