Why Is Financial Literacy Important for College Students?

The benefits of an education in financial literacy, while useful at any age, are especially strong for college students. Why is financial literacy important for college students in particular? Research has shown that students are better able to retain what they have learned in the classroom if they are able to connect it with their own experiences. Quality financial literacy curriculum designed for college students will help them bridge the gap between the lessons and their personal experiences.  Learning about student loan debt and how to maximize your credit score directly relates to the students’ experiences outside of the classroom. Here is a look at some of the impacts of financial education to answer the question, “Why is financial literacy important for college students?”

The Federal Deposit Insurance Corporation (FDIC) analyzed the intermediate-term impact of a financial literacy program on consumers’ behavior and confidence 6 – 12 months after the end of the program. They found that consumers were more likely to have a checking account, budget wisely, save for retirement, and more. After the program, 78% of respondents reported they had a checking account, up from 12% before they had undergone the program. Another 69% reported their level of savings had increased after taking the program, with only 3% reporting that it had declined (Federal Deposit Insurance Corporation). https://www.fdic.gov/consumers/consumer/moneysmart/pubs/ms070424.pdf

Students who underwent the Moneytalks educational curriculum demonstrated positive behavioral changes. A ‘saving scale’ constructed by the author was the composite of a series of questions asking students about their savings habits. The mean value of the savings scale rose from a mean of 24.28 to 26,78, which was deemed statistically significant. Furthermore, statistically significant differences were noted for the proportion of kids who would compare price and buy on sale (University of California Agriculture and Natural Resources).
http://ucanr.edu/

A statistically significant association was determined between negative financial habits, such as gambling among Australian youth, and the influence of peers and parents (Science Direct). https://www.sciencedirect.com/science/article/pii/S0140197103000137?via%3Dihub

In a survey by OECD, well over a quarter of respondents replied that their culture influenced their attitudes toward wealth (Organization for Economic Cooperation and Development). https://www.oecd.org/finance/financial-education/2017%20Seminar%20on%20financial%20education
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31% of adults report they have no savings and 29% report they are saving more than they were last year (National Foundation for Credit Counseling). https://active.nfcc.org/newsroom/financialliteracy/files2013/nfcc_nbpca_2013%20financialliteracy_survey_datasheet_key%20findings_032913.pdf

A survey of 15-year-olds in the United States found that 18 percent of respondents did not learn fundamental financial skills that are often applied in everyday situations, such as building a simple budget, comparison shopping, and understanding an invoice (Organization for Economic Cooperation and Development). http://www.oecd.org/education/Education-at-a-Glance-2014.pdf

85% claimed they were ‘somewhat’ or ‘very’ unlikely to discuss their amount of credit card debt with strangers, more than the percentage of respondents who would avoid divulging details about their love life (CreditCards.com). https://www.creditcards.com/credit-card-news/poll-credit-card-taboo-subject-2013-1276.php

Two in five U.S. adults report keeping a budget and tracking their spending (National Foundation for Credit Counseling). https://www.nfcc.org/wp-content/uploads/2017/03/NFCC_BECU_2017-FLS_datasheet-with-key-findings.pdf

65% of adults in the United States report using a saving account (National Foundation for Credit Counseling). https://www.nfcc.org/wp-content/uploads/2017/03/NFCC_BECU_2017-FLS_datasheet-with-key-findings.pdf

A key component that is often overlooked when implementing a financial literacy program is quality. A curriculum that is based on the latest research and best practices outlined by government agencies and national education providers will have the highest probability of inducing behavioral change within program participants. Financial literacy equips individuals with a decision-making framework that they can employ when assessing the implications of the different financial options available to them. Through this framework, financial literacy leads to improved financial behavior and an overall greater well-being.

The Financial Services Authority (FSA) of the United Kingdom recommends financial education providers to construct benchmarks and record baseline measures from which to determine the efficacy of the curriculum (Financial Conduct Authority). http://www.fsa.gov.uk/

The GAO mentions that well-designed programs will provide intensive training to produce competent teachers. Additionally, programs should have the necessary financial and legislative backing to remain sustainable for the long term (Government Accountability Office).
https://digital.library.unt.edu/ark:/67531/metadc296866/m2/1/high_res_d/320216.pdf

“Financial literacy is just as important in life as the other basics.” – John W. Rogers, Jr., CEO Ariel Capital Management

“Without financial literacy, divorce rates soar, families rupture, and women stay with abusive men for financial security. A lack of jobs contributes to riots and illegal activity. Name any situation and it goes back to money. We need to focus on poverty eradication.” – John Hope Bryant, CEO of Operation HOPE

“Many entrepreneurs struggle to understand payroll taxes, health care and other thorny issues… In other words, they don’t have the financial literacy to scale their businesses and attract investors.” – Daymond John, CEO of FUBU and Sharktank host