One of the most significant transitions in the lives of young people is moving from high school to college, partly because it’s often the first time they take on financial responsibilities. Many are unprepared.

To help students avoid developing bad spending habits that can lead to unpaid debts and other economic hardships, state legislators, colleges, and universities are working to advance financial literacy among young people. New programs and initiatives are being introduced to help high school and postsecondary students learn how to responsibly manage credit card debt and budget for living expenses, among other efforts.

The Generational Divide in Financial Literacy

Today’s college students have less knowledge about financial matters than previous generations, according to the Teachers Insurance and Annuity Association of America (TIAA) Institute’s 2022 report “How Financial Literacy Varies Among U.S. Adults.” The report utilizes the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) questions that measure overall financial literacy and personal finance knowledge across eight areas, including earning, consuming, saving, investing, borrowing/managing debt, insuring, comprehending risk, and identifying go-to information sources.

The study finds that while Generation Z and Generation Y answered 42 percent and 46 percent of questions correctly, respectively, older groups scored more than 10 points higher in some instances: Generation X was 51 percent correct, baby boomers 54 percent, and the silent generation 54 percent. Financial literacy disparities also exist by race and ethnicity. White respondents answered an average of 55 percent of the P-Fin Index questions correctly, followed by Asian Americans (54 percent), Hispanics (38 percent), and Black Americans (37 percent). 

College students are also sounding the alarm, as more than one in four say they are not prepared to be on their own financially, according to the “2022 College Student Financial Survey” conducted by WalletHub, a personal finance website.

Amid rising inflation and the financial impacts of COVID-19, 86 percent of college students surveyed said the pandemic has made them more concerned about their financial future despite it pushing them to be more financially responsible, and 79 percent reported that their financial literacy has improved since the pandemic began. Sixty-seven percent consider themselves a “saver” rather than a “spender.”

The ongoing financial education movement demonstrates progress, but more needs to be done, experts say. Twenty-eight percent of older adults have participated in a program to address financial illiteracy, according to TIAA, and that figure has risen to 35 percent among Gen Z. But TIAA calls that number “too low” and urges more primary, secondary, and postsecondary financial training with a focus on diversity and inclusion to ensure the needs of various socioeconomic groups are considered in content and delivery. 

Many states have turned to legislation for help in the struggle to educate high school students about financial literacy. In 2022 alone, 32 state governing bodies introduced fiscal education-related actions, according to the National Conference of State Legislatures. Some states instituted requirements for half-credit financial literacy courses. 

To obtain a high school diploma in Florida, students must take a half-credit course on financial literacy and money management beginning in the 2023-2024 school year. Similar legislation, set to take effect in the 2024-2025 school year, has also been mandated in Georgia and Michigan.

About 22 percent of high school students have access to financial education now, an upward trend from 16 percent in 2018. As a result of new programs and legislation, that will increase to around 40 percent in the future, according to “State of Financial Education,” a report published in 2022 by Next Gen Personal Finance, a nonprofit organization working to introduce financial education to high school students through curriculum development, advocacy, and teacher training.

NIU Works to Close Financial Knowledge Gap 

Anne Hardy
Anne Hardy

To help students achieve economic stability, Northern Illinois University (NIU) launched Student Financial Advising Services in 2021. Three full-time advisers work with students to develop a personal, multiyear financial plan. The department focuses on financial aid, but assistance extends to budgeting, credit card use, loan repayment, and more. To date, counselors have met with nearly 1,200 students, says Anne Hardy, director of scholarships and student financial advising services. 

NIU was prompted to provide such advising services to address the financial knowledge gap for underrepresented populations on campus. About half of NIU students are first generation and around the same percentage are from a minority racial or ethnic group, says Hardy — and nearly half are Pell Grant eligible. Many NIU families are unfamiliar with the college process, and Hardy’s department says it’s imperative to explain money basics and financial aid to NIU students and their families.

One student taking advantage of the resources at NIU is Sergio Dondiego, a freshman who visited a campus financial advising services booth. The adviser encouraged him to apply for a variety of scholarships — from national scholarships to on-campus options with specific criteria, including those for study abroad. By simply meeting with a financial adviser at NIU and completing a financial engagement task (applying for scholarships), he qualified for a $500 financial engagement scholarship.

Some scholarships require essay submissions, and Dondiego, who is Mexican, found that those are his favorites, as he learned a lot about his parents’ past as immigrants to America by speaking with his mother about the essay questions.

Based on his experience, Dondiego recommends others seek financial advising services on their campus for help with scholarship application guidance and for encouragement to meet deadlines. He has developed a strong connection with his financial adviser and plans to check in with them again.

Hardy sees campus financial advising resources as a rising trend in higher education, especially considering that financial concerns, which have long been a source of stress and anxiety for students, were further exacerbated by the pandemic. Financial wellness is a critical part of creating a positive student experience, she says.

College is often the first time that people need real money management skills, Hardy says, and it’s important for students to establish good financial habits as early as possible.

Nikki Brahm is a senior staff writer for INSIGHT Into Diversity.

This article was published in our December 2022 issue.