Habtamu: Financial smarts require individual commitment

Habtamu argues that National Financial Literacy Month is the perfect time for students to learn to manage their money.

Allen Habtamu

Allen HabtamuAlthough finances are seen as a somewhat taboo topic, let’s bring it out into the open: College students are bad with money. You often hear of students saying they’re broke, and maybe that’s just symptomatic of a lack of financial know-how.

As teenagers transform into budding young adults, the question becomes whether or not they can actually make the right financial choices. Will they learn to live within their means, or take advantage of a litany of opportunities to rack up debt? Ultimately, it comes down to an undertaught and undervalued skill: financial literacy.

Financial literacy is extremely pertinent when dealing with budgetary matters, a fact that was echoed by Temple’s decision to create two new courses on the subject and  classify them as fulfilling the Quantitative Literacy general education requirement.

The newfound sense of freedom for young adults can be especially tempting for some, whether it’s establishing a new line of credit to make large purchases or taking out a small personal loan, the pressure to borrow can be overwhelming.

Credit card companies and other financial institutions view young adults as a cash cow because they are unable to fully meet their payments, thereby trapping them in a cycle of debt. A lack of financial IQ on the part of students is one of the reasons why they are seen as exploitable. They don’t recognize the need to make payments in full and on time.

The marketing approach by some credit card companies to entice young consumers into taking out credit cards on college campuses drew national attention, causing the government to pass the Credit CARD Act of 2009, which would help mitigate the outcry on unclear practices. The role of credit card companies on campuses would be diminished, and in compliance credit card issuers had to disclose their terms and conditions in “plain English.” In addition, it prevented young adults under the age of 21 from getting one, unless they have a co-signer or the issuer bases it on the individual’s source of income.

A 2009 study by Sallie Mae titled “How Undergraduate Students Use Credit Cards” found that 91 percent of undergraduates have at least one credit card and that 50 percent have four or more credit cards, illustrating just how rampant a problem credit usage can be.

Of course, credit cards aren’t a problem if students are paying off their debts in a timely manner. But that isn’t the case. That same study also found that the average undergraduate carries $3,173 in credit card debt, and that number tends to rise with the years. By senior year, the average shoots up to $4,100. While 92 percent of those surveyed said they used their cards to pay for “education expenses,” another 30 percent said they have paid a portion of their college tuition on a credit card. National increases in tuition will most likely drive these figures higher.

Those statistics might not reflect the spending habits of every young adult, but 84 percent of the undergraduates polled insisted the need for greater financial literacy. Plenty of students wanted it to be mandatory as well: 64 percent said they would have liked some formal fiscal lessons in high school and another 40 percent said it would have benefited them to receive it as college freshmen.

Yes, having this instruction would be nice. But college students shouldn’t be relying on the educational system for every bit of information.

April is National Financial Literacy Month, and the issues surrounding financial literacy should absolutely gain more prominence. Students should take this opportunity to make sure that they understand the repercussions that the monetary decisions they make today can have on their future.

It’s easy for us to lose track of our spending habits subconsciously as we engage in various but simple transactions that see our money come and go. It’s always a good idea to reassess where our money actually goes and how an increased effort can help ensure financial stability.

Bad credit can hinder one’s ability to take out a mortgage or a car loan. Often, employers perform credit checks to assess an applicant’s responsibility before making hiring decisions.

That’s why it’s extremely important to be informed now. The earlier the better. It’s the perfect time while in college to understand financial principles that can help to reshape the way you view money.

So while having additional courses at Temple and incentivizing students to actually take them is certainly a good sign, students need to practice proactivity. There are plenty of books and resources on the Internet about financial literacy. These resources are easily accessible. It might be really wise to take a look. It could stop you from falling into financial ruin, or even help you get out of it.

Allen Habtamu can be reached at allen.h@temple.edu.

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