As a college president, I ask students and graduates what are we doing correctly and what can we improve upon. The typical responses to how we can improve are not surprising — more parking and more financial aid (often in that order). Lately the most common answer from recent graduates as to how we can improve has been surprising — more education about financial literacy and the practical aspects of living in today’s world.
I hear the following comments with increasing frequency, particularly since the Great Recession of 2008:
- I had no idea of the impact of my student debt and credit card debt on my ability to live a comfortable life after college.
- Living in the residence halls and dining at the college, I didn’t need to know about budgeting and renting an apartment. I had no idea how to create a budget so I could live responsibly and comfortably on my salary.
- In college I learned how to cultivate a pointed argument, but quickly learned that in the workplace an aggressive argument can get you fired. No one told me about how to disagree with your boss and not have your job threatened.
Faculty and administrators at liberal arts colleges do not shy at complex thinking. We tend to scrutinize the details even as we comprehend the big picture. We look for connections among areas of thought, and revel in a multitude of perspectives. By the end of their four years on campus, our students have benefited from a well-rounded, richly layered education. I believe most even recognize what it means to be liberally educated. Having learned to "turn the crystal" as they develop their views and goals, they are confident and able to find success on many levels.
Why then do so many recent graduates seem unable to demonstrate sound decision-making in an area as fundamental as finances and entering the work world?
Is it possible that in our efforts to foster creative and critical problem solving, we neglect the basics of responsible day-to-day living and working? As we carefully engage students in discerning shades of gray, is it at the expense of black and white?
Two events have led me to ask these questions. First is the number of conversations like those described above, with graduates who confided to me their frustrating lack of “real-world” financial knowledge. The second is the fact of the high loan default rate among recent college graduates, which is 7 percent nationwide (Augustana’s rate is 4.2 percent). I know I am not alone in asking the question: What should we do?
Personal Prosperity and the Common Good
Jon Meacham, the former editor of Newsweek, addressed the 2011 Council of Independent College Presidents Institute. Meacham praised the role of liberal education, noting that "people who know about Shakespeare tend to create the Internet." But if appreciating Shakespeare and other skills common to a liberal education is viewed by most as "quaint and quirky," liberal education will not survive. Instead, he argues that liberal education must be "vital and relevant" by "training young minds to solve problems and to see what others have yet to see and to think energetically about creating jobs and wealth," which Meacham calls the "oxygen of democracy."
I'd go one step further than Meacham. Our graduates can’t create wealth and jobs if they don’t have the ability to balance a checkbook, or the skills to hold a job.
When asked to define "personal success," I think it is fair to suggest that most college freshmen would put "financial success" toward the top of their list. As they begin taking liberal arts courses, they connect their learning to other aspects of their lives, and many begin to think of a career as something more than just a paycheck. They develop meaningful working relationships with faculty members and other students, and may experience some peaks in their education — whether through an internship, international study, research with faculty or other achievements in their major studies. Their definition of success develops more facets.
At Augustana College, we have long promoted high-impact learning experiences as well as the close relationships that allow integrated and collaborative learning to flourish. Recently we have begun to take new steps toward teaching certain life skills fundamental to ensuring success of all kinds.
Leadership about financial literacy must come from the top. I remind our students that if they live like college graduates with good jobs while they are students, their debt levels will cause them to live like students when they graduate. Going out to a mid-priced restaurant twice a week for four years could easily cost $8,000. Putting those charges on a credit card and carrying the balance over four years tips the cost to well over $10,000.
Five years ago, before the severe economic downturn, we introduced a class on personal finance. Offered each spring and fall term, the class is packed with seniors and some juniors. Having read Plato and Neruda, spent hours upon hours working in our human cadaver or volcano lab, or climbed Machu Picchu, these students suspect they must improve their financial literacy before they graduate.
Their instructor, an alumnus retired banker, begins by teaching how to use financial templates. The students create a personal profile and then produce a cash flow statement for the previous year. After clarifying their own understanding of their financial history, which generally is filled with gaps until this class, they work with their instructor on the process of creating a budget for the next year. Taking into account three to four personal financial goals (e.g., paying for students loans, emergency funds, etc., and even retirement), the students lay their financial path for the future. At all times throughout the class they keep in mind their current net worth, and how that value should affect their financial decisions. The course is such a success that, given the financial illiteracy demonstrated by too many young alumni, we now are offering a free three-hour seminar as a "crash course" in personal finance for our graduating seniors.
Augustana is not the only liberal arts college to offer such a class, and there is more we all can do. Many liberal arts colleges are adding majors that address personal financial viability in a changing world and also attract prospective students in an increasingly competitive market.
Augustana’s newest majors — which extend from traditional majors — include graphic design, neuroscience, environmental studies, multimedia journalism and engineering physics, among others. While some of our faculty state concerns that our college’s liberal arts foundation might be shaken by the contemporary and perhaps more fiscal focus of these programs, most see the new majors as logical progressions  of traditional fields and therefore deeply related to our college’s mission.
Changes should go beyond academic programming, however. In the personal finance classes, faculty members are amazed at students’ lack of awareness regarding their college costs. In creating their cash flow statement for the previous year, many neglect to include their student loans — even though they cover four academic terms. Likewise, they do not take their debt load into account as they produce budgets for the following year.
In most cases, these students’ parents simply have not shared their knowledge of financing, or included their children in financial decision-making as part of the college search process. This problem might be addressed and partially remedied through colleges’ financial aid offices as they work with families.
Ninety percent of our students borrow money to attend Augustana, and every year our financial assistance staff fulfill the federal regulation of making sure students receive entrance counseling on their financial responsibility regarding loans. For many colleges this required counseling is performed online. Our approach at Augustana is to sit down with students in person during orientation every fall, at which time students sign the Master Promissory Note (MPN), which lays out the details of their borrowing.
What we have discovered is that many students at this stage are simply overloaded with information, and if they did not recognize the depth of their financial commitments before that point, they are in no position to address this gap in their understanding at the start of the academic year. They are distracted by thoughts and worries about the minutia of their daily lives on campus, and not the behind-the-scenes financial process that makes these experiences possible.
Therefore, our new approach is simply to include parents in the important entrance counseling and signing of the MPN. This ensures parents return home with this information in mind and the opportunity to improve financial conversations with their student from that point on, throughout their student’s college career.
The steps our college has taken to foster financial literacy are a beginning. All liberal arts colleges — but especially those colleges enrolling classes with more first-generation college students than ever before — have an obligation to ask how we can continue to improve the experience of gaining financial literacy and those outcomes for our students. We must do this as institutions concerned with transparency, accountability and access, and as institutions whose primary and time-honored concern is to educate the whole person.
In 2008 our nation’s economy — and therefore the world’s — was crippled in part by compounded reactions to the reckless financial decisions and greed of a relatively small group of people. Almost all of these individuals went to great colleges. As we teach students of the liberal arts to consider the needs of communities when making life choices, we cannot forget the role played by ignorance and personal greed. A high-quality liberal arts education can dispel both, but only when we take steps to include basic life skills with traditional, well-rounded liberal arts learning.
Steven Bahls, president of Augustana College, is both a C.P.A. and a lawyer.