How College Loans Can Cause Big Financial Problems From An Early Age
written by Frankie Rose.
Choosing a College and Career path should be one of the most exciting times of a High-schoolers life. However, the choices you make now can have huge ramifications on the rest of your life, not for the reasons you may be thinking. You spend time looking at the college, deciding if you will live on the campus or not, what career path you take, and the income you hope to make once graduating. If you have not looked into how much debt this will put you in, what the debt is and the time it will take you to pay back, what the interest on your student loan is, then you are walking on dangerously thin ice. Financial Literacy is a skill required to go to college, not to gain entry, but to survive and come out the other end with a decent chance of building wealth once you enter the workforce.
Will your parents be able to carry the burden of your student debt, or will you be left with the massive burden of paying back your loans all on your own? In the United States, a public college graduate will leave with a debt of about 21 thousand. A private college can be up to 40 thousand a year. How will you pay your bills, eat, pay rent, and pay your student debt at the same time? Most turn to credit. To add to the debt of your education, now you have credit card debt too. This is the reality for far too many graduates with a lack of Financial Literacy, which is why so many fall into unsustainable debt due to a lack of long-term planning.
Many students plan their college education and future career to create a future of wealth in an uprising skilled labor force. However, more and more graduates are entering the workforce with student debts, and as the price of college grows, so does the debt. Students can find themselves relying on loans and credit cards to get them through college, borrowing more, earning less, and starting their career path with debt that can affect their credit rating. The young adult's excess debt means they are dedicating much of their income to paying it off rather than building wealth for the future. This cycle actively delays the commencement of other financial goals such as saving for retirement, buying a house, or even the simple task of having an emergency saving account for an unexpected bill or cost.
"About 6 in 10 parents with children between the ages of 18 and 29 said they had given their kids at least some financial help in the past year — primarily for recurring expenses such as tuition, rent, groceries or bills, according to the Pew Research Centre".
"In 1980, about a third of young adults were financially independent by age 22 or even younger, according to a Pew analysis of Census Bureau data. By 2018, that number dropped to just a quarter."
High school students and college students need to become financially literate sooner rather than later in order to become independent which is not only allowing them to accumulate wealth and savings but to allow their parents to do the same.
What is Financial Literacy?
Financial Literacy is the ability to understand the skills necessary to manage money and make financial decisions effectively; to understand how to build wealth and avoid debt; the basic understanding of inflation and interest rates; how to save, why to save, and how to invest correctly and safely to ensure a path of decreasing debt, building wealth, and sustainable income to live.
Two-thirds of American adults cannot pass a Financial Literacy Test.
44% of Americans cannot even cover a $400 emergency because they do not have the cash saved.
43% of student loan borrowers are not making payments to reduce the balance.
38% of U.S. households have credit card debt.
33% of American adults have nothing saved for retirement.
In another study, researchers found in 2015 that only 30% of Americans were able to answer three simple financial questions about inflation, interest compounding, and risk diversification.
Policymakers, educators, and schools place little importance on the Financial Literacy of high school students. It is vital that students learn about how inflation affects income and taxes, save for retirement, and avoid the debt traps introduced as early as college. Many do not understand that decisions made before you are even 20 can be devastating and haunt you for your whole life.
However, without education on what it all means at an early age, young people sign up for a lifetime of struggle by merely having absolutely no understanding of what debt is and how it works. Without correct management and understanding, these debts can set you up for a lifetime of financial struggle and no retirement.
Being Financially educated, and literate at a younger age gives you the advantage of choice once you are earning. Understanding loans, interest rates, and saving goals might seem boring now, but being educated and smart in this area will give you the advantage of traveling, a life lived where you want to, and the ability to choose a career for the fulfillment, as well as the financial benefits.
Teaching the next generation Financial Literacy will be life-changing for them and for the country as a whole. A country of wealthy residents is a country with a wealthy and healthy economy. To put all of the above into perspective: the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127% smaller. Despite the U.S. being the world's largest economy, it is ranked in 14th place by the Standard & Poor's Global Financial Literacy Survey, which measures the proportion of financially literate people in the country. The U.S. economy is the largest globally, yet our ability as a nation to benefit from this is failing. This needs to be changed, and it needs to be changed now.
Trends in the United States show that Financial Literacy is declining. The clear reason for this circumstance is that the economic environment is changing. Debt is easier to obtain; investing seems to be a risky and more complex strategy than it ever seemed for the previous generation. A higher, longer, and more expensive college education is required to obtain that high-paying corporate job that graduates dream of. However, little to no changes have been made in our education system to reflect our growing economy.
Financial Literacy should be a subject taught in every school for the exact purpose of avoiding students graduating with poor credit, unsustainable debt, and lack of education for long-term planning. Many dangers caused by ill-equipped financial decisions can be life-changing if not educated upon. Why is the danger of financial illiteracy ignored when it is taught to give the ability to have a strong financial future, saving many from the trap of the potential for bankruptcy and home repossession.
In America, we can do better; financial literacy is the key to future generations' prosperity.