Boost College Retention With Financial Literacy

Student success starts with financial literacy. That was the message I shared with more than a hundred college instructors in Las Vegas this past weekend at the Pearson Student Success National Forum, hosted by my publishing team at Pearson Higher Education. As students grapple with the rising cost of tuition, many colleges are struggling with low retention rates. My goal was to show educators how introducing basic financial principals in the classroom can empower students to take control of their finances.

I began with some sobering facts:

The average score on a freshman financial literacy exam was 59%, according to the JumpStart Coalition.
35% drop out in the first year, according to the Department of Education.
The average student has roughly $23,000 in student loans, $4,000 in credit card debt and 4 credit cards.
An average of 7% percent of graduates default on their student loans within the first few years.

Here’s what students are begging to understand:

84% say they need more education on financial management, according to Sallie Mae.
62% say their knowledge of credit reports is either fair or poor, according to the Consumer Federation of America.
60% have only a vague understanding of their debt, according to TheFreeLibrary.com.

So what can educators do? For one, I’d suggest following in the footsteps of two exemplary schools. Grappling with a 23% student loan default rate in 2001, South Mountain Community College decided to implement a personal money management course, a prerequisite for loan eligibility. In ten years the default rate has fallen to 10%. Likewise, Ohio State University began offering students a financial wellness workshop focused on credit and budgeting basics, as well as managing a financial future—a good model for schools wishing to offer students a well-rounded understanding of these topics.

If you can’t wait for a formal credit-based class to arrive on your campus, here are my suggestions for introducing financial literacy concepts in your classroom:

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Dedicate a portion of classroom discussion to money. Encourage your students to share their struggles and successes. They like hearing from one another. They trust each other. If a classmate can learn how to save from a fellow classmate, this will resonate tremendously. Because people generally aren’t as comfortable talking about money as we are other topics, it’s important to foster these important discussions. Pushing students to get outside of their comfort zone will make the experience more memorable and more effective in their drive toward financial independence.

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Bring problem-solving to the classroom

Feeding students financial facts does little to increase financial intelligence. The trick is engagement. Researchers from the JumpStart Coalition found that financial literacy is really a measure of problem-solving ability rather than a mere awareness of financial facts. As a classroom instructor, you want to walk students through experiences and possible financial scenarios they will come across in college, get them to visualize how they would make decisions, and then ponder the implications. Let students try to come up with solutions together. Have them break up into groups and try to navigate through hypothetical sticky situations. Here are some questions you might pose:

At your current pace, it will take you five years to graduate. How will this impact your financial aid and what can you do to speed up the graduation rate?

You’re shopping at the mall. The sales lady at your favorite store offers you a store credit card. It would mean saving 15% on your next purchase. Should you do it? Why or why not? What are the pros and cons to owning a store credit card?

You will owe $25,000 in federal student loans when you graduate. You will have a six-month grace period before the first payment is due. What will be your Plan B if you can’t find a job? What options do you have?

Your friends are planning a spring break trip that’s more than you can afford. You really want to go. What will be your strategy?

Stedman Graham, the keynote speaker at the event, discussed the importance of establishing and nurturing identity and how teachers can help their students with this process. It’s critical to success. “When you lose your identity, you stall growth. You face closing doors. You lose freedom,” he said. The same is true for financial identity. Millions of college students are finishing school behind the financial “8 ball.” They don’t know how to effectively budget, manage their debt loads, or save. If they’re lucky enough to find jobs, they face starting salaries that have remained stagnant for more than a decade. Yet, if they can learn the basics of money management and problem-solve their way out of sticky financial situations, to be their own financial advocates, and learn where to get help (since they can’t always do everything on their own), they’ll be more likely to find success.

Image: Ralph Daily, via Flickr.com