American students have been found to be way too behind in the financial literacy arena. According to a recently conducted study, U.S. students’ financial literacy scores were below average. Although this study was for high school students, the findings among students beyond high school was the same. While students are pushed to towards higher education, in spite of them being unable to afford it, they make some very basic mistakes due to their lack of understanding regarding finances – and this ends up costing them even later on in life.
Financial education needs to be introduced early on in life. Parents and schools should make their children aware of financial matters, especially the importance of budgeting and saving. This is extremely necessary considering that the past three years have seen a decreased likelihood among students in spending wisely.
One major issue that students face in their college days is that of student debt. When at the beginning of the term students get the funding for their education and expenses they are usually least worried about savings. Of course, not everyone is like that but that is how the general attitude is. They spend on things that they may not need just to keep up appearances. For instance, they may want to dine out with their fellow classmates, or buy an expensive dress for a party.The culture of college is changing from what it used to be before and it is becoming more and more expensive. Now there is no longer just the tuition, books, transport and food expenses; the students also feel pressured to have their wardrobes up to date, go out, visit places, host parties, and so on – and these cost quite a bit. While it is important to socialize and network, these students should realize that they are living beyond their means. They need to find alternate ways of having fun and not spend more than what they can afford. They may end up having to borrow even more money if they are unable to fulfill their spending needs. This is certainly not good. The more they borrow the more of their future income they will have to give up to repay that amount plus the interest on it. They cannot escape the repayment.
Students do not only have a budgeting, saving and spending problem, but they are also unaware of the loan repayment options available to them. They do not know about the very affordable plans available, such as the income based repayment, due to which they end up defaulting on their loans, and certain benefits, such as forbearance and deferment, are taken away from them. More people have started defaulting on their loans which means awareness is needed regarding this issue as well.
President Obama has passed a new Student Aid Bill of Rights which gives students the right to be able to find resources for and be able to afford higher education. It also gives more protection and rights to the borrowers. Although this could make the students’ life easier regarding the finances and loans, it still does not make sense to borrow and spend recklessly. Because the debt will stay with them as a burden no matter how easy the repayment terms, and they will still have to give the money back besides paying an interest on it.They have to start saving for their retirement as well after graduation, not just keep paying off loans. Even if they are financially well off and do not have to take loans to finance their education, which is oftennot the case considering that 70% of students leave college with a debt, it still does not mean that they should spend recklessly.
Even after students are done with college, the financial choices they make during their college life will follow them in life later on and impact their living standard. Besides, they need to have a good credit score to be able to take loans in future for purposes such as buying a house or car. Also, some employers do not hire people with a bad credit score. All this just shows how important financial literacy is and why parents should make sure to discuss such issues with their children time and again, and why teachers should incorporate them within their classrooms.Teaching children about personal finance helps them make better choices later on in life and build a proper foundation. The benefit will not only be personal but the country as a whole will gain from it too.