Higher Education and Financial Literacy — A New Paradigm

Recent college graduate Rachel Ross is on a mission to increase financial literacy among college students. While she knows firsthand that opening an account on impulse initially for a pair of jeans she couldn’t afford meant three years of digging out of debt, she was motivated by the even greater struggles of peers whom she watched open two accounts a week, run up debt and misuse student loans during her college career at Hampton University.

“You can be a math whiz, engineering student, in marketing, and acing everything in school, but if you are not educated on this topic you can make serious mistakes that have a long-lasting impact on your future,” Ross said. “It’s not about your GPA. If you weren’t taught at home and didn’t get it in school, I can see how people get in trouble.”

A 2011 public relations graduate, Ross acknowledges that Hampton now offers freshman students financial literacy as part of a mandatory class. “It’s something that is really needed,” Ross said. “Ideally, it should be more than one class.”

It was a semester-long internship with a credit card company that wanted to participate in financial literacy advocacy through student ambassadors that pushed Ross into a personal quest to educate everyone she knew about the woes of misusing credit. As an intern ambassador for Master Card, Ross gave 13 financial literacy presentations to a total of 1,000 Hampton University and high school students in the area. In addition, she has written an op-ed for the Virginian-Pilot newspaper and has hosted a biweekly video blog for nearly a year — even after the internship ended.

“I was hired by Master Card to give presentations to people at school on what credit is, best practices, and budgeting during the first semester of my senior year,” she said. “I think 90 percent were really engaged and shocked about the facts they were hearing. After the presentations many took it upon themselves to follow up and learn more.”

“I continued doing it on my own after the internship. I had the materials, and I wanted to get the word out.”

Now working in Boston, Ross continues to speak to students on her own time, including reaching out to younger students.

Debt Woes

The harsh reality of debt among college-aged students is a growing problem. According to the Center for Economic and Entrepreneurial Literacy, 54 percent of college student respondents had overdrawn their bank account and 81 percent underestimated the time it would take to pay off a credit card balance by a large margin. And the 2011 Charles Schwab’s Parents & Money survey reports that teens (ages 16 to 18) say their generation’s money issues are different from those of their parents and grandparents. According to the survey, knowledge of money management has declined, but the desire to learn about money management has increased.

In a climate where even the most stable financial institutions are gun-shy, teaching financial literacy has become a priority for universities, banks and credit card companies. Even though financial services and credit card companies have benefited from a little naïveté among the young student consumer, the playing field is changing dramatically. While what some may describe as predatory practices with 18-year-old high school seniors targeted for attractive credit card offers, there has been a paradigm shift in the nation with a major push toward financial literacy for consumers of all ages.

At the heart of this national shift is the worst financial crisis since the Great Depression, the loss of 8 million jobs and an unchecked financial market that, on many accounts, was considered out of control. The signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Barack Obama in 2010 included an emphasis on financial literacy among its many changes for accountability in the financial system. It also created the President’s Advisory Council on Financial Literacy. Much of the attention on financial literacy also stems from the ever-growing divide between the “haves” and “have-nots” — especially in underrepresented communities.

Financial literacy is the essential information and education that is affecting families and the economy overall. To get to the root of the problem, universities and banks are partnering to teach financial literacy on campuses throughout the country, some seeking to reach students as young as middle school.

Financial Literacy Efforts

In 2010 at Cal State Fullerton, Richard Davis, chairman, president and CEO of U.S. Bancorp, presented a $500,000 grant for the establishment of a U.S. Bank Economic Empowerment Program within Cal State Fullerton’s Mihaylo College of Business and Economics. Davis established the program with a component that will set up middle schoolers in the program with a special savings account with the goal of saving for postsecondary education.

“Empowering individuals with the financial know-how to succeed financially, both personally and professionally, is important to everyone at U.S. Bank,” said Davis, who is a 1983 economics graduate of Fullerton.

“I often tell our bankers that we are in the business of making dreams come true. The same could be said for the role of educators — embracing and supporting young learners every day to blaze a path and achieve their dreams. That’s why we are excited about this partnership and look forward to seeing inspiring results.”

Universities around the country are tackling the issue in different ways and in varying degrees, but there is a common agreement that a change in the mindset of students and their families about spending, especially in minority communities, is critical.

Dr. Dennis Kimbro, a business professor at Clark Atlanta University and author of the bestseller Think and Grow Rich, said the university has taken a proactive stance in addressing financial literacy. All of the students in the school of business are required to take classes and seminars on personal money management.

Kimbro describes the current state of financial illiteracy and lack of wealth building as a national crisis, especially among minority students and households. “Forget a gap, it is more like a canyon,” Kimbro said about the growing division of wealth in the United States. “Financial literacy is the final rung on the ladder of civil rights. You have the right to eat wherever you want, but what difference does it make if you don’t have any money?”

“In these critical times, it’s not what you earn but what you keep,” Kimbro said.

Kimbro is set to release his fifth book Have vs. Have Not: What Black Millionaires Know That Others Do Not.

“Thirty one percent of Blacks spend more in a week than what they bring home. Thirty percent have no savings at all. When you look at what is spent on tennis shoes and electronics, Black America is anything but poor; it’s what we do with the money.”

Kimbro also stated that renewed interest in supporting financial literacy among banks and financial institutions has much to do with the large percentage of minority households who are “unbanked” and use high-interest check cashing services instead of banking institutions.

“This is a problem because there are families using payday loans and haven’t developed any credit that, when you fast forward and it’s time for their child to go to college, won’t be able to get a student loan,” Kimbro said. “What you don’t know is hurting you.”

In addition, Clark Atlanta has partnered with Operation HOPE, a leading nonprofit organization dedicated to financial literacy and economic empowerment. Operation HOPE reaches more than 1.2 million individuals in 70 U.S. cities, South Africa and Haiti.

“Consumer protection is the government’s job. But consumer empowerment is the job of free enterprise,” said John Hope Bryant, Operation HOPE founder, chairman and CEO. “We believe that students across all disciplines must become equipped to develop and operate innovative enterprises and small businesses and to employ themselves and others. It is essential to the growth of the American economy.”

The initiative, which will be supported through funding secured from public and private sources by Operation HOPE and the White House Initiative on HBCUs, comprises two tracks: a student empowerment track and a track that will offer resources to Clark Atlanta alumni, including a free financial crisis hotline. Founded in 1992, Operation HOPE’s mission is to expand economic opportunity in under-resourced communities through financial literacy education.

Operation HOPE has also partnered with Spelman College and other HBCUs offering the “Banking on Our Future” curriculum through a series of workshops, which focus on effective money management, especially during a recession.

The United Negro College Fund, or UNCF, is among many nonprofits making financial literacy a priority. UNCF’s Empower Me Tour, which launched in 2008 in partnership with the Wachovia Foundation and Hill Harper’s Manifest Your Destiny Foundation, was created to be a movement with the purpose of encouraging personal and fiscal responsibility and academic excellence. Wells Fargo is among the tour’s sponsors.

The tour, now in its fourth year, includes 30 celebrity and national speakers and 100 local market presenters for a program that reaches more than 65 HBCUs, local universities and community colleges. The program has reached more than 50,000 students on site, 2.5 million online and has been passed along more than 500,000 times through social media.

Most universities are addressing financial literacy in some way including providing information on loan repayment, credit management, financial planning, wealth building and home ownership.

For example, the Southeast Missouri State University Financial Literacy Project introduces Southeast students to educational topics such as budgeting, credit, spending habits, and student loan management. The program also emphasizes the importance of academic success to financial success.

At Syracuse University, a financial literacy program — I Otto Know This — was designed to promote lifelong fiscal fitness for all students. The program is a multi-level effort that provides real-life money management skills and resources and is intended to serve all Syracuse students at both the undergraduate and graduate levels.