The terms “financial literacy” and “financial wellness” are often used interchangeably, but these are two very specific financial terms that do not mean the same thing.
Financial literacy is the understanding of financial terms and concepts, but merely understanding finances will not ensure that your students are financially well.
Financial Wellness Defined
A financially literate student is one who understands such things as compound interest or how credit cards work.
If asked, they could tell you how their student loans work and when they will need to begin repaying those loans.
Such a student might be able to explain good credit and why it is necessary to establish good credit during their college years.
Without a doubt, having this knowledge would put your students well ahead of their peers.
A recent study1 found that, on average, college students could only answer two out of six basic financial questions correctly.
These questions included what to do if you had too many credit cards, how much you should have in emergency savings and information about student loans.
However, the same survey found that just because students understood financial concepts, they were not financially well, as was evidenced by their overall stress score.
This is because financial literacy is just one part of financial wellness.
Financial wellness encompasses the entire financial picture.
- Do students understand when repayment on student loans begins?
- Have students determined the appropriate amount of loans for the occupation they’ve chosen?
- Do they not only understand how credit cards work, but do they also pay off their credit cards each month to avoid paying high-interest rates?
- Do they have a plan of action for meeting monthly expenses and have an emergency fund in case circumstances change?
Your students are only financially well if they have:
- The tools needed to create a financial plan of action
- Real-world strategies and tactics for saving, borrowing, and spending
- Less financial stress because they are managing their resources and meeting their financial obligations, including longer-term goals.
Financial wellness includes the following four components: Literacy, personal assessment, behaviors, and planning.
#1: Financial Literacy Comes First
Students need to have a foundation in financial terms and concepts to have the required knowledge to make good financial decisions.
Holistic financial wellness programs like iGrad include financial literacy curriculum in the following categories:
- Types of: This includes such things as loans, insurance products, and banking products like checking or savings accounts
- How to: For example, making a budget, balancing a checkbook, qualifying for a loan, and opening a checking account
- What is: Students will learn about credit reports, costs of higher education, student loan information, and how credit cards work
Once these topics and concepts are well understood, students must be given the appropriate skills and strategies to put these concepts to work in their own lives.
It is only when students can apply financial knowledge that they can become financially well.
#2: Student Financial Assessment
Every student comes from a different background and financial history, which is why a student financial assessment is an important step.
Your students cannot get where they are going if they don’t know where they are.
iGrad can help students:
- Determine their money personality
- Analyze their current financial wellness trends
- See a snapshot of their student loan debt
These assessments can help students make financial priorities based on their unique situations and become mindful about when and how they spend, save and borrow.
Through such assessments, students become aware of their current financial behaviors and can work to become less impulsive when making financial decisions.
Financial wellness occurs when students manage their money instead of their money managing them.
#3: Creating Positive Financial Behaviors
Students from all socio-economic backgrounds can have poor financial behaviors.
Financial beliefs and biases have nothing to do with how much money a person has.
When a student has the opportunity to spend money on a night out with friends or save the money in emergency savings, they will make the decision based on their beliefs about money.
While financial literacy education provides knowledge, it doesn’t change behavior. In fact, a 2014 study2 found that financial literacy alone changed financial behaviors by just 0.1 percent.
Students only change behaviors when they are motivated to do so.
This can be fear or reward: Fear of a negative consequence like being kicked out of their apartment for nonpayment or a reward like some kind of incentive.
So, instead of just financial literacy concerning savings accounts, students need to be given the strategies to start saving and understand how to make saving a habit.
When combined with an incentive, good financial behaviors become ingrained.
iGrad helps students learn the right strategies through courses and access to one-on-one counseling.
Additionally, iGrad’s platform has gamification which allows colleges to provide points and awards for students who complete certain modules or goals, enabling them to provide incentives to students who participate in the program.
To learn more about the importance of holistic financial education, check out Why is a Holistic Approach Important When Integrating College Financial Education?
#4: Financial Planning Is a Must
If a student fails to plan, they can plan to fail. A financially well student will have the following plans in place:
- Monthly budget
- Expense reduction
- Debt reduction
- Emergency savings
- Student loan planning
iGrad can help your students determine how long it will take to get out of debt or how long they will carry student loan debt given the loan amount and interest rate.
Although financial literacy is important, it is only part of the picture.
It is only when a financial wellness program addresses literacy, personal assessment, behaviors, and planning that students can achieve real financial wellness.
1 - https://everfi.com/wp-content/uploads/2019/05/MoneyMatters-2019.pdf
2 - https://www.researchgate.net/publication/259763070_Financial_Literacy_Financial_Education_and_Downstream_Financial_Behaviors