Personal debt is climbing, with the average American household now owing more than $16,000 in credit card debt alone. This is a pretty scary statistic. What’s even worse is the typical household has $132,529 worth of debt, and it’s growing quicker than income rise.
This is a huge wake-up call and it’s a problem that is predicted to continue. Unless, of course, future generations dramatically alter their approaches to spending. This is where education comes into play. But do students need to be taught about personal finance?
Education Could Help
Unfortunately, while college students may be learning how to split the atom or studying with hopes of revolutionising the energy sector, many lack skills in money management.
For a generation shrouded by colossal student loans, many students are already off to a difficult start. Student loans are the second-largest debt in the US, with mortgages sitting at the top. This means that before their working lives have even started, milennials shoulder a huge portion of the country’s debt.
Research has shown that many students enter into their loan agreements without really understanding how much their repayments will be, or how they will impact their finances post-college. This will need to be juggled alongside living costs, while also being able to make calculated investments for their future. Interest compounding will play a huge part in their ability to manage their finances, a concept many simply don’t understand.
Furthermore, by the age of 40, most Americans still don’t understand the basics of finance, at a point in their lives when they have already made huge financial decisions.
But it Needs to be Right
On the other hand, if courses don’t offer the right type of information, it may do little to help. For example, many personal finance courses cover different types of debt and products, without fully explaining interest rates and financial impact.
In addition, while knowledge of how to manage finances is essential, financial problems are not always caused by personal decisions. Changes to benefits and healthcare can dramatically impact the wealth of an individual, as can pay cuts and legal divorce bills. High interest loans and large credit card debt aren’t the only issues at play.
There’s also a worry that after completing a personal finance course, students may become too confident in their abilities, which in turn, could lead to bad financial planning.
However, for a country with relatively low financial literacy – in a 2015 study, the US came in 14th and scored a shocking 57%, compared to Norway in 1st place with 71% – providing college students with some form of personal finance education can’t hurt.