Having a large student population at your university means little if your school is unable to retain those students and help them cross the finish line with their degrees. Admittance doesn't boost graduation rates, and it is not an indicator of future potential.
That’s why academic institutions must consider all the different factors that could potentially affect student performance and determine how to best support their learners now and far into the future.
Your institution's financial aid department has more of an influence over student success than you may think. Well-informed students are more likely to receive the financial support they need and will have an easier time accessing resources for better money management.
But financial literacy impacts more than just money management – strong evidence suggests it may even have positive effects on retention and graduation rates.
This article will take a closer look at how financial literacy helps boost higher education outcomes for universities today.
It will explore the ways in which financial literacy benefits at-risk students (who may be more likely to drop out without it), and how universities can form better strategies to support these learners.
The Link Between Financial Literacy and Retention
It's no secret that financial troubles can become the center of a person's attention quickly. What many don't realize is just how much of an impact financial stress has on a student's well-being.
The effects of financial stress should not be taken lightly. According to LendEDU, less than two-thirds of U.S. college students will finish their degrees, and half of all college dropouts will do so due to financial concerns.1
Stress from student debts, budgeting for living expenses, and other financial stressors can add up quickly, leading to a decreased focus on studies and other distractions that can take away from their overall learning experience.
A survey from Ohio State University found that 72% of students have serious stress surrounding their financial circumstances, with 60% worrying about how to afford school.2
This same study found that only 37% had met with a financial aid counselor, and only 30% had reported taking a financial literacy class or workshop in high school. Despite financial concerns being prevalent, very few have the knowledge needed to handle these problems.
Enter Financial Literacy
So how can financial literacy help? Simply put, financial literacy provides students with the tools and knowledge they need to make sound financial decisions.
By understanding common budgeting strategies, managing debt properly, and smart borrowing, the student is less likely to become overwhelmed by potential financial concerns while in school.
Having the resources they need allows them to handle their own finances more responsibly. As a result, they can focus on what matters most: succeeding academically.
Knowing that there are resources designed to help can also make the anxiousness provoked by financial concerns significantly less, leading to higher chances of staying in school and earning their degree.
This isn't only theoretical – research has shown that completion of a college-level financial literacy course significantly boosts the probability of year-to-year retention for students.3
Western Kentucky University's researchers had a similar result, showing that retention rates went up roughly 20% following the completion of financial education courses.4
Enhancing Graduation Rates through Financial Literacy
Financial literacy undoubtedly has strong ties with student retention, but does it affect graduation rates as well? Yes, though the connection may not be apparent.
It goes without saying that higher academic performance increases a student's likelihood of graduating. But a student's ability to write a thesis or score well on a test is affected by a multitude of factors, one of which is stress.
Studies have shown that significant or chronic stress during a student's academic career is often tied to lower GPAs,5 poor mental health,6 and more.
Eliminating (or at least minimizing) students' stress would reduce the severity of these issues, boosting their academic performance and increasing the likelihood that they will complete their degrees.
Research indicates that although this stress comes from multiple places, the primary stressor for college-age individuals is actually based on financial concerns (according to CreditWise).7
One of the best ways to combat financial stress and solve money problems is through proper financial education.
Research from Creighton University found that financial literacy education and coaching can not only reduce financial stress in a person's life but have a positive impact on their physical health, as well.8
To review:
- College students receive the financial education they need to tackle their money problems.
- Students eliminate one of the primary stressors in their lives, boosting academic performance.
- Their academic performance and financial knowledge allow them to continue their education and endure financial hardships.
- These students are able to graduate and receive their diplomas.
This isn't a stretch in logic, either. The Financial Literacy and Education Commission’s 2019 report claimed that financial literacy has a significant impact on positive student outcomes, as learners with financial literacy were more likely to stay in school, graduate on time, and even pay back their loans.9
Western Kentucky University's research had similar findings, too, showing that both student retention and on-time graduation rates increased after students received proper financial education.4
Lower student loan default rates are well within reach. All that's needed is for students to have access to quality financial education and coaching, and the probability of their success can skyrocket.
What Your University Can Do
Financial literacy is something that every college student should be educated about – not just to achieve lower student loan delinquency rates but also to boost retention rates.
Education that promotes financial literacy empowers students, allowing them to better manage their money and understand the complexities of personal finance.
This knowledge gives them confidence and improves concentration, which can lead to much higher academic performance, greater success in school, and improved graduation rates.
Because of this, it is clear that universities need to invest in financial education if they want to create a financially literate class of graduates.
Offering both financial education in the classroom and resources for students to access on their own schedules will keep learners from succumbing to financial stress and distractions, allowing them to focus on their studies.
Financial Wellness by iGrad
Getting started doesn't have to be difficult, either. iGrad's financial literacy platform provides students with access to helpful budgeting tools, education materials, self-assessment quizzes, and even video-based entrance & exit loan counseling to help them manage their finances and support their future success.
Financial aid advisors can coordinate with students as they learn, providing coaching and playing a pivotal role in developing financial literacy among students.
By helping students become more financially literate, your university is not only empowering capable and successful students, but alumni, as well.
With financial literacy, universities are providing a positive lasting impact on students so that they may go out into the world with confidence and make sound decisions for themselves and their future.
1 - https://lendedu.com/blog/college-dropouts-student-loan-debt/
2 - https://cssl.osu.edu/posts/documents/nsfws-key-findings-report.pdf
3 - https://eric.ed.gov/?id=EJ1323224
4 - https://digitalcommons.wku.edu/diss/140/
5 - https://pubmed.ncbi.nlm.nih.gov/30285563/
6 - https://www.insidehighered.com/news/student-success/health-wellness/2023/05/23/survey-stress-hurting-college-students
7 - https://www.prnewswire.com/news-releases/survey-reveals-tension-between-financial-stress-and-optimistic-financial-outlook-among-us-consumers-300940048.html
8 - https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6796220/
9 - https://home.treasury.gov/system/files/136/Best-Practices-for-Financial-Literacy-and-Education-at-Institutions-of-Higher-Education2019.pdf
