Starting college can be one of the most exciting, scary, frustrating, and revelatory times in a young person’s life. While you’re having to adjust to the rigors of university-level work, you’re also expected to magically become an adult at the same time. Oftentimes, academia and social lives become so prevalent that it’s easy to overlook personal finances during one’s time in college.
It doesn’t help that most young people are woefully unprepared for the financial demands of being an adult. According to a study by The Hartford Financial Services Group, 76% of college students wish they had more help preparing for their financial future. Meanwhile, only 24% felt that they were adequately prepared for the future. It appears that while most of us leave high school knowing how to calculate the Pythagorean theorem or discuss the symbolism in The Great Gatsby, few of us know how to apply for a loan or buy a house.
We wanted to know exactly what financial advice students felt like they were missing out on in their early years. That’s why we hit the streets around the University of Arizona to ask students what they wished they had learned about personal finances. Their answers reflect a wider trend among our nation’s youth, a generation awash in debt that could use some solid financial advice as they are entering adulthood.
Here are some of the most common responses we heard:
By far the largest financial concern among the university students we interviewed, involved loans. And for good reason. Generation Y, the label given to millennials, is often referred to as Generation Debt. The trend has continued in the current generation. A recent NBC News/GenForward survey found that 3 out of every 4 millennials in the U.S. are in some degree of debt. Additionally, a quarter of millennials are over $30,000 in debt, while 11% hold debts of over $100,000.
Credit card debt made up the bulk of borrowing among millennials, with nearly half reporting a credit card balance. Meanwhile, just 2 in 10 millennials reported having a mortgage or home loan.
Student loans have become another sizable source of debt for millennials. This is reflected in the $1.5 trillion currently being borrowed in the U.S. for education costs. Since 1980, college tuition rose by nearly 260%, more than double the cost of other consumer items. At the same time, a college education has become crucial to compete in today’s job market, making student debt a virtual rite of passage for most young people today.
While increasing education costs and economic needs aren’t the fault of young people, the problem is compounded when these borrowers are unprepared to take on a ton of debt before they’ve even started their careers. Paying for education is seldom discussed before a student enters college, which is too late, and adding on thousands in credit card debt only makes the experience more difficult.
The burden of debt is wreaking havoc on a lot of young people’s financial futures. According to data from the Education Department, 43% of the 22 million people holding student debt are not making payments due to financial hardship. About 1 in 6 borrowers are in default, which may impact their ability to get a car or home loan later in life. Another 3 million borrowers are in deferment or forbearance, meaning their loans are accruing interest while the payments are made.
One of the ways we can help to protect our young people from beginning their adult lives with piles of debt in their name is to make sure they understand how debt works.
Along with learning how to borrow, students also wanted to learn how borrowing affects them. Even among adults, credit scores are often misunderstood. Unfortunately, ignoring one’s credit score can lead to some nasty consequences down the line.
The financial tech firm Opploans found that about 1 in 4 millennials said their bad credit blocked them from getting a new car, apartment, or home. Furthermore, 46% of respondents claimed that bad credit was holding them back in life.
Credit scores encompass a variety of factors to determine a person’s likelihood of repaying a loan. But two of the largest factors include your payment history and the amount of carried debt you owe. Basically, if you want a good credit score, you’ll want to pay your bills on time and not take on too much debt, especially when you’re young and not earning a large salary.
While it sounds easy, it’s easier to let debt spiral out of control. Start smart habits early and often by paying your bills on time and resisting the urge of easy plastic.
Another common response we heard was that schools don’t adequately prepare young people for living on a budget. With low starting salaries for college students and recent graduates, it can be difficult to make ends meet, even if you are employed.
The path to money management begins with budgeting. But budgeting only works if you stick to it.
Unfortunately, sticking to a budget is the hard part. Market research firm Lab24 found that while 89% of millennials create a budget, just 20% stuck to it in the long run.
Part of the reason for bailing on budgeting comes from behavior encouraged by our society. In a consumer culture, we’re urged to spend, and credit cards make it very easy to spend beyond our means and lose control. In addition, young people tend to be more impulsive, therefore more likely to make purchases that they can’t afford.
To combat this problem, some experts believe we should try to curb impulsive behavior when students are young. John Pelletier, Director of the Center for Financial Literacy, says that concepts like delayed gratification, budgeting, and opportunity cost should be introduced as early as middle school.
How We Can Do Better
It’s clear from our little experiment that our education system is falling short in teaching young people personal finance. Many of the young people we spoke with felt that they were thrown into the world without the tools they need to thrive.
Currently, just five states require K-12 schools to provide financial literacy courses. Without question, we should expand personal finance education into curriculums around the country. If the purpose of school is to teach students what they’ll need to know to succeed as an adult, then financial education should be a no-brainer.
On a positive note, Arizona received a B grade from the Center for Financial Literacy when they analyzed personal finances in K-12 education. While this is good news, we can always do better to prepare our youth for the adult world.
For those young people out there, never stop educating yourself on personal finances. It’s never too early to learn how money works and how you can set yourself on a path to financial freedom. You can start with the Vantage West blog, which provides tips on paying off credit cards, staying out of debt, avoiding scams, and much more.
Good luck, and always be willing to learn!