Are Universities Improving Student Financial Literacy? A Study of General Education Curriculum

Abstract

This study examines the undergraduate curriculum at 435 universities to determine whether personal financial literacy courses are allowed to fulfill a general education requirement. Only 37 of the schools show the course as an elective. While finance departments at these schools were instrumental in getting it placed within the general education curriculum, a survey of finance department chairpersons indicates that attempts at other universities have been unsuccessful due to the belief that the course does not fulfill the purpose of general education. A survey of administrators in academic affairs shows that a majority of them are in favor of the course while those who are opposed believe the topic should be addressed through co-curricular activities. Thus alternative approaches are suggested for introducing financial literacy initiatives on university campuses, including financial topics embedded within freshman seminars, survey courses and co-curricular training through financial literacy centers.INTRODUCTIONThe lack of personal financial literacy in our nation is readily acknowledged in a number of academic studies. For instance, Lusardi and Mitchell [2006] found that only half of a sample of workers over the age of 50 could correctly answer two simple questions regarding interest compounding and inflation. Furthermore, Lusardi and Mitchell [2007] discovered that only approximately 30 percent of college-educated Baby Boomers (age 51-56) could correctly compute a compound interest calculation. A separate study by Bucks and Pence [2008] found that borrowers with adjustable rate mortgages did not understand the implications of interest rate adjustments and thus underestimated the potential change to monthly payments.The implications of financial illiteracy can be severe as suggested in the following statement:We believe the market turmoil and credit crisis of2008 underscore the critical need for improved financial literacy in the United States. While there are many causes to the economic problems facing the country, it is undeniable that a lack of financial literacy is a contributing factor. Far too many Americans entered into home and other loan agreements that they did not understand and ultimately could not afford. More broadly, the lack of basic skills such as how to create and maintain a budget, understand credit, or save for the future are preventing millions of Americans from taking advantage of our vibrant economic system. And tens of millions of our citizens are either unbanked or underserved, which leaves them outside the economic mainstream. Addressing these issues is critical to the future of our nation's economy. (Charles R. Schwab, Chairman of the President's Advisory Council on Financial Literacy)1The solution to the financial illiteracy epidemic may partially lie with the nation's educational institutions as they represent a logical resource for addressing the problem. Steps have already been taken at the K-12 level in some states where legislatures have required the incorporation of personal finance topics within the high-school curriculum. However, the evidence regarding the efficacy of training at the high school level is discouraging. For instance, Peng, Bartholomae, Fox, and Cravener [2007] found that individuals who were exposed to a high school course were no more financially literate than those who took none. On the other hand, the authors discovered that college-level personal finance courses resulted in higher investment knowledge scores than high school courses. They attributed the difference to the fact that college classes are longer and more comprehensive and college students are more likely to see the importance of the topics.Although the Peng, et al [2007] finding was somewhat positive concerning college level classes, there is no legislative mandate to address financial literacy training at the university level. However, some schools have voluntarily taken the initiative. …

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