In a world filled with inflation, tempting impulse purchases, and increasingly complex economic incentives, personal finance skills have become essential. But do we know how to develop them well, if at all?
Well, not exactly. In a 2019 report conducted by EVERFI, just over half of university students in the United States felt prepared to manage their personal finances, while everyone else felt unprepared to enter the corporate world. According to Phil Schulman, an executive director at Indiana University, while most high school students gain financial experience through part-time jobs, their exposure is limited to basic aspects like managing, saving, and investing money.
According to a 2015 poll organized by the American Institute of Certified Public Accountants (AICPA-CIMA), college students actually overestimate their money skills in some respects. 57% of 751 college students believed their personal finance skills were “good” or “excellent,” but only 39% stuck to a monthly budget and saved a portion of their income to put towards their tuition.
This doesn’t mean they don’t want to learn about finances, however. 99% of college students in the same poll claimed that developing personal finance skills was extremely important to them, and 84% want to make better money choices. However, only 23% actively educated themselves on and adopted better financial principles.
For starters, young adults don’t usually have much money left over to work with. According to the Education Data Initiative, the cost of college tuition has doubled in the past two decades, with students paying, on average, $36,436 annually (this includes living expenses and costs other than tuition, such as textbooks). Factoring in student loans, many young adults face an extreme financial burden long after they graduate.
One way to help mitigate this issue is by establishing a budget to prevent overspending and accumulating further debt.. Leftover money should be split into thirds: one for luxury or entertainment expenditures, the second to pay off debts, and the third invested or saved, according to Andrea Janssen, interim director of the University of Montana's Financial Education Program. If you want to use a credit card, you should be absolutely certain that you have or will have money left over to pay back your balance at the end of the month. As you continually accrue and pay back credit, you can build a positive credit score that will give you a financial edge and improve your prospects for job opportunities or home purchases.
One other way to tamp down on spending and help keep yourself in check is to track your spending habits. This ensures that you know exactly where your money is going and don’t blindly spend more than you need to. You should also be aware of the terms of the student loan you’re taking out and review its obligations to make sure they’re not predatory or troublesome for you. In addition, students can qualify for federal aid to help offset their tuition; one way to do so is by filling out the Free Application for Federal Student Aid (FAFSA).
We’ve seen the advantages personal finance education offers students, but is it actually being provided to them? According to a 2022 report by NextGen Personal Finance, only eight states have required that all students attending public high schools take at least one personal finance course before they graduate. The other forty-two have yet to pass such a requirement or implement the necessary procedures.
According to Laura Levine, president and CEO of the Jumpstart Coalition, there are many issues with requiring personal finance education, such as financing and finding time to give such instruction. Nevertheless, as the benefits clearly outweigh the drawbacks, it is vital that students learn and apply this knowledge early on to prepare them for their future life. For now, state legislatures are making progress on legislation to require personal finance courses, and you can do your part by contacting your local representative to encourage them to support these measures.