Throw Me a Financial
Line, I’m DrowningIncorporating
Financial Literacy in
Your FYE Program
Linda Fossen, Associate Vice President for
Enrollment Planning
[email protected]
Julie Ann Larson, Professor
The University of Texas at Brownsville/Texas
Southmost College
Brownsville, Texas
[email protected]
Financial Literacy
Defined
Financial literacy is the ability to make
informed decisions and judgments
regarding the use and management of
money.
College Students’ Financial
Literacy-the Grim Statistics
• The Third Annual Back-to-School Survey from
Capital One (July 29, 2003) found that:
 Eighty-seven percent of college students and ninety percent of
high school students rely on their parents for financial
guidance.
 Ninety-eight percent of college students and ninety percent of
high school students say their learned about money
management thorough their own experiences with money.
 Seventy percent of college students surveyed say their parents
have not given them tips or advice about spending money
wisely.
 Seventy-two percent of college students have a regular fulltime of part-time job.
 College students borrowed in the 90s what they did in the 60s,
70s, and 80s combined.
 Bankruptcies filed by those 18-25 were 150,000 in 2000, a tenfold increase in five years.
Grim Statistics
(continued)
• A 2001 credit card usage analysis by Nellie Mae found
that:
 Eighty-three percent of undergraduate students have at least
one credit card, a twenty-four percent increase over 1998.
 Twenty-one percent of undergraduates who have credit cards,
have high-level balances between $3,000 and $7,000- a sixtyone percent increase over the 2000 population.
 Those who attended private, four-year colleges burrowed most
(average of $21,000), followed by those who attended public
four-year colleges (average of $17,000), next were those who
attended vocational/technical schools (average of $15,000) and
those borrowing the least attended public two-year institutions
(average of $8,000).
 Students attending graduate school borrow, on average, an
additional $31,700 beyond their undergraduate borrowing, an
increase of fifty-one percent since 1997.
 Seventy-two percent of the respondents report having used
credit cards to help finance their education.
Grim Statistics
• According (continued)
to the Cambridge Consumer
Credit Index, sixty- four percent of people
with educational loans said that the loans
prevented them from making other major
purchases such as a house or a car.
• The 2004 Student Monitor Financial Service
Study shows that college students on
average earn $4,500 per year- this is in
addition to an average of $267.00 a month
that sixty-four percent of students receive
from home.
Grim Statistics (continued)
• Jump$tart Coalition 2002 Personal Finance Survey
2002 National Benchmark Study of 4,024 high school seniors.
Average score was fifty percent- a failing grade.
Sixty-eight percent of high school students received failing scores.
Of the student surveyed, only fifteen percent said that they had taken a portion
of a course (at least once a week) in money management or personal finance.
 Thirty-five percent said they were either “not too sure” or “not sure at all”
about their ability to manage money.
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• National Endowment for Financial Education (NEFE) National Financial
Literacy Survey
 Savings are down and bankruptcies are up.
 Fifty-five of college students acquire their first credit card during their first
year of college, and eighty-three of college students have at least one credit
card.
 Graduating students have a average of $20, 402 in combined educational and
credit card balances.
 Twenty percent of graduating college students have $10,000 or more in nonschool related credit card debt.
 Twenty percent of college students with credit cards roll over debt each
month.
Why College Students’
Financial Skills Matter
• Credit usage is high.
 A recent study at Iowa State University found that the
average college student owned three credit cards, with an
average balance of $1,000.
 Most respondents said that they didn’t feel like they were
spending real money when they used credit cards or
student loan funds.
 Fifty-eight percent were unhappy about the size of their
loans and fifty-five percent worried about whether they
could make the payments.
 University administrators state that they lose more
students to credit card debt than to academic failure.
 In light of these statistics, Citibank believes it’s critical for
young people to develop financial literacy skills early in
their college career. The college years are an opportunity
for students to learn about personal management and
responsibility.
Why College Students’
Financial Skills Matter
• Spending habits
affect a lifetime
(continued)
 Most high school students have spending money either
from earnings or allowances. But with little need to pay
for living expenses, many teens develop spending habits
that become unrealistic when they must support
themselves.
 Once young adults become accustomed to high spending
lifestyles it can be hard for them to develop new habits
that contribute to long-term financial well-being.
 In a recent survey conducted at Iowa State University,
over forty percent of the students between the ages of
16 and 22 said they would buy a pair of jeans (or
something similar) they really wanted even if they did
not have the money to pay for it. More than twenty-two
percent said that they would pay for it with a credit card.
•
Why College Students’
Financial Skills Matter
Current financial
literacy is low.
(continued)
 The low level of financial literacy has attracted a great
deal of attention.
 Federal agencies, most notably the Federal Reserve and
the Treasury, have formed departments, research groups
and even inter-agency task forces to address problems
related to financial literacy.
 Numerous studies and surveys have been done to
measure and track financial literacy among consumers of
all ages and in many countries.
 Virtually all studies and surveys come to the same
conclusion- financial literacy is unacceptably low and is
showing little improvement.
 Inadequate knowledge of financial literacy may lead to
student loan default.
Student Loan Default-Help
Me, I’m Drowning
• Graduation
 In a study of California borrowers, failure to complete the
academic program was one of the strongest predictors of
defaults among all types of students. (Woo 2003)
 In a study of Texas A&M University students, borrowers who
did not graduate had a nearly fourteen percent default rate
while borrowers who did graduate had a less than two
percent default rate. The study further indicated that
borrowers who obtain degrees have a low default rate no
matter what the type of degree. (Steiner and Teszler 2003)
 Poor academic performance is the number one reason for
student departure and departure before degree completion is
the number one reason for loan defaults. (Vockwein and
Cabrua 1998)
 To the extent that graduation opens employment
opportunities and raises earnings, successful retention
programs will lower an institution’s default rates. (Knapp and
Seaks 1992)
Student Loan Default
(continued)
• Grade Point Average (GPA)
 As GPA raises, the probability of default falls. Woo found that a
half grade point increase in GPA reduced the rate of default by
fourteen percent. (Woo 2002)
 A study of borrowers at a two-year public institution found that
low GPA (less than 2.0) was associate with a higher default
rate. (Christman 2000)
 Academically successful students tend to have lower student
loans at graduation. (National Association of Student Financial
Aid Administrators Study 2003)
• Continuous Enrollment
 Students who are continuously enrolled are less likely to
default than students who drop out. (Podgursky 2002)
 Students who withdraw from school for administrative or
academic reasons have a higher default rate than students who
withdraw for work-related reasons. (Steiner and Teszler 2003)
Student Loan Default
(continued)
• College Major
 A college major in a scientific, engineering, or
agricultural discipline lowers the default probability by
over four percent among two-year, four-year, and
university borrowers. (Volkwien and Szelest 1995)
 Borrowers who change majors once or twice have
lower default rates, whereas those who change majors
more than twice have higher default rates. (Steiner
and Teszler 2003)
 The greater the incongruence between a student’s
undergraduate major and his or her current
employment, the higher the risk factor for default.
(Flint 1997)
Student Loan Default
(continued)
• Attendance Factors
 The default rates of borrowers decrease as their length of time at
college increases: students enrolled only 1-4 semesters have a higher
default rate than students enrolled for a longer period of time, and
students with 110 or fewer hours of credit have a higher default rate
than students with 111 or more hours. (Steiner and Teszler 2003)
 Borrowers who leave school after two to five years have a low default
rates whereas borrowers who leave after one year or less default at a
rate of fourteen percent. (Steiner and Teszler 2003)
 Extending attendance beyond five years has a negative impact on
default- undergraduate borrowers who have six or more years
between the time they first attended school and their most recent
departure have a relatively high default rate. This holds true even
among students who are successful at completing their studies; even
among borrowers who graduate, those who take six or more years
have considerably higher default rates than those who graduate in five
years or less. (Steiner and Teszler 2003)
 At two-year public institutions, borrowers enrolled for less than two
semesters had a higher default rate than those enrolled for longer
periods of time. (Christman 2000)
Student Loan Default
(continued)
• Number of hours failed
 The more hours which borrowers at Texas A&M University
fail, the more likely they are to default later. (Steiner and
Teszler 2003)
 In a national study of two-year public school students,
borrowers who failed any hours also had a higher default
rate. (Christman 2000)
• Class Level
 Students whose last level while enrolled was a freshmen,
sophomore, or junior were more likely to default than
seniors or graduates, perhaps because seniors are closer to
graduation (a college success factor variable known to be
associated with lower rates of default) than students at
lower levels. (Thein and Herr 2001)
Student Loan Default
(continued)
• “Dorm” Living
 In the study of Texas A&M borrowers, it was found
that the greater the number of semesters that a
borrower spent in a dorm, the lower the default rate.
This may indicate greater integration into the
institution, which is associated with success, which
is in turn associated with loan repayment. (Steiner
and Teszler 2003)
• Student Employment
 The influence of working in college lowers default by
seven percent for non-White borrowers, but had no
influence on White borrowers. (Volkwein et al. 1998)
Throw Me a Financial LineSolutions to the Crisis
• Building Financial Literacy
 College is the first chance for many college young adults to make
significant decisions on their own.
 When young adults learn and practice sound financial skills during their
college years, they build a foundation for a lifetime of financial well-being.
 College faculty and staff can draw form their knowledge and resources to
help students build money management skills that will start them on the
path to financial literacy.
 Financial education has been shown not only to enhance students’
knowledge levels, but also to have lasting impact on their financial
behaviors.
 Giving college students a solid grounding in basic financial skills helps
them avoid dropping out of college for financial reasons.
 Many college students have not received any formal education on how to
manage their financial lives.
 College administrators are in a great position to help college students
learn the financial skills they need to live and work- and earn, spend and
save-during school and after graduation.
 By providing freshman, sophomores and even juniors – with basic
guidelines for managing finances, administrators can help make education
in personal financial management part of the college learning experience.
Throw Me a Financial Line
(continued)
• USA Funds to the rescue
 USA Funds is the nation’s leading student-loan guarantor.
 It is a nonprofit corporation that supports access to education by
providing financial and other valued services to those who
pursue, provide or promote education.
 USA Funds annually guarantees education loans totaling more
than $13.9 billion for students and parents throughout the nation.
 Life Skills is a life line
 For students to survive in school and beyond they must have
essential life skills.
 Life Skills presents to students the skills they will need to
successfully complete their studies in a minimal amount of time
and with a manageable amount of debt.
 The Life Skills course consists of five independent, yet interrelated
instructional modules. Each of these modules reflects a specific
instructional goal.
 Each module is designed as an one-hour workshop.
Life Skills (continued)
• Course Overview
 Module 1: Get a Grip on Your Finances: Smart Spending for
Students. This module is designed to teach students strategies
for managing their money wisely while they are in school.
 Module 2: Seek Out Financial Aid: Funding Resources and
Financial Obligations. This module is designed to teach
students strategies for obtaining financial aid and help them
grasp the accompanying rights, obligations, and
responsibilities.
 Module 3: Work Hard But Smart: How to be Successful in
School and Graduate on Time. This module is designed to
teach students strategies for succeeding in college and
completing their degree in a timely manner.
Life Skills (continued)
 Module 4: Take Control of Your Future: Finishing
School and Repaying Your Loans. This module is
designed to teach students to set reasonable career
expectations, understand the importance of studentloan repayment, and develop strategies that will
help them repay their student loans.
 Module 5: Now That You Are About to Graduate:
Taking Control of Your Life. This module is designed
to prepare students for employment, help them live
within their means and reinforce students’ loanpayment options, responsibilities, and obligations.
Life Skills (continued)
• What’s included in each module?
A training manual
A student skills book
PowerPoint presentational slides
Interactive CD-Rom skill building
activities for students
A video
Life Skills (continued)
 Suggested Ways to Use Life Skills
Freshmen seminar programs
Freshmen/transfer orientation
Consumer education
Residence hall programs
Exit counseling
Adult re-entry programs
Summer bridge programs
Student success programs
My Favorite Exercise
• Needing Vs. Wanting: Do I Really Know the Difference?
 Can you distinguish between the things you need to accomplish
your goals from the things you merely want? Identify recent
purchases of things you need versus things you want. Begin by
listing the last 10 purchases you spent money on or purchased
during the past week. Then, identify the purchases as either
needs or wants by placing an “n” or “w” next to each purchase.
Also indicate how much each item cost.
 Review your list. Be honest with yourself by answering the
following questions:
o
o
o
o
o
Did you buy more things that you wanted or needed?
Did you spend more money on things you wanted or needed?
Do you think are more likely to spend money on needs to wants?
Where did you tend to purchase the items on your list?
How much of your spending was a function of “retail therapy”?
Challenge Questions
• What are goals?
A. Things that are nice to have and
gratify some desire or urge.
B. Necessities for your everyday living
such as food, housing, and books for
school.
C. Desires and plans to achieve a
specific outcome.
D. Something you think about but
don’t accomplish.
Questions (continued)
• What are needs?
A. Things that are nice to have and
gratify some desire or urge.
B. Necessities for your everyday living
such as food, housing and books for
school.
C. Desires and plans to achieve a
specific outcome.
D. Something that you think about but
don’t accomplish.
Questions (continued)
• What are wants?
A. Things that are nice to have and
gratify some desire or want.
B. Necessities for everyday living, such
as food, housing, and books for school.
C. Desires and plans to achieve a
specific outcome.
D. Something you think about
accomplishing but don’t.
Questions (continued)
• Which of the following is one of the four
basic principles you need to know in order
to survive financially while in school?
A. Have fun now, this is the only time in
life you will be free.
B. Don’t waste time thinking about money
when you don’t have any.
C. Use student loans only for the “fun
stuff” like a new car or a great trip during
spring break.
D. Know how to strategically manage
where your money goes.
Questions (continued)
• Which of the following is a credit card DON’T?
A. Don’t get a second or third card. One card
is enough.
B. Don’t pay more than the minimum balance
required.
C. Don’t pay any attention to the fine print on
the credit card application: all credit cards are
the same.
D. Don’t be afraid to let the credit card
company increase your spending limit: the
more you can buy the greater your life will be
Concluding Thoughts…
• When young people head off to college, will they
have the personal finance skills necessary to manage
their money and plan for the future?
 Not according to this presentation.
 Not according to the Jump$tart Coalition for Personal
Financial Literacy- just ten percent of youth are graduating
from high school with any kind of instruction in personal
finance.
 This leaves young people ill-prepared for the increased
financial responsibilities that students take on when they go
to college.
 New college students are inundated with credit card offers,
as they take on student loans, sign leases, and make
numerous purchases. They are making decisions that can
negatively impact their future in terms of their financial life.
Concluding Thoughts
(continued)
• It is important to keep in mind, when discussing
the financial attitudes and skills of today’s
college student, that they do face greater
financial pressures and responsibilities than
students did 15 or 20 years ago. Rising costs of
tuition, and other education and living expenses
can create a level of financial stress not
experienced by previous generations. And
society’s general acceptance of credit as a
means of paying for goods and services may
lead some to develop unrealistic expectations in
terms of the life they will be able to lead upon
graduation.
Concluding Thoughts
(continued)
• All of these reasons make it all the more
critical for college students to receive the
basic education they need to put their
financial life in perspective and to
understand their role and responsibilities
in managing their finances to achieve
their life goals.
• Help me I’m drowning… are you willing to
throw your students a financial life line.