LARSON: Teach financial literacy

Nothing in Particular

In the most recent meeting of my economics senior seminar, our topic of discussion was financial literacy. Our conclusion — perhaps obvious to anyone but economists — was that a high level of financial knowledge could, in part, lead to good financial outcomes. Conversely, low levels of such knowledge could in part explain some people’s poor financial outcomes — running out of money in retirement, being unable to pay off debt, losing a home.

Harry Larson_headshot_(David Yu)Our class’s discussion wasn’t abstract or academic. Rather, after discussing the types of financial questions many Americans struggle to answer, most of us realized that we were equally financially clueless.

Now, it’s worth noting that Yale students, on average, tend to be in a strong financial position. Many will, upon graduating, earn salaries higher than the average income of an entire American household. Even for those of us pursuing less lucrative careers, Yale’s generous financial aid policies mean we will graduate with lower levels of student debt than many of our peers nationwide. Many Yale students come from high-income families, and all of us benefit from the Yale network.

Still, even among senior Economics majors, many of us had very little idea how to go about financial planning post-graduation. I, for one, have heard from some people that it is worthwhile to apply for a credit card even if I won’t use it, just to build a stronger credit score. I’ve also heard that having such idle cards could damage my score.

For those of us going to graduate school, how should we think about new student debt? How clear a sense do we need of our post-graduate school earnings in order to take on more debt? Or are subsidies for student loans generous enough that it makes sense for us to finance as much of our post-college education as possible through new debt? Will accumulating wealth right out of college help us pay for grad school down the road, or might it somehow reduce the levels of financial aid or fellowships for which we might otherwise qualify?

Such questions are equally if not more important for Yalies going into high-earning jobs. Many students say they plan to work a high-paying job in finance, consulting or the technology industry for a couple years before pursuing entrepreneurship, government, nonprofit work, more school or some other lower-paying option. But once in a high-paying job, it can be hard to avoid spending as much as the other high earners around you. Many of us know friends who ended up staying on a particular career path for far longer than they originally intended. Only late in that process did many realize that doors they originally planned to walk had closed on them.

What can Yale do about all this? Maybe not much; at some point, we will all learn to deal with financial trade-offs by facing the consequences of our financial decisions. Some Yalies, who have had to personally shoulder some portion of the cost of their education, have already learned such lessons by the time they arrived on campus.

Still, we require that freshmen attend a series of workshops and educational sessions on alcohol and sexual safety, even though those are areas about which many freshmen already know, whether from personal experience or high school curricula. Would it be so unreasonable for Yale to require sessions on financial health for graduating seniors?

UCS already provides some excellent information in its “Life After Yale” pamphlet on financial issues from taxes, to rent, to commuting cheaply. Still, the pamphlet doesn’t go into these or other issues with a great deal of depth. Required financial literacy sessions would work much better.

Yale could require seniors to complete online sessions and subsequent quizzes — like what is required to participate in on-campus recruiting. While such a system wouldn’t require rigid time commitments from seniors, it would fail to easily facilitate follow-up questions. Physical classes would work better. Some could be taught by financial advisors or others with technical knowledge about taxes, interest rates, vehicles for saving and debt; others could be taught by recent graduates who have, perhaps, made poor decisions about credit card debt or student loans. In addition to attending — and completing an assessment showing they understood the material — students would be free to begin a back-and-forth discussion.

Teaching financial literacy is no panacea for financial problems, and there is no doubt that any required classes eating into Yalies’ already busy schedules will attract a good deal of griping. Still, the stakes of many financial questions students will face immediately upon graduation are too high to be muddled through. Yalies have the ideas and the determination to achieve what they want to in life. It would be a shame if they were set back by the inability to manage their money.

Harry Larson is a senior in Jonathan Edwards College. His column runs on alternate Tuesdays. Contact him at harry.larson@yale.edu.

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