The U.S. is currently ranked 14th in a 2015 global study conducted by Standard &
Poor’s Ratings Group and others, with a financial literacy rate of 57%. Experts are saying financial literacy is necessary to survive and thrive in today’s financial environment. These experts are finding that half of millennials take on student loans without even attempting to calculate what their payments will be. "But student debt is just one of the challenges. These young people will
have to support long retirements on savings and investments managed
throughout their careers. To accomplish that feat, they will depend on
interest compounding — a basic concept that they don’t fully understand.
They also struggle with two other critical concepts: risk
diversification and inflation." The lack of financial literacy, is more than a personal problem. It is dangerous for our
country’s economic health. The Great Recession was driven by mortgages
and loan terms consumers didn’t understand. Do you think believe financial illiteracy will result in another great recession driven by student loans?
http://www.marketwatch.com/story/should-colleges-require-a-financial-literacy-class-2017-04-03
Financial literacy is something that is currently under stressed in our school system. The fact that student debt and how to deal with taxes is not taught in K-12 certainly attributes to a lack of knowledge about paying off student debt. A lot of people who lacked financial literacy were hit the most when they got into housing mortgages during the recession and hopefully the same won't be the same with student loans. Although only time will tell with how the student debt problem is handled under the newly sworn-in controversial Secretary of Education, Betsy Devos.
ReplyDeleteI don't really have the expertise to comment on whether or not student loans will trigger another recession (I hadn't ever thought about them being capable of such a feat, although after reading this it doesn't seem too far fetched).
ReplyDeleteHowever, I do believe that the national issue of financial illiteracy needs to be dealt with. Basic Economics as well as personal finance should be class added to the core subjects K-12. So many Americans graduate with a high school degree (or don't graduate at all), and have no idea how to do their taxes or plan for their future. This is a problem that needs to be recognized by our education system.
I definitely believe that something should be done about the level of financial literacy in the US. However, I think that it should be taught to those in high school as well, and not just to college students. That way, students could benefit from this knowledge regardless of whether they choose / are able to go to college. For those who do take out student loans to go to college, at the very least they might better understand how student debt might affect future prospects after college e.g. owning a home.
ReplyDeleteI'm also curious to know how countries like Norway, Denmark and Sweden (where 71% of the population ranked as financially literate) have achieved such high numbers. Is it just part of the culture, or do they actively seek to teach their youth about money management, budgeting, finance etc?
I agree with Shanice. Financial literacy should be taught as early as high school.
ReplyDeleteI had never though about student loans having the potential to cause a financial crisis, but I do think greater lengths should be taken to educate people on what taking out a student loan fully entails.
I agree with everyone that financial literacy needs improvements in the US. I have seen on first hand occasions that some of my peers do not understand basic economics and thus it does affect some decision making. In regards to student loans, I don't believe financial literacy will reduce loans generally, as the price of education is something students cannot avoid.
ReplyDeleteI also do not foresee loans leading to a recession despite the high default rates. Graduates are still making up the skilled labor force so it is possible that the government could take action to reduce the amount of student debt (like a bailout in the financial crisis), that is, assuming that the demand will be there.
I agree with Shanice's comment in terms of the teaching/knowledge of financial literacy, the early the better. Yet the result of the education of financial literacy is still not clear, so I think we should start conducting some sort of experiment courses at high school and see the results of this kind of education.
ReplyDeleteStudent loan is a big topic that apply to American local students, but it doesn't apply on international students because International students cannot take student loans.Yet the college tuition at China is very low in comparison to American colleges' tuition. I'd say the tuition in China is more reasonable than the U.S, at least it is more affordable. College graduates in China normally won't stress about college loans.
I definitely think that financial literacy should be part of the education system. Ideally, it would be something that is taught to people early in middle school and high school. College would be too late as not everybody has the opportunity/resources to attend college.
ReplyDeleteI can't speak to the possibility of student loans becoming a driver for another recession, although the size and burden of student loans does illustrate a scary picture.