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Studying can be a costly choice. Universities should address young people’s financial literacy gaps


This article is part of our series on big ideas for the University Agreement. The federal government is calling for ideas to “reshape and reinvent higher education, setting it up for the next decade and beyond”. An assessment team must complete a draft report in June and a final report in December 2023.

Australians with HECS-HELP debt face a estimated increase of 7.1% on their debts in the middle of the year, thanks to inflation. Some students have been express shock and dismay because their loans are interest free and they thought they wouldn’t grow.

Although it is not “interest”, the effect for borrowers is the same. Decades of low inflation have meant that HECS-HELP indexing has largely been ignored until now.

This is in addition to already significant HECS-HELP debt. An arts and law student is now paying more than A$15,000 a year in tuition fees as a full-time student this year.

The repayments (which only start when a certain income limit has been reached) have an impact on disposable income and borrowing capacity and can disproportionately negatively affect women.

Therefore, universities should do more to help students better understand their HECS-HELP debt and make financial decisions in general. The University Agreement is an excellent opportunity to initiate this change.

The approval test looks at how universities can meet the knowledge and skills needs of the future. In addition to other generic skills learned in college such as communication, collaboration, problem solving and critical thinking, we need to add financial literacy.

Studying is a financial decision

It could be argued that universities have a moral obligation to build financial literacy skills and educate students about how course fees are charged and then reimbursed when they go to work.

Universities depend on tuition fees as a substantial part of their funding. And students accrue significant amounts of money during their studies — often in the tens of thousands of dollars.

The ANZ 2021 Survey Financial Well-being found that 18- to 24-year-olds struggle with financial planning, choosing products, understanding online risk, and being aware of credit pitfalls.

Young Australians do not have a good level of financial literacy.

What is Financial Literacy?

Financial literacy is one core life skills. It includes filing tax returns, managing your retirement, and making sure you have enough money to provide for yourself and your family.

It requires you to be competent in many aspects of the financial decision-making process. It includes a person’s knowledge of financial concepts, their ability to gather and search information and compare products, and their confidence in making decisions involving money.

While the concept is broad, there is one set of five questions about interest rates, the stock market and mortgages that are regularly used to measure one’s financial literacy.

The dynamics of households, income and labor in Australia questionnaire has asked these questions and shows a decline average correct answers. Between 2016 and 2020, men went from 4.1 to 4.0 and women from 3.7 to 3.5.

More troubling than the general decline and widening gender gap is the decline in financial literacy for the 15 to 24 age group. Average scores fell from 3.4 to just 2.9 out of a possible five points for young people.

Read more: Teaching and research are the core tasks of universities. But in Australia we don’t value teaching

Why should Unis get involved?

Nothing substantial is currently being done to address this knowledge gap among young Australians.

In its early iterations, the National Financial Literacy Strategy (later the Financial capacity strategy) aimed at encouraging improvement through formal education in schools.

However, the efforts have failed to shift school performance in terms of financial literacy and there are problems with focusing math in the school curriculum over building specific financial literacy skills.

The American example

Making financial literacy classes mandatory is not an overly ambitious goal. In the United States, 19 states require or plan to require students to take a personal finance course to graduate from high school.

There are signs that this could be made mandatory in colleges and universities. A 2019 Report from the US Treasury Department recommended universities and colleges “should mandate required courses to teach students financial concepts and skills”. This includes:

  • clear, timely and tailored information to inform student loans

  • communicating the importance of graduation and major on student loan repayment

  • prepare students to meet financial obligations upon graduation.

Many American universities already have financial literacy courses. For example, Ohio State University runs one financial coaching program to help thousands of students each year with financial goal setting, budgeting and banking, credit, debt repayment, savings and retirement planning.

Read more: Many students don’t know how to manage their money. Here are 6 ways to improve financial literacy education

How can we improve financial literacy?

A young person works on a computer next to a cup, book and telephone.
Universities could mandate financial literacy courses as part of graduates. Specific information about student debts could also be provided before students take out a loan.
Vlada Karpovich/Pexels

There are many opportunities for Australian universities to formalize financial education.

On a strategic level, they should add “developing financially capable students” to the list of graduate attributes.

They could then require all students to take a course on personal finance management as part of graduation requirements. There may be flexibility in how this is done – online and inter-institutional study are both obvious options.

Student services can also provide workshops on taxation, budgeting, pensions, insurance, inflation and economics, and investing.

Finally, if students choose to defer their tuition through HECS-HELP, they should be required to complete a specific undergraduate financial literacy module to better understand the implications of building debt.

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