Are U.S. College Students Financially Literate?

Almost a year after the worst financial crisis in decades, college and university leaders continue to struggle with their new reality–one defined by state budget cuts, enrollment caps, decreased endowments and increased college costs. 

Of all the crises at hand, ballooning college costs (including tuition and fees, room and board, books and supplies, and transportation) have gotten the most attention. According to a recent report from the College Board, costs for the 2009-10 academic year are up, even as institutional leaders struggle to resolve their precarious financial situations. The average price of tuition and fees for in-state students at four-year public colleges in the U.S. rose 6.5% over the last year to $7,020. Even in the midst of larger economic concerns, history suggests college prices will continue to rise.

This increase in costs places additional financial constraints on families who are already grappling with economic pressures of their own, and has a disproportionately negative effect on lowest income families. Since 1978, average family income has declined by 3% for these families, while all other income brackets have witnessed an increase.

Recognizing that financial woes have a negative effect on most students’ abilities to matriculate and complete college, many institutions are trying to help students in a variety of ways, including financial literacy initiatives. But several issues make the effort challenging: Many students arrive at college unable to monitor their personal finances; students and parents are unaware of college costs and the appropriate uses of financial aid; and the availability of financial literacy information on college campuses, particularly among students who need it the most, is irregular or nonexistent. 

To ensure that students start early with making informed and wise financial decisions, institutions need to make student financial literacy a priority. Fortunately, several efforts underway teach core concepts such as personal money management and budgeting, setting financial goals, understanding student loans and repayment, and managing credit. 

Generally, most financial literacy programs encourage students to identify their emotional ties to spending and develop strategies for balancing their life in conjunction with financial planning. But financial literacy programs vary widely across schools, from one-on-one counseling to interactive technology tools. Prairie View A&M University in Texas produces a Web-based “financial aid” television show available to all students, while Arizona’s South Mountain Community College requires students to enroll in a “personal money management” course. Such innovative programs encompassing specific components have proved to be the most successful. 

While these programs have distinctive qualities that are often uniquely tailored to fit the needs of a particular institution, financial literacy strategies overall are often not discussed widely, and they tend not to reach the students who will benefit the most from them. One effort to reach these students is an annual financial literacy symposium for minority-serving institutions, sponsored by USA Funds and run by my organization, the Institute for Higher Education Policy. Over three days, we gather institutional leaders from schools that serve largely Hispanic, Black and Native American student bodies, and match them up with college retention experts, financial literacy experts and debt management consultants. They spend the time together thinking critically about on-campus programs that support student financial literacy, and how these programs can be refined and expanded to support institutional retention and college completion goals. 

As our nation’s leaders work to develop systemic and sustainable solutions to our country’s economic programs, our college and university leaders must also work to ensure that students are given tools to prepare and secure their own financial future. Financial literacy is not a supplemental component to these efforts; it’s the core ingredient to a strategy that supports financial knowledge and college retention. Students’ understanding of and confidence in handling money drives how they perceive and react to the campus environment–and there’s no better time than the college years for students to learn the “language of money,” establish good budgeting behaviors and become financially fit.

Michelle Asha Cooper, Ph.D., is the president of the Institute for Higher Education Policy in Washington, D.C.