One of the most important transitions in young people’s lives is moving from high school to college, in part because they are often taking on financial responsibilities for the first time. Many are unprepared.
to help students To avoid bad spending habits that can lead to unpaid debt and other economic hardships, state legislatures, colleges, and universities are working to promote financial literacy among young people. New programs and initiatives are being introduced to help students learn how to responsibly manage credit card debt and living expenses, among other things.
The generation gap in financial literacy
Today’s college students have less financial literacy than previous generations, according to the Teachers Insurance and Annuity Association of America (TIAA) Institute’s 2022 report “How Financial Literacy Varies Among US Adults.” The report uses the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) questions, which measure general financial literacy and personal finance literacy in eight domains including Earning, Spending, Saving, Investing, Borrowing/Debt Management, Insurance, Understanding Risk, and identification of information sources.
The study shows that while Generation Z and Generation Y got 42 percent and 46 percent of the questions correct, respectively, older groups scored more than 10 points better in some cases: Generation X 51 percent correct, Baby Boomers 54 percent, and the Silent Generation 54 percent . Differences in financial literacy also exist by race and ethnicity. White respondents correctly answered an average of 55 percent of the P-Fin Index questions, followed by Asian Americans (54 percent), Hispanics (38 percent), and Black Americans (37 percent).
College students are also sounding the alarm, as more than one in four say they are not ready to be financially independent, according to the 2022 College Student Financial Survey conducted by WalletHub, a personal finance website.
Amid rising inflation and the financial impact of COVID-19, 86 percent of college students surveyed said the pandemic has made them more concerned about their financial future, despite urging them to be more financially responsible, and 79 percent said their financial literacy has improved since the pandemic began. 67 percent see themselves more as “savers” than as “donors”.
The ongoing financial education movement is showing progress, but more needs to be done, experts say. Twenty-eight percent of older adults have participated in a program to combat financial illiteracy, according to the TIAA, and that number has risen to 35 percent for Gen Z. But TIAA calls that number “too low” and calls for more primary, secondary and more post-secondary financial education with a focus on diversity and inclusion to ensure the needs of different socioeconomic groups are addressed in content and delivery.
Many states have turned to legislatures for help in the fight to educate high school students on financial literacy. In 2022 alone, 32 state governing bodies introduced fiscal education, according to the National Conference of State Legislatures. Some states have introduced requirements for half-credit financial literacy courses.
To earn a Florida high school diploma, students must take a half-credit course in financial literacy and money management beginning in the 2023-2024 school year. Similar legislation, scheduled to go into effect in the 2024-2025 school year, was also enacted in Georgia and Michigan.
About 22 percent of high school students now have access to financial literacy, up from 16 percent in 2018. Because of new programs and laws, that proportion will rise to about 40 percent in the future, according to the State of Financial Education,” a report, published in 2022 by Next Gen Personal Finance, a nonprofit dedicated to bringing financial education to students through curriculum development, advocacy and teacher education.
NIU is working towards closure Financial literacy gap
To help students achieve economic stability, Northern Illinois University (NIU) launched Student Financial Advising Services in 2021. Three full-time consultants work with students to develop a personal, multi-year financial plan. The department focuses on financial aid, but assistance extends to budgeting, credit card use, loan repayments, and more. To date, the advisors have met with nearly 1,200 students, says Anne Hardy, director of student grants and financial advisory services.
NIU has been challenged to provide such advisory services to fill the financial literacy gap for underrepresented populations on campus. About half of NIU students are first-generation and about the same percentage are from a racial or ethnic minority group, says Hardy — and nearly half are eligible for Pell Grant. Many NIU families are unfamiliar with the college process, and Hardy’s department says it’s imperative to explain the basics of money and financial aid to NIU students and their families.
One student using the resources at NIU is Sergio Dondiego, a freshman who visited an on-campus financial advisory services booth. The advisor encouraged him to apply for a variety of scholarships — from national scholarships to on-campus options with specific criteria, including those for study abroad. By simply meeting with a financial advisor at NIU and completing a financial engagement task (applying for grants), he qualified for a $500 financial engagement grant.
Some scholarships require essays, and Dondiego, who is Mexican, found these to be his favorites as he learned a lot about his parents’ past as immigrants to America by talking to his mother about the essay questions.
Based on his experience, Dondiego recommends others contact financial advisory services on their campus for help with guidance on scholarship application and for assistance with meeting deadlines. He has developed a strong connection with his financial advisor and plans to get back to him.
Hardy sees on-campus financial advisory resources as a rising trend in higher education, especially given that financial concerns, which have long been a source of stress and anxiety for students, have been further exacerbated by the pandemic. Financial well-being is a crucial part of creating a positive student experience, she says.
College is often the first time people need real money skills, says Hardy, and it’s important for students to develop good financial habits as early as possible.●
Nikki Brahm is Senior Staff Writer for INSIGHT into diversity.
This article appeared in our December 2022 issue.