Sean Karaman, a freshman at the University of Nevada, Las Vegas, didn't always pay attention to how much he spent on his credit cards. But after taking a personal finance course on campus last fall, he said he was much more likely to pay as he went along.
“My debit card made me my best friend,” said Karaman, 21, who plays on the UNLV hockey team.
According to the Council on Economic Education, more than two-thirds of states require high school students to take a personal finance class before graduation. Personal finance courses are now increasingly offered in public and private schools, primarily as electives. It joins universities across the country and is getting a boost from a new initiative by Stanford University. While some universities have long offered personal finance classes, this new initiative to develop and promote personal finance instruction at the college level carries academic weight at Stanford University.
“There is a real need among all students, and society at large, to learn more about personal finance,” said J. Daniel Chee, dean of finance at UNLV's Lee School of Business.
Economist and financial literacy researcher Annamaria Lusardi, who will lead the program at Stanford University starting in 2023, said people today are much more likely to be employed than in the days when employment came with a fixed pension rather than a 401(k) plan. said they are expected to take more responsibility for their finances. Require workers to save and invest money for retirement.
“We have to manage our own money,” Dr. Lusardi says. “It's too complex to use common sense or rules of thumb.”
However, financial literacy among Americans has been shown to be consistently low. The annual assessment of Americans' working financial knowledge, known as the P-Fin Index, shows that adults, on average, only answer about half of 28 questions correctly on concepts such as income, savings, insurance, and understanding risk. .
Stanford University's initiative aims to make personal finance education more accessible to more students, including first-generation college students and students from low-income families. We host an annual conference for educators and work with universities to provide educational materials and mentoring. Funded by millions of dollars in donations From Charles R. Schwab, a Stanford University graduate and discount brokerage pioneer. his wife Helen; and the Charles R. Schwab Foundation for Financial Freedom, which supports youth financial literacy.
John Y. Campbell, an economist at Harvard University who has taught personal finance courses for several years, said more universities are embracing the subject as research in the field deepens. It also helps stimulate students' interest in economics majors.
“I found it to be a very good vehicle for teaching basic economics,” he said.
Courses typically cover concepts such as compound interest and the time value of money (the idea that money is generally worth more today than the same amount in the future due to factors such as inflation and investment ability), but the details vary. it's different. institution.
Dr. Campbell said Harvard is less worried about educational debt than some students at other universities because it can provide generous financial aid to its students. Michael Boskin, a Stanford University economist who co-taught the course with Dr. Lusardi last year, said that because many Stanford graduates go on to careers in technology, the introductory course includes topics such as valuing stock options and the role of venture capital. The topic is being covered. The goal, he said, is to help students understand how to think and reason when making financial decisions.
Dr. Boskin and colleagues introduced the course in 2020 after former students said they wished they had known more about evaluating pay and benefits when considering job offers.
Elizabeth Curtis, a senior lecturer in economics at Dartmouth College, first taught a personal finance course to about two dozen students last spring on the campus in Hanover, New Hampshire. Dr. Curtis said the course, which also explores the psychology of how and why people make decisions about money, was designed for non-finance majors.
Terence Odeen, a finance professor at the Haas School of Business at the University of California, Berkeley, said 900 students enrolled in the spring session of his Introduction to Personal Financial Management course. Key financial decisions such as choosing a career and comparing spending versus saving and investing, and how overconfidence and “present bias” (the tendency to value immediate gains over long-term rewards) influence choices We also discuss what to do.
Alexandria Coe, 19, a sophomore at Berkeley majoring in rhetoric and conservation and resource studies, took the course during her first semester.
“I knew a lot of the things we considered, but didn’t really understand,” she said. One lesson that stuck with her, she says, is that for young people, their “greatest asset is time,” so it pays to start saving and investing early.
Stanford's course covers basics such as borrowing and credit scores, as well as investment principles such as diversification and managing risk by investing in different types of assets. Students analyze different scenarios, including making investment choices and giving reasons for those choices, and discuss how taxes, fees, and inflation affect investment returns.
They also learn that economic decisions often involve trade-offs, Dr. Boskin said. “Your comfort with financial risk may depend on whether your family depends on you, and you may prefer a flexible schedule over a higher salary when considering job offers.”
“How do you evaluate these things?” Dr. Boskin said.
Some critics say the concept of financial literacy distracts from the need to make America's financial system more fair.
Berkeley's Dr. Odean said financial coaching is not a panacea. “I don't think people are in financial trouble because they didn't take my course,” he says. “We're teaching them how to navigate the current rules.”
The Harvard course aims to help more affluent students understand the financial challenges faced by less affluent students, Dr. Campbell said. “I also ask students to think critically about the system,” he said.
Here are some questions and answers regarding financial literacy instruction.
Do universities give credit for personal finance classes?
Most universities offer graduate credit for introductory courses that combine economic concepts and personal money management principles. (Some schools may also offer extra-credit financial coaching and counseling as a student service.)
Is personal finance coaching effective?
An analysis of 76 studies published in the Journal of Financial Economics in 2022 found that financial education programs, on average, have a “positive” effect on financial knowledge and behavior. .
How can I test my financial knowledge?
Dr. Lusardi helped develop a series of questions about concepts fundamental to financial understanding, such as compound interest, inflation, and whether it is riskier to buy stock in a single company or invest in a stock mutual fund. . You can take the three- or five-question quiz on the Stanford University Global Financial Literacy Excellence Center website.
