6 Steps to Build College Financial Literacy

One of the most expensive investment families make is the decision to attend college. In the last several decades the number of students who aspire to a college education has risen dramatically. With today’s emphasis on academic testing and college admission requirements, we are often too busy to consider some far-reaching implications and may overlook some of the basic life skills our students need as they transition to adulthood.

Two of these critical basics are Career Literacy™ and financial literacy, which intersect during the college years. Career Literacy is based on self-knowledge and developing the knowledge and skills needed to navigate today’s career and workplace successfully. Financial literacy is the knowledge and skills needed to manage personal finances responsibly and to live within one’s means.

Having a good sense of what your investment will purchase is only smart. Some facts to consider:

• According to a recent USA Today article, the tuition cost of a private college education now averages $30,000 per year, while a public education averages a $5,800 annual tuition bill. Room, board, books, transportation and additional expenses push the cost of attendance much higher.
• Recent analysis of data based on high school suggests that U.S. students’ access to college has increased over the past three decades, but completion rates have not changed. Depending how the numbers are sliced, the statistics vary, but among those who started, about 50% completed a bachelor’s degree at the end of 5 years. What remains is the fact that while bachelor’s degree completion rates have been steady over time, the likelihood of still being enrolled with no degree at the end of 5 years has increased. (National Center for Educational Statistics)
• College graduates average $20,000 in debt, with parents carrying an even larger load. Parents often divert funds from their retirement savings to fund their children’s college costs, which financial advisors discourage.
• Credit card debt has risen over 30% in the last few years, with teens and college students leading the way. People under the age of 25 years are the fastest growing group filing bankruptcy. Stories of “free” credit cards for students abound. The result is poor credit scores and students moving back home.
• Students who drop out of college are not typically eligible to be covered on their family’s medical insurance. This represents a growing number of uninsured young adults or a steeply rising private expense.

Many students do not understand how the early decisions they make about their finances impact their life. Too often the critical life decisions our young people make are by trial and error. They do not realize how long they will be paying for that slice of pizza or spring break vacation they charged.

What can we do? Here are six steps that can build a student’s financial literacy muscles:

1. Take the time to develop a plan and discuss expectations with your student about your investment
2. Have an open, honest, and ongoing conversation about managing money
   • Family budget
   • Implications of college expenses
   • Understand what a loan or credit card really costs, and how to handle them responsibly
3. Define your specific costs for tuition, room, board, books, transportation and other expenses
4. Determine a realistic budget for monthly expenses
5. Develop a method for the student to record expenditures and track progress 6. Based on the student’s career aspirations, estimate realistically what income prospects are when he or she graduates and the debt for 4, 5, or 6 years of college

Individuals with a college education generally show higher incomes over time. However, unless parents and students have had ongoing money management conversations, young people are typically unprepared to manage their money wisely. It can take years to undo poor credit decisions and dig out of debt. Those decisions will impact both of you. If your student is not prepared for college or does not have realistic goals, they are at greater risk for leaving prematurely. And none of us wants to see that happen!