More colleges offer courses in money, debt management
Students learn reading, writing and APR
Basic personal finance is not typically on the short list of required college courses, but universities are realizing that the more they teach students how to manage their money now, the more prepared these students are to ward off debt in the future.
"If you look at the mortgage industry in particular, many of the problems came about because people didn't know what they were getting themselves into and were not able to assess all of the risks," says Deena Katz, chairman of the Miami-based wealth management firm Evensky & Katz. She even places blame somewhat on universities and colleges. "The people from MasterCard and Visa would sit at tables and were practically passing out applications to incoming freshman like they were bags of popcorn," says Katz.
Case in point: The average balance on graduate school students' credit cards is $8,612, according to Nellie Mae (a subsidiary of Sallie Mae, the nation's leading student loan company); undergraduates carry about half that.
According to an April 2008 survey by The Hartford Financial Services Group, 55 percent of parents with children between the ages 16-24 question whether they will be able to become financially independent without help from the Bank of Mom and Dad. It's a reasonable fear. Also in 2008, the Jump$tart Coalition for Financial Literary recently released its own survey showing that high school seniors correctly answered only 48.3 percent of the questions testing fundamental personal finance skills.
That trend is changing, though, as personal finance classes pop up in colleges and universities across the country. "I think we're seeing a lot more classes being offered at colleges," says Katz, who is also an associate professor of personal finance at Texas Tech University. "Unfortunately, the classes aren't mandatory, and they're not very sexy, and so a lot of kids don't get involved in them."
They are out there, however, and CreditCards.com sampled eight universities with classes that address personal finance. Of the 10 classes profiled, three are required for certain majors; the rest are electives.
Lynn University (Boca Raton, Fla.)
Class: Quantitative Reasoning 1
Credits: 3; required for math students
What role credit cards play in the class: Professor James Kassar, math department chair, is out to make math relevant to daily life, and his class specifically studies the cost of credit and how to avoid credit card trouble. Students study the numbers not just behind credit cards, but also installment loans, loan payment formulas, amortization schedules, automobile loans involving different rates and terms, credit scores, closing costs and pre-payment strategies.
Kassar wants his students to leave class understanding the difference between good and bad debt. "Good debt involves debt that creates likely future value," says Kassar. "Such debt includes real estate, business loans, student loans... Bad debt involves the purchase of disposable or durable goods using credit cards that charge high interest, without paying the balance in full."
Students are asked to calculate problems such as writing a balance transfer check for $80,000 with 0 percent financing for eight months, in addition to understanding the promotional APR, transaction fees, payment allocations, default terms, grace periods and the card member agreement. Under Kassar's guidance, students will eventually be able to determine what circumstances can lead a $3,000 46-inch LCD television to costing more than $6,000.
University of Cincinnati (Cincinnati, Ohio)
Class: Personal Money Management
Credits: 1; elective
What role credit cards play in the class: Instead of quantitative reasoning, this elective class goes for common sense reasoning. Aimed at freshmen, the course covers the basics of credit cards and how they work. "Although we cover other important topics like budgeting, buying a car and income taxes, the topics that capture the attention of the students are credit cards and student loans," says business professor and CPA Margaret Reed. "Students are also very interested in their credit score and how to maintain a good one or increase a bad one."
The topics that capture the attention of the students are credit cards and student loans.
|-- Margaret Reed, Ph.D.
University of Cincinnati
Reed says she teaches 130 students a year out of approximately 20,000 undergraduates and is certain that the students who need it most aren't taking it. The ones who do take it still aren't very knowledgeable about their personal finances, she says. "One of the most important things I discuss with the students is the calculation of interest and the importance of the grace period for credit cards," says Reed. "We talk about how the companies want you to pay fees and get more cards, and we discuss in detail the calculation of the FICO score and what actions will hurt your score."
Kent State (Kent, Ohio)
Classes: Investments; Individual Investment Strategies; Me and My Money
Credits: 3 each; The first class is required for finance majors; the second is one of several that nonfinance business majors can choose from; Me and My Money is an elective, regardless of field of study
What role credit cards play in the classes: "The primary emphasis of each class is different, but with respect to credit, we hope all students will take away sound debt-management principles and realize that problems are easily created that may take years to rectify," says professor David Dumpe.
Students learn how to calculate the length of time it will take to pay off a $3,000 credit card balance at 22 percent interest if they only make the minimum payment and don't charge anything else. (The answer, says Dumpe: "It usually ends up being close to 13 years. It will be longer if the minimum payment decreases as the outstanding balance decreases.") They also learn how one 30-day late payment can reduce a credit score by 150 points for someone without a long credit history and that you can get approved for a card and decide not to activate it, but it still remains on your credit report.
St. Olaf College (Northfield, Minn.)
Class: Personal Finance
Credits: 1, elective
What role credit cards play in the class: Professors and spouses Dave and Mary Emery rotate teaching this class. Their course covers "credit cards, the various penalties imposed, the unilateral contract nature of credit cards, and then we have students evaluate two or three credit card offers to pick out the 'best' deal," says Dave. A banker also visits the class to talk about the wise use of credit, good debt and bad debt, and the importance of building a good credit score.
The big lesson the Emery's teach, however, has nothing to do with paperwork, but behavior and human nature. "Don't sign any financial deal -- loan, investment, credit card, purchase agreement, mortgage, etc., until you understand it," Dave stresses, when asked about the one lesson he hopes students take away from the class.
"The only person you can completely trust is you, and you are the person who will suffer when the deal goes bad," Mary adds. "Just say no. Never buy anything that is being sold with a 'free lunch' or 'free dinner.' There is no such thing as a 0 percent loan, except from your grandmother. GMAC and Ford do not love you that much."
Fairfield University (Fairfield, Conn.)
Class: Personal Finance
Credits: 3; elective
What role credit cards play in the class: "My goal is that over the 15-week course, students develop a facility with or mastery of their own money," says Stuart Clymer, who teaches the class at this Jesuit university.
I'm always amazed at how much credit card debt my students have already accumulated.
|-- Donna Haeger
Monroe Community College
Clymer, a financial planner with an MBA, suggests to students -- mostly juniors and seniors -- that they set a limit to what they'll add on their credit card each week and keep the number of credit cards they possess down to one. Clymer says there are several exciting things the students do, including preparing a personal financial plan and presenting a term paper on "The Energy of Money: A Spiritual Guide to Financial and Personal Fulfillment," by Maria Nemeth.
Clymer's main mantra for his students? "Stay spending sober!"
Scripps College (Claremont, Calif.)
Class: Personal Finance
Credits: 1; elective
What role credit cards play in the class: Credit cards are one of several topics students discuss at this all-women's college. They also learn about building a budget, leasing versus buying a car, prenuptial agreements and community property. Patricia Dillon, a professor of economics, teaches the course and also helped create Money Wise Women, the college's voluntary financial education program, where students can go to seminars and join stock clubs.
"More colleges are offering workshops in managing personal finances," says Dillon, "but on most campuses, it has no place in any academic discipline. It involves a set of skills one is expected to acquire through experience, by osmosis, around the water cooler, in adult education classes, or by reading a book for beginners. Most adults look back and wish they had known something about these things at 22."
|New online financial education course debuts on college campuses|
The average undergraduate is entering the workforce with more than $19,000 in student loans. On top of that, one-half of those students leave college with an average credit card balance of $3,900, according to the American Council on Education. With credit so readily available and so easily abused by students, the National Endowment for Financial Education (NEFE) rolled out a new, online financial education course called CashCourse to colleges and universities nationwide. The intent of the Internet-based course, which is offered through financial aid and various student services offices on campus, is to prevent students from making poor financial decisions now that will follow them into the future.
"Support and enthusiasm for financial education varies widely among campuses, but the issues surrounding credit often captures the attention of students, staff, parents, alumni, donors, and state legislatures," says NEFE Director of Strategic Programs and Alliances Brent A. Neiser in testimony before a House subcommittee on consumer credit on June 26, 2008. "Many of today's college students are facing an oncoming personal finance crisis in which the opportunity for positive engagement in the United States financial mainstream is being threatened by a culture of ignorance, peer pressure and intense marketing tactics," says Neiser.
Pilot programs of NEFE's CashCourse hit college campuses last fall. General release of the program began in January 2008. Currently, 126 universities are offering the course. CashCourse.org lists all the participating campuses on its website.
Monroe Community College (Rochester, NY)
Class: Personal Money Management
Credits: 3; elective
What role credit cards play in the class: At least a week is spent on consumer credit in her class, says instructor Donna Haeger. "The goal is to analyze the pros and cons as well as determine types of credit and why consumers use credit. Time is also spent calculating the cost of credit and opportunity costs associated with choosing different types," she says. Students learn about finance charges and interest as well as comparing APRs. "I personally emphasize the importance of paying off the monthly debt at the end of each month."
It's a lesson that often comes after the fact. "I'm always amazed at how much credit card debt my students have already accumulated," says Kathleen Bromley, one of several instructors who teach this course. "The students are always surprised by the fact that you don't have to get a credit card from a financial institution in your city... They are surprised to learn you can often get a lower APR from your current card issuers by threatening to leave them for another. They do know that credit cards influence their credit score, but not why or how. Often, they have no idea how the finance charge on their bill is calculated. Most use cards, but some are afraid to use them after listening to the horror stories from their peers or watching their parents misuse credit."
Perhaps most unique about this course is the credit card project, designed by several MCC professors, requiring students to use the Internet to explore and analyze different credit card offers. After collecting and analyzing a filing cabinet worth of data, says Haeger, "the students are asked to write an assessment about which card they would choose and why, as well as under what circumstances individuals might choose the other options."
Texas State University (San Marcos, Texas)
Class: Consumer Economics
Credits: 2; elective
What role credit cards play in the class: Assistant professor Kimberlee Davis, Ph.D., NCC, AFC, covers a lot of ground in her class -- personal finances, personal insurance, consumer legislation and, of course, credit cards. Students know how to use credit cards, says Davis, in "that you pull out plastic and run it through a machine and get to take merchandise home with them, and they get a bill... but the students are rather naïve about how credit cards work. For instance, most of them don't know that if you have a variable rate on your card, there are three different ways that interest can be calculated."
Davis has students participate in an exercise where they learn to differentiate between numerous credit card offers. Some students have even drawn Davis aside and confided they have four or five maxed out credit cards, which is generally when she refers them to a credit counseling service.
If the students leave understanding anything, however, it should be "that knowledge is responsibility," says Davis. "If you have the knowledge, you have the responsibility to use it. And I've shown them ways to protect their financial resources, and now they have the responsibility to follow through. They have the responsibility to actually read the disclosure statement and understand what they're paying for."
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