Sean Karaman, a freshman at the University of Nevada, Las Vegas, didn’t always pay close attention to his credit card costs. But after taking a personal finance class on campus last fall, he said, he’s much more likely to pay as he goes.
“I’ve become my debit card’s best friend,” said Mr. Karaman, 21, who plays on the UNLV hockey team.
More than two-thirds of states require high school students to take a personal finance course before graduation, according to the Council on Financial Education. Now, personal finance courses, offered mostly as electives, are springing up in public and private colleges nationwide and boosted by a new Stanford University initiative. While some colleges have long offered personal finance courses, the new effort to develop and promote college-level personal finance instruction carries Stanford’s academic weight.
“There really is a need among all 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.
Annamaria Lusardi, an economist and financial literacy researcher who directs Stanford’s 2023 program, said people today are expected to take more responsibility for their finances than in the past, when jobs came with fixed pensions and not with 401(k) plans requiring employees to save and invest their own funds for retirement.
“We have to manage our own money,” Dr. Lusardi said. “It’s too complicated to use common sense and rules of thumb.”
However, Americans have shown consistently low levels of financial literacy. On average, adults get only about half of the 28 questions correct about concepts such as earnings, savings, insurance and understanding risk, according to an annual assessment of Americans’ working financial knowledge known as P-Fin Index.
Stanford’s initiative aims to make personal finance education more accessible to more students, including first-generation college students and those from low-income families. In addition to organizing an annual conference for teachers, it works with colleges and provides educational materials and guidance. It is funded by a multi-million dollar endowment by Charles R. Schwab, the discount brokerage pioneer, who is a Stanford graduate. his wife, Eleni. and the Charles R. Schwab Foundation for Financial Freedom, which supports financial literacy among young adults.
More colleges have embraced the topic as research in the field has deepened, said John Y. Campbell, a Harvard economist who has taught a personal finance course for several years. It also helps spark students’ interest in a major in finance.
“It turns out to be a very good vehicle for teaching basic economics,” he said.
Courses typically cover concepts such as compound interest and the time value of money — the idea that an amount of money is generally worth more now than the same amount in the future, due to factors such as inflation and investability — but the details vary by institution .
Because Harvard can offer generous financial aid to its students, Dr. Campbell said, they don’t worry about educational debt as much as some students at other colleges. Many Stanford graduates go on to careers in technology, so his introductory course covers topics such as the valuation of stock options and the role of venture capital, said Michael Boskin, a Stanford economist who taught the course last year with Dr. Lusardi. The goal, he said, is for students to understand how to think and reason their way through financial decisions.
Dr. Boskin introduced the course with a colleague in 2020 after former students told him they wished they knew more about evaluating pay and benefits packages when weighing job offers.
Elisabeth Curtis, a senior lecturer in economics at Dartmouth, taught a personal finance course on the Hanover, NH, campus for the first time last spring, to about two dozen students. Dr Curtis said the course, which also explores the psychology of how and why people make decisions about money, was designed for non-finance students.
Terrance Odean, professor of finance at the Haas School of Business at the University of California, Berkeley, said 900 students had registered for the spring session of his introductory personal finance management course. It covers important financial decisions such as 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 influence choices.
Alexandrea Coe, 19, a sophomore at Berkeley majoring in rhetoric and conservation and resource studies, took the class her first semester.
“I knew a lot of the stuff we were doing, but I really didn’t understand it,” he said. One lesson that resonated, he said, was that as a young person, “your biggest asset is time,” so it pays to start saving and investing early.
The Stanford course covers basics like lending and credit scores, and investment principles like diversification, or managing risk by investing in different types of assets. Students analyze various scenarios such as choosing between investments and giving reasons for their choice and discussing the impact of taxes, fees and inflation on investment returns.
They also learn that financial decisions often involve trade-offs, Dr. Boskin said: Your comfort with financial risk may depend on whether your family members rely on you, and when considering job offers, you may prefer a flexible schedule over a higher salary.
“How do you value these things?” said Dr. Boskin.
Some have criticized the concept of financial literacy as a distraction from the need to make the American financial system fairer.
Dr. Odean at Berkeley said that teaching economics was not a panacea. “I don’t think people are in financial trouble because they didn’t follow my path,” he said. “We teach them how to navigate the rules as they are today.”
The Harvard course aims to help even wealthier students understand the financial hardships faced by those from less affluent backgrounds, Dr. Campbell said. “I also ask students to think critically about this system,” she said.
Here are some questions and answers about financial literacy guidelines:
Do colleges give academic credit for personal finance courses?
Most colleges offer graduate credit for introductory courses that combine financial concepts with principles of personal money management. (Some schools may also offer non-credit financial guidance or counseling as a student service.)
Is teaching personal finance effective?
An analysis of 76 studies, published in 2022 in The Journal of Financial Economics, found that financial education programs on average had “positive” effects on financial knowledge and behaviors.
How can I test my own financial knowledge?
Dr. Lusardi helped develop a series of questions about concepts fundamental to financial understanding, such as compound interest, inflation, and whether it is riskier to buy stock in an individual company or invest in a stock mutual fund. You can get a three- or five-question version of the quiz on the Stanford Global Center of Excellence for Financial Literacy website.
