One of the things that I feel strongly about when it comes to student loans is making sure that future students get the education they need about the cost of college before they ever set foot on a college campus. When I was selecting colleges, I was pretty oblivious to how finance worked and while I did work for two years before college and saved a good percent of my money I had no concept of how loans and interest worked in a real world application. Recently Oklahoma looked to solve these problems by making a personal finance course mandatory for high school students. But will it really help students?
The program sets to have high school students learn 14 different areas of personal finance. Their understanding will be tested in banking, taxes, investing, loans, insurance, identity theft as well as eight other subjects. They have three state specific standards of: bankruptcy, the financial impact of gambling, and charitable giving. Most other states usually only cover earnings, savings, and investing and many times these classes are strictly electives.
There is usually not a dedicated teacher for the class as most schools can’t afford that for an elective class. I remember at my school this was considered a “blow off” class where you basically just learned about writing and balancing a check book and maybe a little bit about interest.
You also have to realize that it depends on the high school and the structure of the class. If you don’t have a teacher that is dedicated to teaching finance and is just filling in because they studied the material and are willing to help out, the course may not be as valuable. But of course that happens with any sort of class at any level. The schools are able use curriculum provided by the state Education Department or whatever they choose so while there is a standard, the schools can deviate from that.
Overall, I think that making personal finance mandatory and making the class tougher is a step in the right direction. If I were to design a course it would include all the basics like the Oklahoma but I would highlight the part of investing and choosing low cost index funds, and the importance of compound interest and starting to save as soon as possible.
For anyone choosing to go to college, I think I would make them choose a few majors that they might be interested and look at the starting salary for jobs in those fields. We would then have them pick a few schools of their choice, and also use a base case of going to a community college for two years and then transferring to a cheap state school (which could possibly be one of their schools of choice). Then I would factor in about a 3% increase in cost each year over 4 years and get the total cost of school.
The student could then take their total cost and subtract how much they expect themselves to be able to contribute or their parents will be able to contribute to see what their true cost of attending college would be and what their total debt burden may end up being. The student would then be able to compare their estimated starting salary (broken down monthly) versus their estimated monthly student loan payment. I know if I had seen that, I would have panicked and definitely started to look at community college! It would have been eye opening to see just what a large percentage of my income would be going to student loan payments.
What do you think about Oklahoma making personal finance mandatory? Is it a good or bad thing, and what would you change about them?