The Case for Personal Finance in College

As a finance and economics professor, I often encounter students with scarce financial knowledge. While students finish high school well-versed in topics such as dangerous drugs and sex, often they know little about basic financial concepts such as compounding interest or the mechanics of the stock market. 

One reason is that money management skills are absent from standardized testing; another is that students have little idea of how much they are borrowing for college. Because most loans allow deferment until students leave school, many of them borrow beyond what they need without realizing the long-term repercussions, as Jenna Ashley Robinson pointed out in this article.

Students face an ever-changing environment of financial choices, with more frequent critical life decisions than previous generations. Jobs are increasingly influenced by a rapidly changing global economy. Higher education costs continue to rise and many students will be paying off their loans for years. Yet, while students enter college with many educational choices, a personal finance course is rarely an option—and if it is an option, students usually don’t know about it. 

During my career, I have taught personal finance in different formats: online at a liberal arts university and at a community college, and also in traditional classrooms at an urban community college and at a state university. The course is usually at the freshman or sophomore level. Its textbooks cover the daily basics of investing, budgeting, retirement planning, consumer issues, credit cards, mortgages, car loans, and insurance policies. Though there is some math required, its difficulty is not an academic barrier for any college student. 

Personal finance courses get short shrift for several reasons. The content is viewed as too “vocational” and lacking in rigor—even remedial. Hardly any institutional special interests champion its inclusion because there are few prestigious journals in personal finance, and research and professors who win grants focus on much grander finance topics. Since there is little prestige in teaching personal finance, many senior faculty avoid it, and the course is often delegated to adjuncts. In fact, many students enroll in personal finance as an elective and seemingly “discover” the course because of its absence from the required list.

From an instructor’s perspective, however, the experience of teaching personal finance is remarkably positive because students almost always express gratitude for having learned the material. In contrast, students rarely express such enthusiasm when I cover internal rates of return or net present value in my managerial finance courses. Students immediately see the value of learning personal finance material because it directly impacts their lives.

Personally, I would like to see personal finance in the core curriculum, just as colleges require physical education and wellness courses. More realistically, however, it would be a vast improvement to have personal finance as a required course in more undergraduate majors or to have it as a more visible elective. Some colleges have begun to require a library skills exam and/or a computer skills exam for graduation. A required personal finance exam offered with the help of a financial aid office as a condition for receiving loans might be the most practical way to impart this valuable information to our students.

The practical reasons for persuading students to take personal finance are based on necessity. Millions of Americans, many of them younger than thirty, file for bankruptcy each year. Most cases are due to poor personal financial management, not failed businesses. Financial problems lead to people divorcing, or not creating families, or postponing buying homes.

And the problem appears to be getting worse. In my 17 years of teaching college, I have observed a decline in student financial knowledge. Ironically, this has happened while financial information has become exponentially more abundant via the Internet. Despite its practical value, non-business majors are even less likely to take personal finance, even though these students have the most to gain from the course.  

Meanwhile, the numbers of students in debt continues to grow and those who aren’t may still fall in love with someone who is loaded with debt. Top students may find high paying jobs but fail to contribute to their matching 401Ks because it is not on their minds. People often focus on their careers without evaluating how to best handle tax credits, deductions, or exemptions. Part of our mortgage crisis was attributed to people taking loans without fully realizing their risk and the consequences.

Personal finance goes beyond teaching life’s mere practicalities. It re-enforces the individual accountability and responsibility that students genuinely need. The material inspires young people to build successful lives by providing case examples and practical problems that illustrate the step-by-step process of creating financial security and preventing terrible mistakes. 

This void in our curriculum is embedded in American culture itself: we are a land of plenty. We have a deep tradition of embracing optimism and believing that a crisis can only be temporary. Americans embrace change, things that are deemed “new,” and an attitude that money problems can be quickly resolved. Greenspan’s famous term “irrational exuberance” partially explains why we can willfully shrug off the need to teach students about practical finances—our bias is to assume that everything will be fine, eventually. Yet a personal sense of security can fall short if one cannot manage income or debt. I often ask my students, “What is the point of wanting to earn lots of money, if you don’t know how to handle it?”

Personal finance enables students to face a world of financial uncertainty, even chaos, and to better handle their lives and resources. It re-enforces the values of individual initiative, innovation, accountability, and personal responsibility. It enhances critical thinking in these most practical matters and prepares students to bolster their long-term independence and personal freedom.

(Editor’s note: For an economics course that includes personal finance as one-fourth of the content, see this article about a course developed by Kelly Markson, an instructor at Wake Technical Community College in Raleigh, North Carolina.)