“It’s a future question, not a now question”

Proposal for Project Development in Financial Competency for Post-Secondary Students

October 14, 2010

By Jeffrey Black & Jillian Hull

OUTLINE

• Jillian Hull – Introduction• Students’ financial literacy – uneven

knowledge• Jeffrey Black - Introduction• Our target• Jillian – Attitudes and Behaviours• Consequences of Default • Problem – Opportunity - Proposal

Jillian HullFaculty member, Douglas College, 1999 - present.

• Award-winning instructor - have developed online curriculum and managed several online projects including video-based modules for Online Learning Centre; also developed several student-centred, online projects such as “Candid Transitions”

• Prior to joining the college I was a print and radio journalist. Won numerous national awards for my work.

Jillian Hull

• At Douglas: Student Success 1100: Introduction to College Studies is one of the few credit courses in B.C. with curriculum devoted to financial competency. We see financial competency as an essential skill for successful educational outcomes, but also an essential skill for the work force.

• Increasing frustration with being able to reach only a few hundred students per term. On course evaluations, 99% of students rate the credit/debt education portion of the course as “Most valuable”.

“All through high school, we cover material that many of us will never have to use again. But everyone will have to use credit – and a lot of us already are -- yet no one knows what it is or how to use it.”

Cinji, former Douglas College student.

How can we educate post-secondary students to be financially literate on

a system-wide basis?

What do students really know about credit and student loans?

• It depends if you ask a general question or a specific one...

• But to more specific questions...

Let’s look at thatEstimated

Loan AmountEstimated

Loan PaymentActual Loan

PaymentDifference

$100,000 $400-500 $1,073 $573

$50,000 $80 $356 $456

$10,000 $250-300 $107 ($193)

$40,000 $100 $429 $329

Jeffrey Black, BFA, B. Ed., MBA• Background in pension and

mutual fund investment• Former partner at Phillips, Hagar

& North Investments Ltd• Former partner at TAL

Investment Management Ltd• Interest in working to

strategically develop educational materials on financial competency for dedicated populations

Through working in investments, I am constantly surprised by how people view money and how they make decisions.

FINANCIAL WELLNESS IS NOT JUST A STUDENT PROBLEM

• Cultural acceptance of spending and debt is increasing

• Difficulty repaying student loans and consumer debt is increasing

• Average Canadian debt at an all-time high at 146% of annual income

• 15% of discretionary spending goes to interest costs on consumer debt--twice what is spent on consumer electronics!

EXAMPLE

• Adam wants to be a Technical Education teacher

• Takes $60,000 in in loans• Will make $50,000 salary to start• Monthly take-home wages $3,000• Student loan monthly payment = $644 (21% of take home wages)

“Little research has been directed at exploring the impact that student loans may have on individuals’ financial position after graduation.”

May LuongPerspectives on Labour and Income 2010

DENIAL ABOUT FINANCE• Some students just “don’t

want to know”• “That’s a later question,

not a now question.”• They think they have no

choice but to borrow any amount of money to finance their education

• Providers of financial information assume people are logical

Starting with a budget

• “Eighty-one percent of students polled said it’s important to set a budget to manage finances, but fewer than half of them had actually done so, according to the Leger Marketing survey conducted in September [2010] for Bank of Montreal.”

The Vancouver Sun, October 6, 2010.

• Budget overshoot debt amount

Consequences

• Mixed messages• Poor understanding of the short- and long-

term consequences• Poor understanding of their choices• Barely thinking about the repercussions of

their choices

• Consequences default on loan

• Interest vs principal

• Options if cannot pay loan

PROBLEM – OPPORTUNITY –

PROPOSAL

PROBLEM

Financial planning a low priority to students.

PROBLEM

• 12.5% default rate (nationally)• Ostrich phenomena• An adult issue • Family values difficult to overcome• Students are overwhelmed by the demands of the

post-secondary experience• Their needs are very particular and current models

are not able to personalize responses

RECENT IMPROVEMENTS

• National entrance and exit surveys• “Train the Trainer”• The Repayment Assistance Plan• National Task Force on Financial Literacy• “Perspectives”

THE OPPORTUNITYIf we get students to

understand issues and consequences around credit, they’ll be more

responsible about default.

THE OPPORTUNITY

The Opportunity – Why?

• Broad impact• Deliver information in a more interactive way • The web allows more individual attention

delivered on a mass scale –students no longer want to be passive consumers of education

THE SOLUTION

• Develop a system-wideproject.

• Expand how information is offered: video, problem-based learning, Moodle, etc.

• Appeal to multiple learning styles• Help encourage students’ long-term goal setting• Build in sustained program for students to learn

about credit/debt – expand on entrance/exit survey.

“Financial competency is a now question, not a later question.”

• Loans affect life choices

STUDENT LOAN AND FINANCIAL AID

• Progress made on improving headline default rates

• Has been a very benevolent environment

SOLUTION• Develop a series of self-assessments and quizzes

that can identify the level of financial awareness students have and direct them to information that they still need to learn

• Embed these assessments and quizzes into the province's financial aid application

• Increase information about credit, debt, budgeting, and money management as students progress through their programs

GOALS• Reaching as many students as possible• Providing a relatively simple, cost-effective way to

offer financial literacy at a time when this information is likely to have traction with students (at time of loan application)

• Ensuring that students know enough that they do not inadvertently erect more barriers to their future success.

• Embedding financial literacy education on a system-wide basis through the Financial Aid application

POOR FINANCIAL CHOICES MAKES LIFE HARDER

• Student debt is going to increase in an environment of poor job growth and rising interest rates

• “With interest rates expected to rise in coming years, the $15-billion in outstanding student debt will become much more expensive for students to service, and for Ottawa to administer, Mr. Usher said.”

From “Ottawa Raises Cap at 11th Hour to Keep Student Loans Flowing,” The Globe and Mail, September 5, 2010

Students’ success at repaying their student loans may have as big an impact on their lives as their formal educational attainment.

Understanding and using credit wisely is an important skill set for adult life.

DEBT PROBLEMS• Generational divide in terms of graduation debt which will dilute

economic value of post-secondary attainment. • We think students make poor choices about money; while this is

sometimes the case, the cost of their education has risen faster than their ability to earn enough money to pay for tuition.

• Example: In 1978, when I started university, it cost $18 per credit hour and minimum wage was $3.50 an hour.

• I had to work 100 hours to pay one semester of full-time tuition. • Today, for the same full-time tuition at the same institution,

using minimum wage as the bench mark, students would have to work 300 hours to pay for tuition. Student loans will, increasingly, be expected to fund the gap.

TYPES OF BORROWERS

In 2009 Average Debt Levels University $26,680

Average College $13,600

AVERAGE DEBT

• Who gets to see their credit report? • Students do not realize who gets to see their

credit report: Everyone from future landlords to credit-card companies to creditors

• Failure to repay student loans can close doors for students who want to continue with their education

Not making a decision still has consequences

• Credit score