How financial literacy can help combat student debt

How financial literacy can help combat student debt

“An advisory group that reviews debt-collection practices for unpaid student loans at Ohio’s public colleges has recommended that high school students receive financial literacy education.”


—AP, June 25, 2017 (US News)

A bright idea from the Buckeye state

I’ve been saying this for years: If we hope to scale back the student debt crisis, we need to teach high schoolers about money before they borrow a ton of it for college. With the average grad who borrowed confronting $37,000 in loans to pay off, and delinquency rates on the rise, young people clearly aren’t getting the facts about the dangers of debt and smart ways to contain it.

Don’t think it’s because teachers don’t care about financial literacy. Nine out of ten K–12 educators say students should be required to complete a course or pass a competency test in personal finance, according to a 2009 study from the University of Wisconsin–Madison. The problem: Teachers feel unprepared to teach money skills, and states just aren’t making it a priority. When I tweeted about this story the first time, the response confirmed what I’ve known forever: Support for financial education in high school is widespread. Only 17 states now require high school students to complete a course in personal finance, which may be why the U.S. limped across the finish line in a recent international study ranking the money smarts of 15-year-old students. Among fifteen developed economies, our kids came in seventh.

While most personal finance courses cover saving, investing, and debt in general terms, we need to get into the nitty-gritty of paying for college, too. Many families miss out on low-interest loans and grants (free money, people) because they don’t fill out the forms. Who can blame them? They’re complicated, and some wonder what’s the point. Guiding students and their families through the Free Application for Federal Student Aid (FAFSA) could save them thousands of dollars and a lifetime of debt after they get their degrees.

When they’re done right, personal finance courses can make that kind of a difference. According to a FINRA study of three states that mandate financial education in high school, the requirements changed the way students went on to manage their money. Credit scores rose and delinquent bill payments dropped among young adults.

Oh, and here’s an interesting bit of inside baseball. The Ohio recommendation was announced by the state’s Republican attorney general, Mike DeWine, who unseated Richard Cordray. Cordray now heads the Consumer Financial Protection Bureau, a big proponent of financial literacy (and favorite target of congressional Republicans). My point? Financial education is a rare and beautiful thing: an issue people from both ends of the political spectrum can agree on.

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