Parents watch their college-bound children prepare for higher education with academics, standardized tests and extracurricular activities but often overlook whether or not they are learning the essential skill of financial literacy. A report released Wednesday shows, “1 in 10 teenagers around the world is able to make some key -- but complex -- financial decisions, including choosing among various loans or analyzing invoices and pay slips,” according to Newsday. The results for U.S. teens are chilling and may be one of the causes of the student debt crisis financially crippling many attending and graduating from college.
The fact is American parents are sending financially illiterate teens to college and colleges are offering them student loans to help pay their bill. Most students accept the financial aid help without a plan to pay the money back. Meanwhile, the student debt crisis grows.
The study The Organization for Economic Cooperation and Development (OECD) conducted a financial literacy study “in 2012 to approximately 29,000 15-year-old students in 13 OECD countries and economies and five partner countries and economies,” Newsday reported. “More than 1 in 6 U.S. students did not reach the baseline level of proficiency in financial literacy.”
Students responded to questions on a two-hour paper test. U.S. students scored in the middle of the 18 countries and economies ranked. Being average in an overall poor financial knowledge score is a red flag for the future where recessions seem to have replaced pensions.
Financial Literacy If teens don’t already have bank accounts or credit cards, many will by the time they enter college. When admitted, colleges offer financial aid awards that usually include a student loan. Most students accept the offered loan each year of study to help pay for their higher education. Costs can soar even higher for those going on to graduate school. Loans have borrowing costs including fees and interest that must be paid back along with the principal borrowed.
Financial literacy is key to understanding affordability and managing finances. Parents shouldn't assume this necessary life skill is taught in school. Only 19 states require a personal finance course. New York is not one of them but the following are: New Hampshire, New Jersey, Virginia, West Virginia, North Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Tennessee, Missouri, New Mexico, South Dakota, North Dakota, Arizona, Utah, and Idaho, according to Newsday.
Taking action The college-bound must be better prepared to address their own financial futures. Parents may ask their school boards to add financial literacy classes. They may also teach the skill to their children. Parents may start with the concepts of affordability, saving for a purchase, and differentiating between wants and needs.
Families may join together as a parent/student team to learn college financial literacy. This includes figuring out how much families can afford to pay and borrow, making a budget, and applying for financial aid. Then students will be prepared to compare financial aid offers, make decisions to accept or reject loans offered, and attend a college that is affordable.