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Sense About Dollars

Many students don’t know the basics when it comes to managing their own money. Institutions that provide financial literacy programs find that benefits, including better retention, go both ways.

By Anna-Louise Jackson

Sense About DollarsMoney doesn't grow on trees, or so parents tell their children. Unfortunately, that saying doesn't seem to resonate with today's college students. Thanks to easy access to credit, students are amassing record levels of personal and student loan debt. According to Sallie Mae, 84 percent of undergraduates arrived on campus last fall with at least one credit card, and one in three students graduates with $10,000 or more in credit card debt. What seems like free money at first eventually may force some students to leave before graduation. Those who do manage to earn a degree often lack a commensurate understanding of basic financial concepts.

In February 2010, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act takes effect, designed to protect consumers from egregious abuses by credit card companies. Among other things, the legislation requires people under the age of 21 to demonstrate sufficient income to cover credit obligations, or have a cosigner. It's a step in the right direction, says Laura Levine, executive director of the Jump$tart Coalition for Personal Financial Literacy, a nonprofit advocacy group based in Washington, D.C. But legislation alone does not solve the country's underlying social problem of financial illiteracy. “We can't regulate ourselves out of the problem,” she says.

Instead, she wants education to be part of the solution. The postsecondary community has been slow on the uptake, but Levine says that's beginning to change as more institutions join the charge and recognize the apparent need for better financial literacy education. Institutions with financial literacy programs have found that the challenges of getting a program off and running are met with rewards for students and the institution alike.

Partnering on Program Particulars

As a guest lecturer in a family resources class at the University of Hawaii at Manoa (UH Manoa), extension educator Pamela Kutara asks students each semester if they've had any formal training or coursework in personal finance. The response is always the same: “Only about 10 percent raise their hands; it's terrible,” she says. In 2005, faculty from the university's Department of Family and Consumer Sciences decided this situation needed to be addressed. The group began by surveying more than 400 students and 25 faculty and staff members about what should be offered in financial education workshops. While there was some crossover, students were more interested in learning about investing, whereas faculty and staff believed they should learn about budgeting and credit.

The group ultimately took the faculty and staff advice to heart, focusing on basic budgeting and credit issues in workshops taught by students trained by faculty. With the Cooperative Extension Service of the College of Tropical Agriculture and Human Resources taking the lead, the program has expanded. Last year, it added an online program, which the university is piloting for USA Funds, a nonprofit education-loan guarantor based in Indianapolis. The organization provides all material for the workshops and online coursework free of charge. Though Kutara says the program is still in its formative stage, “We've seen some really good, positive results.”

South Mountain Community College, one of the Maricopa Community Colleges in the Phoenix area, also saw the value of collaboration when it partnered with the Joyner-Walker Foundation, Tempe, Arizona, to establish the Financial Literacy for Youth (FLY) program. Ken Atwater, South Mountain's president, approached the foundation about funding the program. The pairing was a natural one because the foundation's founders, former professional athletes Seth Joyner and Andy Walker, advocate for financial education in underprivileged communities. The program is offered to at-risk high school and college students through three existing courses. Participating students receive college credit, and the cost is covered by the foundation. Meanwhile, the current recession has highlighted the lifelong need for personal financial literacy, says Bruce McHenry, a business faculty member who helps oversee South Mountain's program.

At Boston College, the idea for the institution's $uccessful Start program came from staff in the student services department, who perceived a need for financial education on campus. But first, the department surveyed the entire campus to confirm that students agreed and to find out what types of programs they would like to see offered. “The response was overwhelming,” John Brown, senior student account receivables specialist, recalls. “We received a much higher response rate than one would normally expect.”

Now in its fourth year, the $uccessful Start program operates on a very modest budget, but it's enough for administrators to deliver four to six interactive workshops per semester and a couple more during the summer. Administrators also identified a collaborator in the college's Carroll School of Management. Soon, $uccessful Start will offer one-on-one peer counseling. “We are very excited about the possibilities of this plan,” Brown says.

Keep Student Needs Central

The best-laid plans still need buy-in from students to succeed. Boston College primarily offers workshops between 4 and 6:30 p.m. Why? That's what students wanted, Brown says. The college serves pizza and soda at all workshops and maintains a strictly voluntary attendance policy. South Mountain's partnership has also allowed the institution to offer incentives to participating students. The foundation funds the cost of workshop tuition and sponsors field trips and extracurricular activities. In addition, students who complete the program receive a $50 stipend for books and a scholarship to cover the cost of tuition and fees for one three-credit course at any of the 10 Maricopa Community Colleges in the area.

Other factors draw students to programs, including:

  • Inclusive planning and expansive programs. At the University of North Texas (UNT), Denton, students weighed in on all aspects of its Student Money Management Center, from its mission and programs to the design of the office. Director Paul Goebel credits this student-centered focus and input for the overwhelmingly positive response from students. Since opening in fall 2005, the center has grown to serve more than 8,000 students each year, as well as some recent alumni.

    Students actually fund the center through the university's student services fee. Based upon an enrollment of 34,000, each student contributes $7.92 annually to cover the cost of operating the center, though it also receives additional funding through foundations and uses a free online course from the National Endowment for Finance Education (NEFE), Greenwood Village, Colorado.

    Recognizing that students have different financial needs and learning styles, the center has aggressively expanded services, as well. Three full-time employees and six student workers provide one-on-one counseling, presentations, online training, and upwards of 50 workshops per semester. “We've made an investment in providing students the opportunity to develop life skills that will make them not only successful students while they're with us, but also successful citizens upon graduation,” Goebel says. “We're redefining success outside of traditional academic models.”

Learning's Longer Reach

Mellody Hobson, president of Chicago-based Ariel Investments LLC, is a strong proponent of financial education programs because, she says, learning such skills is the only way people can hope to be financially secure. Effective financial education will reverberate beyond the individual level, to influence family members, the community, institutions, and the broader society.

In addition, financial ignorance poses a threat to future employment and to job performance. While it was once common for employers in particular fields, such as security and finance, to perform credit checks, the practice is expanding, says Laura Levine, executive director of the Jump$tart Coalition for Personal Financial Literacy. Now job seekers may be hampered by less-than-favorable credit check reports from potential employers in a wide variety of professions and industries.

Some research indicates that employers experience lack of productivity among employees who are distracted by personal financial problems. “We look at college-educated people as potentially the leaders of tomorrow. It's extremely hard to go out and do great things in the world if your personal finances are in turmoil,” Levine says.

For Austin Jackson, CEO of Decision Partners, working with institutions for the past five years has taught him that funding tends to be the main sticking point for financial literacy programs. Whereas institutions are keenly aware of problems with student alcohol abuse, for example, student indebtedness has become a major problem only in the past decade. Given the impact on institutions and their obligations to students, he urges the community to reconsider. “Helping students understand basic money management as part of a larger student success program,” says Jackson, “ensures that the institution has done all that it can to help students minimize unnecessary debt and financial stress.”

Jackson says financial education needs to be more inclusive than a single lecture or static Web site—it must offer curricula tailored to major life transitions, such as attending college. Levine agrees. She hopes personal finance training will transcend beyond classrooms to people of all ages. “Personal finance is something that we need to continue to learn throughout our lives because what we need to know continually changes and that includes the financial landscape,” she says.

  • Program relevance and future application. Effective programs must also be highly relevant to students and include expectations of future earnings and debt levels, recommends Austin Jackson, CEO of Decision Partners, a nonprofit organization based in Boston. “Effective financial literacy programs must be tailored tothe financial knowledge, attitudes, and behaviors of each participant,” Jackson says. More than 200 institutions use the company's primary product, Financial Literacy 101, in different contexts—first-year orientation, academic probation, first-generation student programs—as a requirement to receive financial aid and as a general student resource. However, he feels mandatory programs are best. “Required participation creates a common experience and vocabulary with which students can talk with their peers about these issues,” Jackson says.
  • Fulfillment of requirements. Per federal regulation, California State University, Northridge (CSUN), requires that students who receive federal loans attend loan-entrance counseling. Last year, the university piloted Decision Partners' Financial Literacy 101 course as part of a for-credit freshman seminar. However, massive budget cuts over the summer threaten the future of this offering, as well as other financial literacy efforts, including collaboration with the University Student Union on financial workshops; “Matador Dollar Day” (a financial aid fair at which students can talk with lenders and CSUN financial aid representatives); and presentations in freshman classes and orientation. Tom McCarron, the university's vice president for administration and finance, believes it's best to educate students about financial topics starting in grade school, but he recognizes that because so many undergraduates arrive on campus with no financial background, it is necessary for the university to be involved, too. “Making financial education mandatory for those students who receive financial aid is wonderful. I would love to see it expanded to virtually everyone coming in,” he says.

Goebel acknowledges that UNT has been extremely fortunate in demonstrating results so quickly for his institution's strictly voluntary program. Still, he knows a majority of the 34,000 student population will never use the center's services because of lingering stigmas associated with getting financial advice. Nevertheless, if a workshop helps just one student, the entire team feels a sense of accomplishment. And in the past year, the number of students coming to the center via word-of-mouth from peers has been especially encouraging. “It means we're changing the culture at UNT,” Goebel says.

Identify Allies

Students alone can't change the culture on campus. But, Goebel says, a senior administrative advocate can provide valuable support for a program. UNT's program found a strong ally in Bonita Jacobs, vice president of student development. The center has also partnered with more than 50 administrative departments and student groups on campus, including the business office, to best serve students facing financial challenges.

Get a Good Read on Financial Literacy

As a financial planner and certified public accountant, Susan Knox has encountered her share of middle-aged clients who never mastered the basics of money management. Even though she saw how much stress this created, Knox did not consider tackling the problem until she spoke with the vice president of a private student loan company. After learning about problems the lender had encountered with student borrowers, Knox was reminded of her clients and decided to take action: “I thought if I could write a book that would reach students before they began to make many financial decisions, it would help get them started on a positive financial note.”

Knox wanted to show students ways to analyze financial issues and how to ask for help when needed. Recognizing that a one-size-fits-all approach would not work, she presented different options for students to keep up on their finances, regardless of whether they love or hate spreadsheets.

By interviewing students and administrators across the country, Knox drew real stories to develop content for the book. She sent an outline for review to a friend, Martha Garland, vice provost and dean for undergraduate education at the Ohio State University, Columbus. That proved to be fortuitous: Garland told Knox she wanted to use the book for Ohio State students. After publication of Financial Basics: A Money Management Guide for Students (Ohio State University Press, 2004), the university began giving the book to every student at orientation. The University of Washington alumni office also sends a copy to every scholarship applicant. Other institutions purchase the book in bulk to use in classes or financial literacy workshops.

Five years later, the financial crisis has given Knox's book additional relevance, and hits on her Web site have increased in the past year. “I tried to write Financial Basics so that it would endure over time, and I think it's holding up well,” she says.

For more information or to order the book, visit the NACUBO home page, click on "Products," and select "Publications."

At Boston College, the $uccessful Start program is offered through the student services department (an integrated unit that combines student academic and financial services), but the business office has been quite involved with the program. Specifically, the business office controls workshop topics, timing, and location; lines up speakers; and ensures that the workshop venue is prepared in advance. In contrast, CSUN's program is administered through student affairs, while South Mountain's program is run by the Career and Technical Education/Workforce Development office.

It's not uncommon for one administrative department to own a program, particularly in the first years of implementation, notes Jackson. Programs tend to enter campuses through financial aid offices and student support services programs. After the first year, however, institutions will often request access for additional student groups or departments.

Administrators who step forward to champion financial literacy efforts can help overcome institutional hesitancy. Mellody Hobson, president of Chicago-based Ariel Investments LLC, says that, rather than being dismissive or resistant to the need for financial education, colleges and universities are often simply confused about how best to implement a program. Prioritizing financial literacy efforts is also difficult because of intense competition for limited resources and students' time. But the economic crisis may serve as a wake-up call. “I do think this is a teachable moment,” Hobson says. “I think a number of institutions have realized that they need to do more in this regard in order to say that they've really given a good education to their students.”

Rewards for Participants and Providers

Financial education programs can also help to stave off financially related retention issues. The U.S. Department of Education's National Center for Education Statistics reports that more students who drop out of school cite financial, rather than academic, reasons. At UNT, financial challenges represent one of the top reasons students leave the university before completing their coursework. In spring 2007, the Student Money Management Center added retention services to its array of programs and now manages two hardship loan programs that disbursed more than $1.8 million last year. Students who receive these loans are not required to receive counseling, though two thirds ultimately do.

As a result, UNT is better able to understand students' financial challenges. For example, Goebel's team counseled one undergraduate whose total student loan debt was a whopping $149,000, compared to the national average undergraduate debt of $18,000–$25,000. Through such one-on-one counseling services, students in similar situations are assisted in addressing financial concerns that threaten their enrollment.

After the center's nearly four years in operation, UNT's team is working to expand analysis of the program's impact. The center will soon unveil a new tracking system to examine the academic progress of students to better understand the impact of the center's services on students' financial literacy. This type of tracking can be cumbersome, but is necessary to demonstrate that a program is effective. As part of the needs assessment conducted at the University of Hawaii at Manoa, administrators selected a control group of students who did not participate in workshops. Workshop attendees demonstrated greater awareness of money management practices in 13 of 20 indicators, compared with the control group. Results of this study will be the subject of a forthcoming research paper. In addition, Hawaii's program was highlighted as a good model for minority-serving institutions at a 2009 Institute for Higher Education Policy (IHEP) symposium, and it received an award of merit from USA Funds.

Survey Says? Not Time to Celebrate Yet

Since 1997, the Jump$tart Coalition for Personal Financial Literacy has surveyed high school students about basic financial concepts. In 2008, the coalition conducted its first survey at the college level, including 1,030 traditional, full-time college students. The results of the college survey indicate there is still room for improvement, notes Laura Levine, the coalition's executive director.

The 31-question survey queried students about various financial concepts related to income, money management, saving, spending, and credit. College students answered only 62 percent of questions correctly, though scores increased with each additional year of school. Freshmen scored 59 percent, while seniors correctly answered 65 percent of the questions. This improvement is encouraging, Levine says, because it may be attributed to the financial and life experience gained during college.

It's important to keep the scores in context, however. Levine says college students may have outscored high school students—even without additional financial education—because the college segment is by nature at a higher educational performance level. And Levine points out that most college students would be disappointed by a near-failing grade—and scoring poorly on financial literacy should cause no different reaction. “It's not time to celebrate yet,” she says. “I think [this is] still an indication that we have a long way to go.”

South Mountain's financial literacy program has resulted in additional full-time student equivalents, potential future enrollment, and altered perceptions about the institution. “Several financial literacy program participants commented that they no longer viewed the [four-year] university as their only option for higher education,” McHenry says. Instead, students gained an appreciation for the benefits offered by community colleges, including lower tuition, smaller classes, proximity to home, and transferability of credits. The investment courses have also attracted a new market of students to the community college: working adults. Approximately 150 adult learners have taken the college's investment courses and most of these students already have degrees, according to McHenry.

Student response about the financial literacy workshops has been overwhelmingly positive at Boston College, but now administrators plan to follow up with alumni to better understand the program's long-lasting benefits. “In the near future we expect to survey some of our graduates who attended one or more of our workshops to determine if, in fact, what we tried to convey to them has helped them in the real world after college,” Brown says.

Expanding the Mission

A number of the sources for this article described further outreach for their financial education efforts. Boston College, for example, is considering expanding financial education workshops to high school students in the metropolitan Boston area. South Mountain's program has always focused on both high school and college students, in an attempt to ward off financial problems before they arise. The program uses an application process to screen prospective students to identify those who are most at risk. The college and the Joyner-Walker Foundation also collaborated with Upward Bound, a program serving high school students from low-income families or families in which neither parent holds a bachelor's degree.

Similarly, Kutara says UH Manoa's informal group of financial educators would like to seek out funding so that it can expand services to the local community. “I'm in the community a lot, and I know there's a lack of financial literacy,” she says. “We want to extend out to the community, if we can get students interested in [participating in such] service learning opportunities.”

Unfortunately, budget cuts at CSUN have forced the university to curtail some of its in-person financial literacy support—though not because of a lack of will or interest on behalf of the administration. But another program may have a trickle-down effect that could ultimately have a positive impact on students. To help employees cope with the potential financial risk of mandatory furlough days over the next year, the university has stepped up its professional development series with several sessions on personal finance. McCarron has worked with his division to help others understand some basic personal finance principles. This fall, he's been asked to make a presentation to a campuswide group of employees. He says better-informed employees could help students in the absence of expanded financial literacy programs. “We're putting more focus on this than ever before,” he says. “It's going to be an invaluable resource to people.”

Just Do It

Advisory Council Targets Financial Ignorance

In January 2008, President Bush created the President's Advisory Council on Financial Literacy, a 16-member group of corporate, institution, and nonprofit leaders tasked with waging war on financial illiteracy. Shortly before President Obama's inauguration, the council released recommendations for improving financial literacy for all Americans in preschool through college. Among these recommendations, which have not yet been implemented, two actions could directly affect colleges and universities:

  • Create a financial education honor roll program to encourage best practices at colleges and universities. Institutions with innovative financial literacy programs could apply for recognition by the Treasury Department and the council, to serve as a model for other institutions.
  • Require students to take a course in financial literacy or pass a competency test in order to receive federally funded or federally guaranteed student loans. This course would be more comprehensive than current entrance- and exit-counseling requirements.

For more information, see the President's Advisory Council on Financial Literacy.

With so many organizations dedicated to improving financial understanding and knowledge, institutions need not feel overwhelmed by the task. Boston College opted not to use some of the commercial products available for online teaching. Instead, the institution engaged its guarantee agency, American Student Assistance, to provide facilitation and instruction services for the program. Even if an institution feels strapped for time or resources, “consider using one of the programs that offer online tutorial programs,” Brown says. “I would strongly urge any college or university that is considering a financial literacy program to do so.”

Jump$tart Coalition's Levine also encourages institution leaders to sit down with people in the financial services industry to explore partnerships. “I think there's a little bit of a myth that financial institutions want consumers to be ignorant,” Levine says. Ariel's Hobson agrees. Instead of seeing the financial services industry as a foe, institutions should seek help with presenting more complex investment principles. “When you look at industries actively involved inside universities, like pharmaceutical companies, we have a lot of precedence for it,” she says. “It seems to me that would be something to be emulated when it comes to financial education.”

For South Mountain Community College, partnering with a foundation has helped the institution to achieve its goal of starting students on the path of personal financial literacy, McHenry says. As Nike has famously proclaimed, he urges other institutions to “just do it”—and the earlier, the better. “It is important for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace,” he says. “The world of financial services is becoming a do-it-yourself market; students and communities need the tools and knowledge to navigate and make informed decisions.”

Goebel encourages his higher education colleagues to reach out to UNT and other institutions to learn from—but not copy—what others are doing, then tailor those lessons and programs to the needs of each campus's diverse student population. “Higher education is facing a mandate to strengthen the financial skills of our students,” he says. “Today, UNT students are living by the center's principle that financial independence begins with financial responsibility.”

ANNA-LOUISE JACKSON, Chicago, covers higher education business issues for Business Officer.