More than two-thirds of states in the US require high school students to take a personal finance class before graduation, according to the Council for Economic Education. Now, personal finance courses, offered mostly as electives, are sprouting up at public and private colleges nationwide and getting a boost from a new initiative by Stanford University, US. While some colleges have long offered personal finance classes, the new effort to develop and promote college-level personal finance instruction carries Stanford’s academic heft.
“There really is a need among students, and society as a whole, to learn more about personal finance,” said J. Daniel Chi, chair of the finance department at UNLV’s Lee Business School, US.
Annamaria Lusardi, an economist and a financial literacy researcher who has directed the Stanford programme since 2023, said people today are expected to shoulder more responsibility for their finances than in the past, when jobs came with fixed pensions rather than 401(k) plans that require workers to invest their own funds for retirement.
“We have to manage our own money,” Lusardi said. “It’s too complex, to use common sense and rules of thumb.”
The Stanford initiative seeks to make personal finance education more accessible to more students, including first-generation college students and those from low-income families. In addition to holding an annual conference for educators, it collaborates with colleges and provides instructional materials and mentoring.
More colleges have embraced the subject as research in the field has deepened, said John Y. Campbell, a Harvard University, US, economist who has taught a personal finance course for several years.
It also helps spark students’ interest in majoring in economics. “It turns out it’s a very good vehicle for teaching basic economics,” he said.
The courses typically cover concepts such as compound interest and the time value of money — the idea that a sum of money generally is worth more now than the same amount in the future, because of factors such as inflation and the ability to invest — but details vary by institution.
Because Harvard can offer generous financial aid to its students, Campbell said, they aren’t as concerned about educational debt as are some students at other colleges. Many Stanford graduates move on to careers in technology, so its introductory course covers topics like valuing stock options and the role of venture capital, said Michael Boskin, a Stanford economist who taught the course last year with Lusardi. The goal, he said, is to get students to understand how to think and reason their way through financial decisions.
Boskin introduced the course with a colleague in 2020 after former students told him that they wished they had known more about evaluating pay and benefits packages when weighing job offers. Terrance Odean, a finance professor at the Haas School of Business at the University of California, Berkeley, US, said 900 students had enrolled for the spring session of his introductory personal finance management course. It covers major financial decisions like choosing a career, spending versus saving and making investments, as well as how overconfidence and “present bias” — the tendency to value immediate benefits over long-term rewards — can affect choices.
Alexandrea Coe, 19, a sophomore at Berkeley majoring in rhetoric and conservation and resource studies, took the course in her first semester.
“I was aware of a lot of the things we went over, but I really didn’t understand them,” she said. One lesson that resonated, she said, was that as a young person, “your greatest asset is time”, so it pays to start saving and investing early.
Stanford’s course covers basics like borrowing and credit scores, and investing principles such as diversification, or managing risk by investing in different types of assets. Students analyse various scenarios, such as choosing among investments and citing the reasons for their choices, and discuss the impact of taxes, fees and inflation on investment returns.
They also learn that financial decisions often involve trade-offs, Boskin said.Your comfort with financial risk may depend on whether members of your family rely on you, and when considering job offers, you may favour a flexible schedule over a higher salary.
“How do you value these things?” Boskin said.
Some have criticised the notion of financial literacy as a distraction from the need to make the American financial system more equitable.
Odean at Berkeley said financial instruction isn’t a panacea. “I don’t think that people are in financial distress because they didn’t take my course,” he said. “We’re teaching them how to navigate the rules as they currently are.”
Harvard’s course is designed to help even wealthier students understand the financial difficulties faced by those from less affluent backgrounds, Campbell said. “I also ask students to think critically about that system,” he said.
NYTNS
Last updated on 28 Jan 2025
