Resources to increase students’ financial literacy are a must to manage their debt
(Nicole Nobre/Daily Bruin)
Sept. 18, 2019 1:09 a.m.
If you had a dime for every time you heard the words “debt-free education,” you might have enough to pay off your student loans.
But if you pull out your phone and utilize the power of compound interest, you could be making that dream a reality.
Recently published student debt data revealed that students of California public universities, including the University of California and California State University systems, have a low percentage of federal loan debt after graduation – coming in at 42% for those with a bachelor’s degree.
But as many students would tell you, 42% of graduates with some sort of student debt is certainly not a low percentage.
While potential presidential candidates grapple for policies that will make college less expensive in the future, the reality remains – a bachelor’s degree is not cheap. In volatile economic times, Bruins should take advantage of long-term, low-risk investment strategies that could offset student debt down the road. More than that, their public university should help them do so.
For students, compound interest is a double-edged sword – they’re chased by their debt, but can get ahead by investing.
The primary issue with student loans is that they accumulate interest, said Avanidhar Subrahmanyam, a distinguished professor of finance and the Goldyne and Irwin Hearsh Chair in Money and Banking at UCLA.
“If you graduate with $17,000 in debt and you try to pay it off slowly, every year the remaining balance grows and grows, even if you maintain the same payment program,” Subrahmanyam said. “The only way to combat (student loan) interest is with investment returns.”
Person-to-person banking platforms like Venmo, Zelle and Cash App are excellent tools for working out rent and coffee runs, but there are also investment-based financial tech companies students could be utilizing.
For example, Robinhood is a mobile investment application that allows users to invest in a variety of different stocks, exchange-traded funds, options and cryptocurrencies, without any commission fees. Its millennial-attention-grabbing interface strives to both educate its users on basic financial jargon and provide the space for users to develop an investment portfolio.
Similarly, Acorns is a mobile app that helps one quite literally invest spare change in ETFs. These investments are diversified across thousands of stocks and bonds for the greatest return compared to their allocated risks.
Some students are already taking advantage of different online investment platforms.
“I’m pretty fortunate to know how to make an income without needing to work a 9-to-5 job,” said third-year marine biology student Coltyn Steinheimer. “There are so many resources to learn, whether it’s online, on YouTube or in a book.”
Digital micro-investment platforms can certainly help students get a head start on their finances. But our generation’s inability to invest outside of an app reveals another issue: the glaring need for comprehensive financial literacy programs at universities.
UCLA took action on this front by implementing a required financial wellness course for incoming classes. First-year students must complete the brief online course intended to better prepare them for the university experience and a new form of financial independence.
And while this program is a step in the right direction, it is not thorough enough for today’s world.
Professor David Ravetch teaches a unique, 35-student course called Management 168: “Personal Financial Health: Theory and Practice” as a part of the entrepreneurship undergraduate minor. This class covers topics like budgeting, time value of money, protection of assets and principles of investing.
UCLA, along with the rest of California’s public universities, should implement a required financial literacy general education course for the entire student body. A brief, click-and-complete online course, which most students glance through with educated guesses, is not sufficient for today’s erratic economy.
Fleshed-out financial literacy courses can better prepare college graduates to handle the complicated economy they are inheriting.
“You can’t do landscaping for a backyard by just looking 3 feet out the door – you have to look at the whole backyard to make decisions about how it looks and how it all ties together,” Ravetch said. “And in financial literacy you have to look at all the issues at once, not just investing.”
College students simply don’t have the capital or the 9-to-5 schedule to keep up with the escapades of Wall Street investors, but they do have 20 more years to watch their investments grow.
And all it takes is investing the $5 at the bottom of their backpack, right now.
In a world dominated by quick currency exchange platforms, it is easy to get caught up in the immediacy of small monetary transactions and fall privy to a weak personal budget. And in a world full of expenses, it is challenging to put away small sums of money on a recurring basis – $5 can go a long way on a college campus.
Nevertheless, making the choice to invest will prove far more lucrative if students start now. As Albert Einstein is said to have put it, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”
Students and politicians alike should continue to fight for a debt-free education. But the reality is, today’s students will have an expensive future after graduation.
To prepare for a loan repayment, it wouldn’t hurt them to pick up the phone.