Financial literacy a must for students

By Bhagwat Kumar     9/5/13 7:00pm

It is not a stretch to say that risk is endemic to any advanced society or that we as a collective sometimes fail to accurately quantify the risks we allow ourselves to take. The 2008 financial crisis was the fruit of a systematic misrepresenting, and in some cases ignoring, of the risks our financial institutions were taking on a daily basis. 

The risk itself, however, is not necessarily alarming. It creates wealth and, although dangerous when mismanaged, it is essential to modern society. While the greed that drives people to disregard risk can be lethal, the fear that allows them to overestimate it can be just as damaging.

What concerns me is the alarming number of students at Rice University - all of whom are clearly intelligent, focused and extremely ambitious - who are unaware of basic principles in personal finance. I have not met many students who fully understand how their bank operates; even fewer consistently set and adhere to personal budgets. It is one thing to sometimes overlook risk, but it is another to be wholly unaware of it.

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For some reason, personal finance seems trivial to us. The idea of sitting down and budgeting, much less actually sticking to that plan, seems (sometimes rightfully so) incredibly boring. Issues further down the line, like obtaining a first mortgage, are hardly considered. This is sometimes reasonable - it does not make much sense to plan for retirement before establishing a career - but we seem to assume these are problems that will eventually resolve themselves. We tell ourselves we will cross the necessary bridges when we get there, but when we finally arrive, we realize the bridges burned down three years ago.

It is in our nature to overestimate our ability to produce in the future - or in other words, we procrastinate. At a school like Rice, we are able to somewhat justify this, since we know we will most likely be able to make a substantial amount of money in the future if we choose to do so. So when the Federal Reserve tells us the median retirement account balance for households nearing retirement is $100,000 (a few hundred dollars a month), we do not get worried. Of course, this data is for households with a retirement account already. If we include households without retirement accounts, the number drops to just $12,000 for families who are nearing retirement. These numbers are scary. Yet we are able to somewhat dismiss them since, to be brutally honest, we most likely are not going to be median households in the future.

Still, events like recessions are unbiased: they affect people across all income levels. Protection from such shocks does not come from wealth, it comes from prudent financial management and an understanding of the risk to which one is exposed. 

While these are broad, immense topics, it cannot hurt to develop even an introductory understanding of them, especially while we are in college, free from the demands of everyday life in the real world. While studying independently is a perfectly acceptable way to forge this understanding, it isn't entirely reasonable to expect ourselves to thoroughly learn a topic when we are not forced to do so, considering most students are busy with classes and extracurriculars. Ideally, we'd be able to incorporate this financial education into our regular schedules, thereby ensuring that we spend the requisite time on it. 

I have made the effort to become financially literate through my involvement with the Rice chapter of a national organization called Moneythink. Moneythink, which operates entirely out of universities, strives to spread financial literacy to socioeconomically disadvantaged high school students. We do this by partnering with local schools and teachers to spend one hour a week working through our economic opportunity curriculum with the

students there.  

We have only been operational for a semester, but our mentors have said time and again that they learned nearly as much as their students over the course of the mentorship process. Because many of our mentors must first learn the lesson material before teaching it, they must learn it deeply and thoroughly, and are then able to reinforce this knowledge by explaining it to others who have never seen it. Of course, there are other easy ways to develop your understanding of personal finance, which is the main goal of this article. However, I am not sure there are many organizations that would systematically ensure that you become more aware of financial realities, or that allow you to diffuse that knowledge to people who are likely to need it far, far more than you.

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