Most Grad Students Lack Financial Literacy, and It Worries Them Deeply
For the most part, workers with advanced degrees make significantly more money over their lifetimes than their counterparts with undergraduate educations or high school degrees. You would think this fact would give peace of mind to the 1.75 million graduate students pursuing a master’s or doctoral degree that their financial futures are bright.
However, according to the results of a report released this month by the Council of Graduate Students, that is far from the case. Students pursuing their master’s and doctoral degrees persistently worry about their current and future financial security, with majorities reporting they felt stressed about their personal finances and dissatisfied with their current financial situation.
It is unclear how much of that concern is short-term versus long-term, but about 4 in 10 reported facing difficulties paying their monthly bills.
Joseph Templin, a financial planner and author of the book “Financial Mistakes of Young Americans,” says college and graduate students in particular get a late start when it comes to learning basic concepts like balancing a checkbook, budgeting and other aspects of financial literacy.
“Unfortunately college students are very ill prepared for the real world financially, because none of this is taught. Some may take a finance course, but it’s completely unrelated to applied finance,” Templin says. “There’s actually a delay of multiple years [while attending school] in terms of coming to grips with the real world in a lot of different capacities.”
Tina Hay, CEO of the personal finance website Napkin Finance, says that young millennials in college and graduate school today watched their parents suffer through the Great Recession in 2008, where many lost their jobs, investments and 401Ks. Hay’s website develops “back of the napkin” infographics that explain complex, multi-layered financial issues to younger Americans. Saddled with high student debt totals, Hay says most graduate students are not planning for the future so much as tending to more immediate financial needs.
“Most people are not thinking about retirement or even buying their first house, but the understanding that in next five years or so, they won’t be able to sustain themselves,” Hay says.
The shadow of student debt
Borrowing and debt was strongly correlated with this anxiety, and the CGS survey results also suggest that taking on one form of debt makes you more likely to take on others. Sixty percent of graduate students who took out student loans to pay for their undergraduate degrees reported doing the same for graduate school, and those with student loans were more than three times more likely (13 percent) to incur greater levels of private and credit card debt than those without loans (4 percent).
An excellent way to alleviate the initial amount of money borrowed is to combine scholarships and grants with federally backed and private student loans. However, Hay says that many Americans – particularly young undergraduate and graduate students – don’t have a clear enough grasp of how loans and debt work. In particular, she says they seem to underestimate how that debt follows you throughout your adult life, particularly student loans, which cannot be discharged through bankruptcy.
“One of the biggest comments we get with people who take out loans is ‘Oh, it looked like free money.’ So I think people don’t understand that student loans stay with you for a lifetime and there’s no way to get rid of them,” Hay says. “In many cases, these the funds are easily available, and to people without any financial education or literacy, or parents to teach them how to save and budget, a 13 percent interest rate doesn’t mean anything.”
According to the CGS survey, many graduate students would like to learn more about how to save money for retirement and invest for the future. Some of the most popular financial items that students expressed a desire to learn more about were general investing, how to structure their income and other taxes and selecting the right employee benefits.
Lack of knowledge at the heart of concerns
The CGS report and financial experts made the case that poor financial literacy is one of the biggest contributing factors to this stress, arguing that a generation of young Americans find basic retirement and savings products like 401Ks, IRAs and investment products intimidating or overwhelming and as a result many do not take advantage.
“Part of it is really the lack of knowledge and being intimidated by financial services and institutions pushing their products on them, so it’s a general lack of trust. Especially those without parents to discuss financial literacy,” Hay says.
Templin, who often speaks at colleges and universities about good financial saving habits, says he believes that while all generations are vulnerable to thinking in the short-term, the problem is “slightly worse” with millennials because of a range factors, including a lack of education about finance from their parents and a coddling atmosphere by colleges and universities. Templin noted that when he was in college, members of his fraternity handled a quarter of a million dollar budget and had to balance weekly and monthly expenses. Nowadays, he says, most universities have removed those responsibilities from clubs and organizations, depriving their students of an opportunity to get first-hand experience dealing with concepts of applied finance.
“It used to be you graduated from college and you were on your own. At this point, we are seeing a tremendous number of students, a quarter who graduate and their plan is to move back in with mom and dad,” Templin says. “So [immediate financial struggles] is one component of it, but the entire inability to ‘adult’ in this generation because they were bubble wrapped early on is another.”
Hay believes the future is somewhat brighter, citing the proliferation in the last decade of online financial tools (like Napkin Finance) that can teach money management skills and calculate savings and retirement programs to a generation of financially illiterate graduates.
“Its incredibly difficult, but we found that there are ways to make it more accessible, engaging, entertaining and palatable, especially for a younger audience whose parents didn’t teach them anything,” Hay says.