The majority of college students say they learn the most about personal finance from their parents, but less than half of students say their parents make a consistent conscientious effort to teach them, according to a new survey of over 2,000 students and parents conducted by The Hartford Financial Services Group, Inc. (NYSE: HIG).
Parents of college students have a somewhat different view. Nearly two-thirds (63 percent) of the parents surveyed say they definitely see personal finance education as their responsibility and consistently make the effort to teach their children about it, compared to the only 41 percent of students who say their parents did. About 70 percent of college students cite parents as their primary source of information.
The need for better personal finance instruction for young adults is one issue on which both groups see eye-to-eye: Students and parents agree that college students are not well prepared to deal with the financial challenges that lie ahead. Less than one-quarter of students (24 percent) and only 20 percent of parents say students are very well prepared to deal with the financial challenges that await them after graduation. Moreover, more than three-quarters of students (76 percent) wish they had more help preparing for their financial future, The Hartford survey found.
“These findings highlight the fact that many parents are stepping up to the task of teaching financial basics at home,” said Dr. Susan Coleman, Ansley Professor of Finance at the University of Hartford and advisor to The Hartford’s Playbook for Life financial education program. “At the same time, however, students don’t always get the message the first or even second time around. These concepts, which are new to most young people, require frequent reinforcement at home and elsewhere.”
Dr. Coleman emphasizes that acquiring personal financial expertise is a continuous learning activity that should begin at an early age. Parents can initiate and lead the learning process in any number of ways, but, she adds, “It’s important to invest time and effort on an ongoing basis to reinforce those lessons.” She offers parents the following suggestions for raising financially-savvy young adults:
Model good personal finance behaviors. Be a good role model by setting goals, creating a budget, using credit responsibly, and making saving and investing a regular practice. In other words, live your financial values.
Give children responsibility for their finances. Help your children accept personal responsibility for their financial situation at levels appropriate for their age. Require them to earn an allowance by doing chores and helping out, rather than just giving them money. Don’t buy them everything; instead, teach them to set goals and save for things they want. And don’t be so quick to bail them out – allow them to suffer the consequences of poor financial decisions.
Help students budget in college. For each year of college, help them determine the anticipated expenses – such as tuition, books, food, transportation, clothes and entertainment – for which they will be responsible. Then, determine how they will pay for those expenses – a part-time job, summer work – and make sure anticipated expenses and income match.
Be candid about credit. Have a frank discussion about responsible use of credit cards before your college student gets bombarded with offers at school, and before he or she gets into trouble. Explain that credit should be used for emergencies – not every small purchase. Also, make it clear whether you plan to subsidize that credit card usage, or whether he is on his own.
Discuss career options. Point out that there are different rewards – monetary and non-monetary – associated with different types of careers. It’s not obvious to young people that different career paths bring various economic outcomes and lifestyles.
Seize teachable moments. College breaks and summer vacations provide opportunities for renewed dialogue about personal finance. Recognize and praise responsible financial behavior whenever it’s exhibited.
“Parents play a crucial role in financial literacy because students get the majority of personal finance information from them,” says Dr. Coleman, “Young people value their parents’ experience and look to parents for this kind of information and guidance. But it’s important to recognize that financial expertise is a life-long goal. Many young people are overwhelmed; they think they are supposed to know everything and are bewildered that they don’t. We must keep in mind that financial skills are acquired bit by bit over the course of a lifetime.”
Few students head off to college with any formal instruction in personal finance. According to a study by the National Council on Economic Education, only seven states required personal finance classes in high school in 2004. Moreover, the study found that students entering college get a failing grade on personal finance knowledge, scoring 53 percent (F) on a basic 24-question quiz on economics and personal finance.
