At MagnifyMoney, we are passionate about increasing financial literacy and financial education. We have been working on developing a basic financial literacy course with Brooklyn College over the last few months, and on Monday I tested out that curriculum on the first 17 students, all of whom are freshman.
I always enjoy getting out of the office, meeting people and listening to their stories. And I had the great fortune of meeting a wonderful group of college students, our financial literacy guinea pigs.
Our course had 5 components:
- Understanding time perspective, and how that influences financial decisions.
- Understanding the power of compounding interest
- Understanding your credit score, and how important it will become
- How to choose the best checking and savings account, particularly when free does not mean free
- How to choose the best credit card, and should a college student even get a credit card?
In the class, only 35% of the students had received any prior financial literacy training before our session today. I feel like our education system is not adequately preparing our children for the big decisions that they need to make in college, and I am thrilled to be partnering with Brooklyn College to get them the information that they need early in their college careers.
They have made meaningful financial decisions by selecting a college and a financial aid (or scholarship) package. These student loans will be with them for a very long time, and will influence their financial lives in very meaningful ways. Students should be taught about compounding interest and debt well before they have to make decisions about financing their education.
In addition to student loans, they have become the focal point of bank marketing messages. One student has a checking account from Bank of America, and she opened the account after they arrived at her high school. Yes, banks were marketing at high schools! How can a student decide the appropriate checking account with confidence, if they are not taught about monthly fees, ATM fees and overdraft fees.
Most of the information that I shared with the students came as a surprise. Some of the biggest surprises:
- Credit scores do not take income or expenses into account.
- Banks are even allowed to charge $35 for a $6 overdraft. They thought that had to be illegal (and, quite frankly, so do I!)
- Paying the minimum due will result in nearly 30 years of debt repayment, with the absolute cost turning into more than two times the original purchase price.
- The power of compounding interest to work towards their advantage. They did not realize how much diligent, early savings could produce for retirement.
From my perspective, I can’t believe how banks continue to use branch locations and tradition (my parents banked there, so I will too) to recruit and keep customers, including the most digitally engaged generation every. The students told me about how they bought books (online), clothes (online), and even food (online). But, when it came to banking and credit cards, they just responded to what was in front of them, rather than price-comparison shopping online.
We need to educate people, starting at a very young age, about the true cost of banking and borrowing products. And we need to build a habit of comparing, ditching and switching. Once the students today realized how expensive traditional banking has become, and how good the other alternatives can be, they committed to behaving differently.
After the lesson, I spent a lot of time answering individual questions. It was great to see their engagement, and I hope I convinced a few people today. But I am excited to take the feedback and make the course even better. For far too long, banks have received far too much for too little. If we can train the next generation to become truly financially and digitally savvy, so much money can be saved.
We have big rollout plans for this course. So, I thank the first 17 for their feedback, and I will write more about our exciting plans soon.
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