During the time I lived in Nova Scotia, one of the most important pieces of wisdom to grace my ears was “People without information cannot act. People with information cannot help but act.” Originally coined by the management guru Ken Blanchard, this phrase never seemed more applicable than within the world of finance.
We live in a world where upwards of 60 percent of students graduate with student debt, with total loan debt in the US climbing well over a trillion dollars. It comes as no surprise, then, to discover that finance remains one of the chief issues of concern amongst the millennial generation.
However, no matter how concerned Americans may be about their financial situation, overall financial literacy in the USA remains abysmal.
This lack of education cannot be attributed to lack of opportunity. While not every high school offers courses on how to manage finances, the sheer wealth of information at the fingertips of high-school and college-age students is staggering. A search of Bing using the key words “Free Online Financial Literacy Course” yields 3.47 million results. If only a mere hundredth of a percent of those results were useful, that would leave well over 300 sources to work with.
Additional opportunities to learn finance can be found in public libraries, in open seminars, on college campuses (e.g. MSU’s Office of Student Success) and in the homes of many prospective students, either from their parents or from other sources of experience.
The problem lies not in access to financial information or in the lack of training of how to apply that information, but instead in that students just do not take the time to think about these things until grim reality comes knocking at their door and it is too late.
There are a lot of reasons for this apathy, but if I had to identify a basic principle at work in preventing students from taking action when it comes to their financial futures, I would say, “out of sight, out of mind.”
That’s what makes the recent work of MSU professors Carly Urban and Chris Stoddard so interesting.
In their 2015 paper “Does Salient Financial Information Affect Academic Performance and Borrowing Behavior Among College Students?” Urban and Stoddard address the relation between financial education and the financial decisions students make later in life. The paper describes Urban and Stoddard’s study of an experiment in which MSU students with considerable debt received “Know Your Debt” letters that reminded them of their debt and offered financial advice, including incentivized offers for one-on-one ﬁnancial counseling.
Of particular interest is that the studies found “that students who received targeted information about debt levels and counseling offers increased semester GPAs and credits, were more likely to switch to a STEM major, and reduced borrowing levels the subsequent semester relative to their peers” and that “overall, this relatively low-cost intervention that provided ﬁnancial information and offered counseling to students with potentially risky levels of debt led to large behavioral changes.”
The methods suggested by Urban and Stoddard are still subject to review and change, but in order for students to take command of their financial futures, the issues of finance need to be brought to their attention. Only then can they act. In fact, as Blanchard said, they cannot help but act. And if a simple letter makes even the smallest difference in that regard, then it is something worth looking into.