Colleges Need to Mandate Financial Education Essay
Colleges need to mandate financial education classes now. By not doing so, institutions of higher learning are doing students a huge disservice. It seems, they prefer to send their students into the world without basic tools for success. Let’s solve the student debt crisis. Let’s make financial literacy as important as any other literacy.
Something Has to Change
Every student who graduates from college in America should comprehend common financial issues. First, he should understand the importance of savings and the impact it can have over a lifetime. Second, she should have at least a rote knowledge of investing. Third, he should understand why running up credit card debt is bad. Fourth, she should understand how and when to borrow money. Fifth, she should understand the value of owning property and when and why to take on a mortgage. Obviously, there are a sixth, seventh, and eighth. Students shouldn’t acquire this knowledge by trial and error. Clearly, there are too many errors.
Colleges should do the right thing. Send students into the world trained to handle most financial tasks. That most colleges do nothing of the kind is unethical. Many secondary schools teach financial education, but those lessons aren’t sticking. Colleges need to commit and reinforce what was likely forgotten. Something has to change.
Debt Metrics are Going from Bad to Worse
David Deming, professor of public policy at the Harvard Kennedy School and the Harvard Graduate School of Education, provides interesting context for how the student debt problem evolved. He argues that, over a generation, we’ve shifted the burden of tuition from the state to the student. Governments used to subsidize tuition more while students paid that subsidy back in the form of higher taxes. Now, students can expect lower taxes, but higher college debt payments. So, until recently, there’s been little demand for higher education to teach financial life skills.
The metrics are bad and getting worse. Since the 2008 recession, the cost of a college degree increased by 25% while student debt increased 107%. Right now, there are 44 million Americans who hold $1.6 trillion in student debt. Those numbers are going up. Our gross domestic product (GDP) is $20 trillion. That debt represents a significant percentage of GDP. Amazingly, that debt is more than the entire Russian GDP. It’s the highest student debt has ever been. Obviously, higher education has an obligation to make sure its graduates have better skills. Unfortunately, they’ve been slow to recognize any responsibility.
There are Still Good Reasons to Attend College
Still, there is no question that colleges and universities have solid arguments about going to college. On average, a person with a degree earns 80% more than somebody with a high school diploma. Yet today, more than 30% of college graduates are in default or have stopped making payments six years after graduating. Consider that leaving school with so much debt creates problems beyond default. A Bankrate.com survey found that 21% of borrowers delayed getting married. 26% of borrowers pushed back having children. 36% delayed buying a home.
The cost to attend Columbia University is $83,293 per year. On average, students who qualify receive $23,000 in financial aid. So over four years, these students accumulate $240,000 in debt. It’s the same all over. Most major colleges are majorly expensive. It’s essential that students know the risks before choosing a major and making other life decisions.
Are Colleges Really On Board with this Kind of Education?
Maybe colleges and universities feel it’s in their best interest to keep students in the dark. Any marketer in her right mind would say that it’s bad business to give your customer information that would keep her from buying your product. Maybe schools should start adhering to those lofty mission statements. Make the world a better place. Truly, serve the students that pass through those hallowed doors. Actively provide them with the financial training they need to avoid a lifetime of debt. Let them decide for themselves whether the college value proposition makes sense.