Financial Literacy: What College Students Need to Know

Given the rising cost of tuition, college students need to be more informed than ever about the implications of paying for higher education. But making financial decisions — including around budgeting, taking out loans or investing — can be daunting, and many college students feel ill-equipped to do so.

In a survey of about 30,000 college students from more than 440 schools across the country, only 53% said they felt prepared to manage their money, according to a 2019 report by EVERFI, sponsored by AIG Retirement Services.

“We see a lot of students who haven’t had to deal with a whole lot of the complexities of the financial world” before college, says Phil Schuman, president of the Higher Education Financial Wellness Alliance and executive director of financial wellness and education at Indiana University–Bloomington. “The most experience we see students have with finances tend to be they had some sort of part-time job while they were in high school. So they come in with a little bit of understanding of their earning process, a little bit of understanding of the tax process and just how to bank.”

[READ: A Guide to Federal Student Loan Counseling.]

What Is Financial Literacy?

Financial literacy, sometimes under the umbrella of financial wellness, is the understanding of financial concepts — like interest rates, student loans, credit scores and budgeting — and how your personal finances work.

Not having an understanding of some of these concepts can result in negative consequences after college, like going into unnecessary debt or student loan default, says Andrea Janssen, interim director of the University of Montana‘s Financial Education Program.

Do States Require Financial Literacy in High School?

Fifteen states require or are in the process of mandating that students take a stand-alone personal financial course of at least one semester to graduate, according to Next Gen Personal Finance’s 2022 “State of Financial Education” report. Only eight of those states have fully implemented their requirements statewide.

In the 42 states that have yet to implement statewide requirements, fewer than 1 in 10 students have guaranteed access to a stand-alone personal finance course, the report found.

“I think public schools and universities have a responsibility to make sure that when students graduate and they either go off to college, start their own business, enter the workforce or decide to serve the country through the military, they should have a deep understanding of how the economy works, how money works and they are prepared to navigate a much more complex financial services system than has ever existed before,” says Ray Martinez, co-founder and president of EVERFI, a Washington, D.C.-based company that provides financial education, workplace training and community education.

Financial Concepts Students Should Know

When transitioning from high school to college, students should learn to budget, track spending habits and understand loans, experts say.


One rule of thumb is “don’t spend what you don’t have,” says Dana Kelly, vice president of professional development and institutional compliance at the National Association of Student Financial Aid Administrators. She advises students to avoid using a credit card while in college.

[Read: How to Pay for College Using These Overlooked Strategies.]

“That’s where budgeting really comes into play because if you’re sticking to your budget, then you’re working with the cash that you have,” she says. Students who decide to use a credit card in college should be clear on what the interest rates are, what a credit score is and how to make payments on time, Kelly adds.

If you have money left over for the month, Janssen recommends dividing it into thirds. One-third can be used for something fun as a reward. The next third is to pay off any debts while the remaining funds can be invested or saved.

Develop an early habit of saving, if possible, Kelly says.

“Even if you start putting away even small amounts, you are fostering a really good habit there,” she adds. “And then as you get through college and you move into that first apartment, you then have something to put away and potentially can look at other investment options and growing that savings.”

Track Spending Habits

Whether you spend money on activities, gifts or going out to eat, it’s important to understand your personal habits and attitudes around finances, experts say — especially before entering a relationship.

“Statistically speaking, every single year, one of the top reasons for divorce has to do with financial stress,” Schuman says. “And part of it is because people don’t know how to understand their financial background or understand their partner’s financial background. And when they try and have conversations, there’s no positivity that comes out of it.”

Understand Student Loans

Not all student loans are bad, experts say, but students need to be aware of the different types of loans, repayment obligations and interest rates.

“Student loans can be a really effective tool for helping you progress in your life,” Schuman says. “Borrowing more than what you need and then using that money to potentially buy stuff that’s not relevant to your college experience, that’s bad.”

Students and their families need to plan early and have discussions around how they’re going to pay for college before enrolling, experts say. To qualify for federal loans and other sources of financial aid such as scholarships, grants or work-study, students must first fill out the Free Application for Federal Student Aid, or FAFSA.

[See: How Average Student Loan Debt Has Changed in 10 Years.]

College Efforts to Improve Student Financial Literacy

With the growing need for financial literacy efforts on college campuses, many schools have responded by opening financial wellness offices, Kelly says. These offices are designed to host informational seminars and improve students’ overall financial knowledge.

The University of Montana’s Financial Education Program, for instance, offers one-on-one financial counseling and workshops on topics such as budgeting, credit, savings and navigating the financial aid process to current and potential students, faculty and staff. The program recently expanded to include outreach to local high schools to discuss how to fill out the FAFSA and pay for college.

“We educate students about their personal finances and those financial options when it comes to paying and repaying for college,” Janssen says. “And by going through all of that, we are setting them up for success and a solid financial future.”

Similarly, Indiana University created MoneySmarts, which offers peer educators and financial literacy classes for credit. Students may take three five-week classes for one credit or a three-credit-hour class that is more comprehensive.

“On the college side of things, we want to take whatever is taught in high school, if anything, and expand upon it,” Schuman says. “Really provide people a look at what post-college life could look like with what their financial situation may be based on their degree and based on how much student loan debt they may have.”

Financial Resources for Students

It may be hard for students to ask their parents financial questions “because money is tough to talk about,” Janssen says. However, there are other resources or tools available to students.

While on campus, students can visit their school’s financial wellness office or financial aid office.

“You should never feel ashamed or embarrassed about going to talk to financial aid and asking them questions,” Schuman says.

Experts also recommend students use budgeting apps like Mint or reach out to their bank, as banks often have financial planning tools or their own budgeting calculators.

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