Financial Literacy: Reaching the College Crowd

As experts debate the usefulness of teaching financial know-how to debt-strapped students, some undergraduates are doing it themselves

By Shalini Ramachandran

Cash-strapped families taking out large student loans to pay tuition. College students graduating with thousands of dollars in debts. Stressed-out seniors working double-shifts to pay off loans. These aren't new stories, but they're becoming increasingly common at universities as the financial crisis drags on. With experts blaming students' financial woes on risky loans and a lack of understanding of key money concepts, financial illiteracy in America is getting serious attention from universities around the country.

That's because of stories as depressingly familiar as this one: Texas Tech senior Nelson Gonzales, who didn't have much money growing up in south Houston, got a credit card after coming to college. The piece of plastic opened up a new world to him. "Though I had a meal plan, I was still getting fast food, going out every day, trying to live a lifestyle I couldn't afford," Gonzales says.

Then it caught up to him. After living sometimes on one meal a day and amassing $4000 in debt, Gonzales came to Red to Black, Texas Tech University's free financial counseling clinic, where he received peer counseling and learned how to create a budget.

Two years later, Gonzales, 22, is debt-free and speaks to large audiences as a counselor for Red to Black.

Debt Prevention—but no cure

A paradigm for financial counseling clinics since its inception eight years ago, Red to Black has grown from a small group of volunteers into a full-time operation for the Texas Tech community. Since a recent spike in first-time clients, Dottie Durband, the program's director, has been training students to "focus on listening" and counsel clients emotionally. In the fall, she's planning to add more debt-counseling information to the freshman orientation seminar—so students planning on earning $40,000 after graduating will think twice about taking out loans.

Despite its success, Red to Black, like other programs of its kind, is largely preventative. It treats the symptoms but not the ignorance that fosters them. "Only when it catches up to them [do] they come seeking help," says Sonya Britt, assistant director of Red to Black. Faculty and students alike are asking the same question: How do we address the real problem—the lack of knowledge and will to learn?

On one hand, financial aid directors who have witnessed rising student loan debts across the country are calling for increased financial literacy education. At Iowa State, where the average student debt is $30,000 upon graduation—the highest level in the U.S.—Roberta Johnson, director of the financial aid office, says students are "extraordinarily stressed" carrying these debts. "It not only impacts their ability to buy a home, even in five years, but also it dissuades students from entering low-paying jobs, like public service," she says. She believes mandatory financial education is needed to ensure the monetary health of future generations.

But Jump$tart Coalition, an advocacy nonprofit for financial education, released survey results in 2008 showing that personal finance education has absolutely no effect on a college student's financial literacy score. Lewis Mandell, the University of Washington Business School professor who compiled Jump$tart's survey, says financial education is just "not sticky."

"How much trigonometry do I remember?" he asks. "Not much, since I barely use it."

A U.S. Consumer Protection Agency?

Unlike driver's education—knowledge most of us use every day—knowing the ins and outs of mortgage loan rates won't come in handy to students for years. Problem-solving, wariness of advertising and promotional claims, and basic math can be taught, Mandell says, but only with time and life experience do these concepts take hold. He recalls from teaching personal finance classes: "The undergrads were yawning, the MBAs had some interest, but the Executive MBAs—the ones with families, mortgages and car payments—they hung onto every word."

Lauren Willis, law professor at Loyola Law College, author of "Against Financial Literacy Education," believes the onus is on policymakers to come through on initiatives such as President Barack Obama's proposed Consumer Protection Agency, which would regulate lending practices and student credit card holdings.

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