meeting the need for financial literacy among … · web viewmeeting the need for financial...
TRANSCRIPT
Meeting the Need for Financial Literacy among University of Maryland Students
Proposal to add a personal finance requirement to the university of maryland’s general education program [INFO HIDDEN[
University of Maryland, College Park
MemoTo: [professor name hidden]From: [student name hidden]
Date: November 23, 2015
Re: Personal Finance General Education Requirement Proposal
My final proposal, as demonstrated by the letter and report attached hereto, is that the University of Maryland add a requirement that students take a course on personal finance as part of the General Education Program. I was interested in the topic of student financial literacy because when I opened up a savings account during the summer, I realized I knew little about managing my accounts. In addition, because of the low interest rate, I wanted to invest my money, but did not know how to go about that process. After talking to friends, I realized that I was not alone in my degree of financial illiteracy. I began writing my proposal by researching nationwide reports on financial illiteracy of Americans, focusing upon college students and recent college graduates, and the consequences associated with that lack of knowledge. I then conducted a survey of University of Maryland upperclassmen to determine the degree of financial illiteracy among students. Because a business finance course has some content in common with a personal finance course, I compared survey results among students who had taken a business finance course to those who have never taken a business finance course.
The contents of my final report has changed significantly from the description in my initial memorandum. After writing the initial memorandum in September, I realized that the University of Maryland already offered a personal finance course in the Family Science Department, FMSC 341: Personal and Family Finance. This realization that a similar course to the one I was proposing already existed in the School of Public Health’s Family Science Department, resulted in a shift of my intended primary audience from the dean of the Smith School of Business to the department head of the Family Science Department. I interviewed the professor of the existing course, Dr. Manouchehr Mokhtari, instead of Dr. Karen Hallows, a professor in the Smith School of Business. Dr. Mokhtari significantly helped me in my final proposal by explaining how the concepts of a personal finance course are critical to students of all majors. He also described the course’s content and provided me with a syllabus for FMSC 341.
The greatest challenge I faced in writing my proposal was finding a sufficient number of upperclassmen to complete the survey for my report. At this time of the semester, many students post class surveys on Facebook, and, as a result of receiving so many requests to complete surveys, many
1
students did not have enough spare time to fill out my survey. However, with the help I received my having the link posted on the ENGL 393 ELMS course page, I was ultimately able to post it on different pages to receive a sufficient number of responses. After you suggested after reading my Midsemester Proposal that I propose a course waiver for students in the Business School, I decided to add to my research a comparison between students who had taken a business finance course (but not FMSC 341) to those who had not taken a business finance course or FMSC 341. Because most responses I initially received were from students who had never taken a business finance course, I sent the link as an ELMS message to students in BMGT 340: Business Finance.
Overall, I have gained an extensive appreciation for the long process required for creating a proposal. Because I have never before written a report as extensive as this final proposal, I learned how to transform my initial plan based on the results of my research. My favorite part of the project was the primary research I conducted in interviewing Dr. Mokhtari and interpreting the survey results. Because I know that effective communication of my research will be essential for the career I hope to have as an actuary, especially in the consulting industry, I viewed the proposal process in Technical Writing as an ideal opportunity to develop my written communication skills.
2
[name and address hidden]November 23, 2015
Dr. Elaine AndersonChair of the Family Science DepartmentUniversity of Maryland, College ParkSchool of Public Health, Office College Park, MD 20742
Dear Dr. Elaine Anderson:
I am writing to bring to the attention of the Family Science Department the alarming general financial illiteracy among University of Maryland students. A survey I conducted revealed that, similar to nationwide statistics, University of Maryland students lack knowledge on basic personal finance principles and feel unprepared to manage their finances upon graduation.
The excellent elective course currently offered in your department, FMSC 341, Personal and Family Finance, educates students on many essential principles of personal finance. I met with Dr. Mokhtari, the professor of the course since 1991, and he explained the universal value of the course to students of diverse academic backgrounds. The course informs students about skills that are essential to obtaining the best standard of living with their salaries. Topics within the course include creating a budget, investing and savings options available, and managing debt.
Without these life-skills, students are more likely to make poor financial decisions, accumulate debt, and be unprepared for a financial emergency and retirement. Because of the negative consequences associated with not obtaining this basic financial knowledge, I urge that the University of Maryland add to its General Education Program, and make mandatory, a requirement that students take a course in personal finance. The mandatory course I am proposing would be quite similar to the FMSC 341 course your department currently offers on a small scale. I would be extremely grateful for your, as well as the rest of the Family Science Department’s, support for my proposal. I plan to present the proposal to the University Senate, the entity who will ultimately make the final decision about changes to the General Education Program.
I would welcome the opportunity to further discuss my proposal with you. If you have any questions or suggestions, please contact me by phone at (301)509-6578 or by email at [email protected]. Thank you in advance for taking the time to read the report, and I look forward to hearing your opinions. I want to reiterate that I would sincerely appreciate any support from your department for my proposal. With your support, more University of Maryland students will acquire essential life skills that help prevent them from incurring unnecessary stress and problems related to managing their financial futures.
Sincerely,[name hidden]
3
Table of Contents:
Executive Summary:...................................................................................................................................5
Main Report:...............................................................................................................................................6
Introduction:............................................................................................................................................6
University of Maryland Student Specific Findings:.................................................................................9
Comparison to Students who have Taken Business Finance:............................................................14
Recommendations:................................................................................................................................16
Conclusion:............................................................................................................................................18
Works Cited:.............................................................................................................................................20
Addendum:................................................................................................................................................21
Transcript of Interview with Dr. Manouchehr Mokhtari:.......................................................................21
Survey Results:......................................................................................................................................23
4
Executive Summary:
This report is designed to demonstrate the need for all University of Maryland students, regardless of their majors, to take a personal finance course. The University of Maryland currently offers a three credit elective course, FMSC 341: Personal and Family Finance on an elective basis. However, the course is taken only by a limited number of students at the University of Maryland, and a course similar to it needs to be offered, and made mandatory, to students on a wide scale. Methods of analysis included in the report are the presentation of national data of Americans’ financial behaviors and financial literacy, an interview with the current professor of the University of Maryland’s FMSC 341 course, and a survey of University of Maryland upperclassmen. The survey revealed that the University of Maryland student generally feel unprepared to invest in the stock market, interpret the benefit package from a job offer, and understand credit card payments and mortgage payment plans.
The report findings support that the average University of Maryland student will benefit from taking a personal finance course. The course will provide students with the foundation to manage their finances effectively. By taking a course on personal finance, students will acquire skills that will be broadly beneficial, including the ability to budget their finances, save for retirement and financial emergencies, make informed decisions about job opportunities and understand payment plans, such as loans and credit card debt.
Specific recommendations proposed in this report include:
The addition of a requirement to take a personal finance course to the University of Maryland’s General Education Program
The use of the course FMSC 341 as a template for the wide spread offering of a personal finance to University of Maryland undergraduates
Consideration of a possible waiver or modification of the General Education course for students, primarily students from the Business School, who have already acquired a sufficient level of financial literacy as demonstrated by the completion of a course or courses that cover a significant part of the current content of FMSC 341.
The report acknowledges that more research needs to be acquired if the University of Maryland Senate approves the proposal to add a personal finance course as a General Education requirement. Specifically, the University needs to conduct more research into the comparison of the content learned in a business finance compared to a personal finance course. In addition, University officials can decide on the final content the class, including a decision on how best of modify the current FMSC 341 course to better accommodate a more diverse student population.
5
Main Report:
Introduction:
There are few issues that University of Maryland educators should be more concerned
about than its students’ lack of knowledge about managing their own personal finances. Indeed,
the general American public’s lack of knowledge and insecurity about their personal finances is
staggering. According to the 2015 Consumer Literacy Survey, less than half of Americans are
confident that they are saving enough for retirement, and 75 percent of Americans agree that they
would benefit from having basic financial questions answered by professionals. Alarmingly, half
of American households report that they could not come up with $2000 in an emergency, placing
households in an unnecessarily vulnerable financial position (Sherraden & Grinstein-Weiss,
2015).
Closer to home, University of Maryland students are among the 39 percent of millennials
who admit they worry about their financial future at least once a week (Fidelity Investments,
2015). The 2015 U.S. Bank Student and Personal Finance Survey revealed that college students
generally lack knowledge on personal finances and are often are not even aware that they are
unprepared to manage their finances. The survey revealed that 65 percent of respondents gave
themselves a C or below with respect to how “successfully [they] manage their personal
finances” (U.S. Bancorp, 2015). The survey also found that students are least knowledgeable
about credit card debt, retirement programs, and saving plans. For example, only 39 percent of
respondents correctly understood that a past delinquent loan or credit card payment negatively
impacts one’s credit rating (U.S. Bancorp, 2015). In addition, only 37 percent of respondents
6
were aware that 401-K investments can lose value and 43 percent believed that Social Security
will be sufficient to fully cover retirement costs (U.S. Bancorp, 2015). Because of Americans’,
and more specifically, college students’, general financial illiteracy, and the negative
consequences that illiteracy can potentially cause students in the future, it is essential that the
University of Maryland aid its students by adding a requirement to its General Education
program that students take a personal finance course.
Although the lack of knowledge of college students about their personal finances, and
their recognized lack of confidence in their knowledge of the subject, are by themselves more
than sufficient justification for a
mandatory General Education
requirement for a personal finance
course, numerous trends in American
society today make the need for such a
requirement even more urgent. Of
particular importance, the need for
financial education among college
students has become more critical because more students than ever before have started to repay
student loans, in addition to ordinary expenses, soon after graduation. For example, the class of
2015, nationwide, graduated with an average student loan of $35,000, about twice the average
loan of students graduating two decades ago, adjusted for inflation, and the percentage of
students graduating with student loans in the United States in 2015 has increased to 71 percent
from about 50 percent in 1995 (Sparshott, 2015).
7
Figure 1: Courtesy of Policy.Mic, http://mic.com/
Disturbingly, 11.5 percent of college graduates are more than 90 days late in making their
payments (Nasiripour, 2015). As people educated in personal finance recognize, delinquency on
loans has serious consequences: student loan delinquency harms graduates’ credit rating, leads to
fines, and, if the loans are federal loans, prevent graduates from receiving tax refunds and can
interfere with their receipt of government transfer payments. Because such a large percentage of
graduates struggle with making their student loan payments on time, the personal finance course
will emphasize the use of a strategy that enables the student to develop a budget that ensures
monthly payments are made in a timely manner, and educates that student as to what options are
available to repay the loans and the serious consequences of loan delinquency.
Another trend that makes knowledge of personal finance even more critical is that the
growing need to prepare financially for retirement. Due to the time value of money principle, it is
most beneficial to start saving early in one’s career. As the average expected lifespan of
Americans increases, Americans need to save more to prepare for their expanded retirement
years. On a related note, the future availability of existing government programs that many
people depend on today for their retirement is becoming less and less certain. For example,
Medicare is predicted to be unable to fully fund its costs in 2030 and Social Security is expected
to only be able to pay 75 percent of the amount due recipients by 2033 (Reuters, 2014). Thus, as
college students enter the workforce, they have an even greater need to save for retirement than
previous generations.
The University of Maryland, College Park’s General Education program provides that a
major goal of the program is for students to “establish the ability to thrive both intellectually and
materially and to support themselves, their families, and their communities through a broad
understanding of the world in which they live and work” (Maryland, 2015). Given this goal, and
8
the indisputable fact that so many American students graduate college lacking the skills to
manage their finances effectively, it is essential that the University of Maryland add to its
General Education program a requirement that students take a personal finance class. Further
demonstrating the need for such a mandatory course at the University of Maryland specifically
are the findings from a survey I conducted of University of Maryland upperclassmen which
indicate that the average University of Maryland student is no exception to the national trend of
financial illiteracy. This class would be intended for upperclassmen as they prepare to enter the
workforce after college.
University of Maryland Student Specific Findings:
Not surprisingly, consistent with the majority of students nationwide, the majority of
University of Maryland students have a disturbing lack of understanding of finance. From
November 2 to November 16, I conducted a survey of 69 University of Maryland upperclassmen
to determine their general knowledge of personal finance and how prepared they feel to manage
their finances after graduation. I also interviewed Dr. Manouchehr Mokhtari, the professor of
FMSC 341: Personal and Family Finance, a course offered by the Family Science Department in
the School of Public Health. My findings showed that many students are not knowledgeable
about personal finance and admit to being unprepared to manage their finances after graduation,
supporting the need for students of all majors to take a personal finance course.
Dr. Mokhtari, who earned his Ph.D. in Economics in 1986, unequivocally believes that a
course on personal finance is universally beneficial. He emphasized that the material learned in a
personal finance course is helpful “for everyone, from a child in elementary school to an elderly
person” (M. Mokhtari, personal communication, Oct. 22, 2015). Notably, in recent years, the
9
course has attracted
interest from a variety of
majors outside the School
of Public Health. Of the
students enrolled in FMSC
341 for the fall 2015
semester, only 22 percent
have majors within the
School of Public Health. The largest percentage of students enrolled are from the School of
Behavioral and Social Sciences (27 percent), followed by students of the School of Public
Health, but closely followed by students from the College of Computer, Mathematical, and
Natural Sciences (17 percent). The wide variety of majors demonstrates that there is interest
among students of all majors to learn the concepts taught in personal finance, even as an elective.
However, despite the diversity of students taking the course, the total number of students
at the University of Maryland taking the course is minimal. . For the spring 2016 semester, only
one section of FMSC 341 is offered at the College Park campus. As of November 25, 39 students
are on the holdfile to take Dr. Mokhtari’s course. The course is offered in two additional
sessions, but only to University of Maryland Shady Grove students.
Although the number of students taking the course is small, Dr. Mokhtari provided
anecdotal evidence that the students who have taken the course appreciate the fact that the course
provides them with knowledge that is extremely valuable to them. Specifically, Dr. Mokhtari
reflected during my interview with him that students have told him that the course has helped
them better manage their finances and enhance their lifestyle. He also advised of one student
10
who was unable to register for the fall 2015 semester due to the class popularity, but sat in the
lectures and advised him that she did so “because she had learned how beneficial the lessons
taught were from other students” (M. Mokhtari, personal communication, Oct. 22, 2015).
The Personal
Finance survey of
University of Maryland
students revealed that many
students are financially
illiterate, and admit to their
lack of familiarity with
personal finance. Students
were asked how well
prepared that felt to
“understand the options for
a mortgage or car payment” when they entered the workforce. On a scale of 1-5, with 1 labeled
as not at all prepared and 5 very well prepared, the mean was only 2.57. Without the ability to
understand concepts of personal finance needed to understand the real interest rate and payment
options, students may choose a more expensive option than other options, or choose an option
they do not have the ability to afford. In the seventh and eighth week of the FMSC 341 course,
students learn about the different types of loans available and how to finance large investments,
such as purchasing a home or a car.
The mean response for how well students felt to “invest in the stock market” was just
above the value of 2, which was labeled as “somewhat unprepared” (figure 3). Over half of
11
Average Value1
1.5
2
2.5
3
3.5
4
4.5
5
2.57
2.082.51
3.34
Figure 3: Survey of UMD Upperclassman On a scale from 1-5, with 1 meaning not at all pre-pared, and 5 meaning very well prepared, how well
prepared do you feel to...
understand the options for a mortgage or car paymentinvest in the stock marketinterpret the benefit package of your first job out of college to manage your budget when you enter the workforce?
students answered the value of 1, labeled “not at all prepared.” Likewise, in a later question
about their knowledge about the stock market, only two-thirds of students correctly identified the
definition of a stock dividend from a list of four options. Students’ unfamiliarity with the stock
market may cause them to avoid investing in the stock market despite repeated studies which
have demonstrated that, when an individual has a long time horizon, stock market investing is
particularly appropriate to help them prepare for retirement (Ritholtz, 2015). The FMSC 341
course teaches students about investing fundamentals and investing in the stock market
compared to loans.
Nationwide, only 48 percent of Americans have any money invested in the stock market.
Because young people can absorb more risk than people closer to retirement, it is highly
beneficial to invest early. In addition, while numbers by analysts vary, investment in the stocks
listed in the Standard and Poor’s (S&P)
500 Index has a median average return
of 14.32% and a mean annual return of
12.07% from 1926 to 2014 (Ritholtz,
2015). Notably, the S&P yearly
returns are variable, with some years
having significant losses. In addition,
individual gains and losses also have
great variability. However, the average annual long term investment in the stock market far
exceeds the average rate of inflation and the average returns from holding long-term Treasury
bonds.
12
Figure 4: Courtesy of Bloomberg View http://www.bloombergview.com/
The survey revealed that students also admit to feeling unprepared to “interpret the
benefit package of [their] first job out of college.” The mean value 2.57 out of 5. Total
compensation includes many elements other than pure salary, including insurance coverage, 401-
K options, pension plans, and sick and vacation days. If students lack the knowledge to interpret
properly their benefit package, they may incorrectly determine that a job with a higher salary, but
less benefits, is more financially beneficial to them than another job that offers a lower salary but
provides them with higher total compensation. In addition, once hired, because they do not fully
understand their benefit package, students might not fully utilize the benefits their company
provides, such as 401-k matching, a flexible spending account (FSA), or tuition reimbursement.
Likewise, 95 percent of students surveyed were unable to identify the percentage of
salaries that go to Social Security and Medicare, up to $118,500. The survey asked students to
identify what percentage of self-employed Americans’ salary goes to Social Security and
Medicare from four multiple choice options, or answer that they did not know. While it is not as
critical for students to know the exact percentage they will be contributing, it is important that
workers recognize the employer’s contribution to Social Security and Medicare. Ignorance of
that fact can cause workers to choose to be self-employed rather than working for a company
because they do not appreciate the extra cost of paying the employer contribution to the
programs, in addition to the regular employee contribution.
In addition, another key skill Dr. Mokhtari believes that every American needs to know,
but recognizes that many unfortunately do not, is managing a budget. Budgeting involves
creating a plan to manage expenses and setting aside a portion of one’s income for saving. At a
mean of 3.34, more students felt unprepared to manage their budget when they enter the
13
workforce than students who felt prepared. Dr. Mokhtari begins the semester by explaining
balance statements and having students come up with financial goals.
Relatedly, in light of today’s world of credit, a key skill that Dr. Mokhtari teaches is how
to manage debt. Because 71 percent of Americans have at least one credit card, and 26 percent
own at least four different credit cards, it is essential that students learn how to manage their
credit card usage and debt (FINRA Investor Education Fondation, 2013). Americans have a total
amount of credit card debt of $5.71 billion, and the average household credit card debt among
households with at least one credit card is $15,609 (Johnson, 2015). In the survey I conducted,
only 45 percent of students recognized that, in a scenario where the monthly interest on a credit
card account was higher than the monthly minimum payment, the student would never fully pay
off the debt if he or she paid only the minimum payment. The fundamental lack of understanding
of an APR interest rate and monthly interest rate increases the risk of students accumulating debt
beyond what is manageable to pay back.
The mandatory personal finance course I am proposing will inform students of the
reasons they need to save and the options for saving and investing. After taking the course,
students will fully understand their job’s benefit package, and will be able to appreciate the need
to maximize the money their employers will pay toward their retirement. In addition, the course
will teach students the financial principle of the time value of money, so they will better
understand the benefit of saving early in their career.
Comparison to Students who have Taken Business Finance:
Before mandating that all students take a personal finance course, it is essential to
recognize that all undergraduates enrolled in the Smith School of Business need to take BMGT
14
340, Business Finance. Because there are 2,950 undergraduate students enrolled in the Smith
School of Business, it is important to assess whether Smith School students need to take the
additional personal finance course (FMSC 341). If the knowledge they learn in BMGT 340, is
similar to, or can be applied, to personal finance, a waiver could be requested for these students
to opt out of the personal finance requirement. Among students enrolled in FMSC 341 for the
fall 2015 semester, 10 percent of students are Business students, so there is at least some interest
to take personal finance among these students (figure 2).
More research is
needed due to the small
sample, but under my
survey that included
twenty students who had
taken a business finance
course, there does
appear to be a difference
in how well prepared students feel to manage their personal finances in the four different areas.
However, in the knowledge based section of the survey, students who have taken a
business finance course was inconclusive. For example, only 30 percent of students who had
taken a business finance course were able to realize that the interest was higher than the
minimum payment in the last question, which meant that the card credit debt would never fully
be repaid. However, there were clear differences between the Business students and the non-
Business students. For example, 89 percent of students who had taken a business finance course
15
were able to identify the definition of a stock dividend, compared to 58 percent of students who
had not taken a business finance course.
Recommendations:
The general lack of knowledge that Americans, and more specifically University of
Maryland students, have of personal finance prevents them from living the most comfortable
lifestyle within their means. Financial literacy allows people to make the best financial decisions
with the income that they possess, and prevents them from unnecessarily finding themselves
without money in emergency situation or inadequately prepared for retirement. Therefore, it is
imperative that the University require students to enroll in a personal finance course.
The FMSC 341 course already offered serves a valuable model for the new course that I
am proposing should be required. Dr. Mokhtari’s syllabus can be used as a template for the
modified personal finance course. Dr. Mokhtari sets forth the key topics taught each week in the
course. I suggest that the University transition into making a personal finance course a
requirement by keeping the course under the School of Public Health’s Family Science
Department. If necessary, the University of Maryland can expand its offerings of the course for a
few pilot semesters, before adding it as a General Education requirement.
While Dr. Mokharti’s syllabus is a valuable model when creating the personal finance
requirement, I advise modifying the two types of major assignments in FMSC 341. Dr. Mokhtari
assigns two book reports for students and a group business project and presentation. These skills
are not essential to the main goal of managing students’ personal finances. Instead of Dr.
Mokhtari’s current projects, I suggest that students create a budget plan for them out of college
or graduate school. The budget plan will require that students choose a location they want to live
16
nearby and research the cost of living in the area. They will also need to research a rough salary
range for their intended career. Once mandatory expenses are covered, such as food, rent and
insurance, students will allocate funds for saving, entertainment, vacation and other personal
expenses of their choice.
Another project I would suggest is a mock investment project. I have participated twice
in the past in mock stock market competitions. Students are given the same initial amount of
money to invest and are able to choose how they want to invest their money for the semester.
Because the course only lasts a semester and there is much volatility in the market in that time, I
would also suggest that students research a couple of stocks in different business sectors and see
how the prices have changed over time. The project will allow students to have more comfort
with investing and learn the stock market terminology.
Because the course would need to be greatly expanded if it changes from an elective to a
requirement, adding a personal finance course requirement would require significant use of
university funding. For example, the University would need to hire more lecturers to teach the
course to students. Another critical constraint to consider is the need for additional classroom
space. However, the cost to the university to include the course would save many students
money in the long run, and there are ways to minimize increase in cost. Moreover, for each
student who takes the new mandatory personal finance course, that student presumably will not
be taking some other course he or she otherwise would have as I am not advocating for
increasing the total number of credits a student need to graduate. Thus, there will probably be
some offsetting saving of costs from these elective courses that will now not be taken.
Many options exist for minimizing the cost of the additional requirements. One key way
is to make the class a blended learning class. Because the suggested projects use online tools, this
17
could be a valuable method, while still leaving time for lectures and in person questions. While
this may not work well for all students, it could be offered as an option to minimize the cost of
professors and reduce the space required. It could also be offered in a completely online version
during the winter and summer sessions. This would also allow students to also have more
flexibility when scheduling their courses.
In addition, the University of Maryland should research ways to have the course modified
for students who already have a background in personal or business finance once added as a
General Education requirement. This may include having a test to see if the student already has
the knowledge, such as the placement tests the Mathematics, Computer Science, and Foreign
Language Departments currently use to assess their students. Another alternative is that the
Business School include a smaller, one credit course supplement on Personal Finance to its
students. Because concepts such as the time-value of money principle and APR are learned in
Business Finance, students may only need a shorter course on how to apply these concepts to
best manage their own finances.
Conclusion:
Financial literacy is critical for students to be able to enjoy the highest possible standard
of living with the constraints of their income. Too many Americans lack the knowledge to
properly manage their finances, contributing to high levels of debt and financial insecurity. The
University of Maryland can significantly aid its students by providing them with the life skills
necessary to effectively manage their budget and debt, invest their money, and save for
emergencies and retirement. By adding a requirement to the General Education Program that
18
undergraduates enroll in a personal finance course, University of Maryland students will be
exceptions to the reality that 39 percent of millennials worry about their finances at least weekly.
The University of Maryland successfully prepares the majority of its students to make a
good living, with the 2014 median starting salary of $53,628 (University Career Center & The
President's Promise, 2014). However, that is not sufficient within itself to prepare students
financially after graduation. Students must have the knowledge to budget their money to live
within their means, and how to save and invest their money. Financial literacy allows students to
have a higher standard of living in the present and help them continue that standard of living
after retirement.
The survey I conducted revealed that, currently, University of Maryland students are no
exception to the nationwide problem of financial illiteracy. Similar to the nationwide statistic that
65 percent of students grade their ability to manage their finances of “C” or below, in no
category of financial preparedness in the University of Maryland survey was the average feeling
of preparedness “somewhat prepared” or “very much prepared” (U.S. Bancorp, 2015). They also
were unable to answer questions correctly testing their knowledge of finance, such as credit card
payments and the percentage of one’s paycheck that goes to Social Security and Medicare.
In conclusion, the University of Maryland should add a requirement that students take
personal finance as part of the General Education Program. The course can be modified from the
current FMSC 341 syllabus. Due to the extended course offerings, it will require financial
support for the Family and Science Department, if they continue to teach the course to fund more
lecturers. Personal finance will help students of all majors be financially stable and avoid the
stress that many Americans unfortunately have after graduation.
19
20
Works Cited:
[My name]. (2015, November 15) Survey of Knowledge of Personal Finance of UMD Students. Survey.
Fidelity Investments. (2015, October 11). The Fidelity Investments Millennial Money Study: Facts, Figures and Findings. Retrieved from Fidelity Investments: https://www.fidelity.com/
FINRA Investor Education Fondation. (2013). 2012 Financial Capability in the United States. Washington, DC. Retrieved from FINRA Investor Education Fondation.
Harris Poll. (2015, October 11). The 2015 Consumer Financial Literacy Report. Retrieved from The National Foundation for Credit Counseling: https://www.nfcc.org/
Johnson, H. (2015, June 03). The State of American Credit Card Debt in 2015. Retrieved from The Simple Dollar: http://www.thesimpledollar.com/
Maryland, U. o. (2015, October 11). About the General Education Program and its Goals. Retrieved from University of Maryland: http://www.gened.umd.edu/
Mokhtari, M (2015, October 22). Personal interview.
Nasiripour, S. (2015, August 13). Student Loan Delinquencies Jump As Crisis Spreads. Retrieved from Huffington Post: http://www.huffingtonpost.com
Reuters. (2014, July 28 ). Medicare solvent until 2030, Social Security until 2033. Retrieved from CNBC: http://www.cnbc.com/2014/07/28/medicare-solvent-until-2030-social-security-until-2033.html
Ritholtz, B. (2015, April 9). Average Returns, Rarer Than You Think. Retrieved from Bloomberg View: http://www.bloombergview.com/
Sherraden, M., & Grinstein-Weiss, M. (2015). Creating Financial Capability in the Next Generation: An Introduction to the Special Issue. Washington, DC: Journal of Consumer Affairs.
Sparshott, J. (2015, May 8). Congratulations, Class of 2015. You’re the Most Indebted Ever (For Now). Retrieved from Wall Street Journal: http://blogs.wsj.com/
U.S. Bancorp. (2015, July 7). 2015 U.S. Bank Students and Personal Finance Study. Retrieved from Financial Genius: https://financialgenius.usbank.com
University Career Center & The President's Promise. (2014, December 30). May 2014 Graduate Survey Report. Retrieved from Career Center UMD: http://careers.umd.edu/
21
Addendum:
Transcript of Interview with Dr. Manouchehr Mokhtari:
In-person Interview Date: October 22, 2015
Q. How long have you been teaching the course?
A. Since 1991, a long time
Q. What have you noticed while teaching the course over all those years?
A. It is easy to memorize the maxims of personal finance, but it is much harder to implement
Q. Are most students who take the course Family Science majors?
A. Actually most students are from other colleges. 2/3 male, 1/3 female, 18-23, mostly juniors and seniors , most27 BSOS, then 17 CMNS, 22% SPHL, 3% AGN, 6%Arch, 10%BMGT, 1% ENGR, 3% JOUR, 6%LTC
Q. Do you think students who are not Family Science majors benefit from the course as well?
A. The material taught is good for everyone, from an elementary school student to an elderly person.
Overall personal finance is about financial processes that we have to go through life and death. Every activity has a real and financial component. Nominal is financial. Setting goals planning to achieve those goals and institutions and processes that enable to achieve those goals, Objectives in life, values
Some things in the future you cannot change, minimal, substantial, and things that you value objectives that may be able to change, set goals- personal finance sets in, set of process, techniques to achieve- financial planning processes to achieve goals
Financial planning- understand, find out how much money, budget & plan, understand current you own an owe, balance sheet and income statements
Q. Can you tell me more about what material you teach?
First, I teach about goal setting, budgeting. I also talk about methods to understand your financial well-being. On a larger scale, I teach components of how institutions and the economy function, government and fiscal policies, Fed. Reserve systems+ interest rates, inflation , taxation, personal tax system (IRS), time-travel of dollars- student loans, credit cards, (consumer credit, big ticket items, consumption vs investment, pay immediately credit card debt- over balance. I also cover how to find the optimal insurance level. Students study how behavior plays a role in determining rates, moral hazard (health disability, home insurance, auto insurance, life). Basically, I teach about marginal cost benefit analysis with insurance.
Additionally, the course covers how to evaluate and prepare your whole portfolio. This includes the pension your company provides, your retirement plan and savings, and Social Security payment. 1
22
Next, I cover financial investment in financial markets, stocks, bonds, mutual funds- rate of return on investment. In this topic, I make sure to point out that the highest rate of return on investment is investing in human capital. This includes that graduating with debt is usually worth it. Too many students let additional debt stop them from attending graduate school, which with the additional salary pays off the debt quickly. You always have alternatives with additional higher education.
Q. Are there any other overall messages you want students to remember after taking your course?
A. Bottom line, if you plan, everything can be done more efficiency. Without planning, there is an increased price. Be that in the cost of funerals or a party such as a wedding
Q. Have you received any feedback from students on taking the course?
A. Well I have a student this semester who was unable to get into the course, but told me she decided to sit in. She had heard how beneficial the skills learned in the class were from other students. Other students have told me after the class was over how the class has changed their lives and financial behaviors.
23
Survey Results:1. What year are you in college?
# Answer Response %1 Freshman or
Sophomore 0 0%
2 Junior or Senior 69 100%3 Graduate student 0 0%
Total 69 100%
2. Have you taken a course on personal finance or business finance before?# Answer Response %1 Yes, both 4 6%
2 Only a personal finance class 4 6%
3 Only a business finance class 16 23%
4 Neither 45 65%Total 69 100%
3. Let 1= not at all prepared and 5= very well prepared. On a scale of 1-5 how well prepared do you feel to… (figure 3 data)
# Answer Min Value Max Value Average Value
Standard Deviation Responses
1
a) manage your budget when you enter the workforce?
1.00 5.00 3.34 1.17 67
2
b) interpret the benefit package of your first job out of college
1.00 5.00 2.51 1.23 65
3 c) invest in the stock market 1.00 4.00 2.08 1.07 64
4
d) understand the options for a mortgage or car payment
0.00 5.00 2.57 1.25 60
4. If you are self-employed, what percentage of your income goes to Social Security and Medicare? (up to $118,500)
# Answer Response %1 15.30 3 5%2 10.80 2 3%3 7.65 6 10%4 6.20 1 2%5 Don't know 49 80%
Total 61 100%
24
5. What does the term "dividend" refer to in the stock market?# Answer Response %
1
The difference between the price you bought a stock at, and the price that you later sell the stock at
9 18%
2
The percentage of the company that you own by owning stocks in the company
2 4%
3
The sum of money paid regularly to stockholders by the company
35 69%
4
The profit you get if you sell the stock, divided by the length of time you have owned the stock
5 10%
Total 51 100%
6. Suppose you have a credit card debt of $1000 and pay only the monthly minimum payment of $10. With an interest rate of 2% per month, when will you finish paying off your debt?
# Answer Response %1 Within 1-5 years 5 7%
2 Within 6-10 years 13 19%
3 Within 11-15 years 20 29%
4 You will never pay it off 31 45%
Total 69 100%
Cross Tabulations:
Have you taken a course on personal finance or business finance before?Yes, both
Only a personal finance class
Only a business finance class
Neither Total
The difference between the price you bought a stock at, and the price that you later sell the stock at
0 2 1 6 9
What does the term "dividend" refer to in
The percentage of the company that you own
1 0 0 1 2
25
the stock market? by owning stocks in the companyThe sum of money paid regularly to stockholders by the company
3 1 13 18 35
The profit you get if you sell the stock, divided by the length of time you have owned the stock
0 0 0 5 5
Total 4 3 14 30 51
Within 1-5 years 2 0 0 3 5
Suppose you have a credit card debt of $1000 and pay only the monthly minimum payment of $10. Wit...
Within 6-10 years 0 0 5 8 13
Within 11-15 years 1 1 6 12 20
You will never pay it off 1 3 5 22 31
Total 4 4 16 45 69
Figure 2: Distribution of Students in FMSC 341 by College (Provided by Dr. Mokhtari)
College % of Students in FMSC 341
Behavioral and Social Sciences
17
Computer, Mathematical and Natural Sciences
27
Public Health 22Agriculture 3Architecture 6Business 10Engineering 1Journalism 3Letters and Sciences
6
Other 5
Figure 5 Data: Let 1= not at all prepared and 5= very well prepared. On a scale of 1-5 how well prepared do you feel to…
Have taken a business
Have not taken a business
26
finance course
finance course
understand the options for a mortgage or car payment 3.21 2.33invest in the stock market 2.80 1.75interpret the benefit package of your first job out of college 3.26 2.20manage your budget when you enter the workforce? 3.80 3.15
Figures 2, 3 and 5 were created for this report using Excel:
27
17%
27%
22%
3%6%
10%1%3%
6%5%
Figure 2: FMSC 341 Student Distribution by College
Behavioral and Social SciencesComputer, Mathemat-ical and Natural Sci-encesPublic HealthAgricultureArchitectureBusinessEngineeringJournalismLetters and SciencesOther
Average Value1
1.52
2.53
3.54
4.55
2.572.08
2.51
3.34
Figure 3: Survey of UMD Upperclass-man
On a scale from 1-5, with 1 meaning not at all prepared, and 5 meaning very well prepared, how well prepared do you feel
to...
understand the options for a mortgage or car paymentinvest in the stock marketinterpret the benefit package of your first job out of college to manage your budget when you enter the workforce?
1.002.003.004.005.00
3.21 2.80 3.263.80
2.331.75 2.20
3.15
Figure 5: How Prepared Students Who Have Taken a Business Finance Course Feel to Manage Their Finances Compared to Stu-
dents Who Have Not
Have taken a business finance courseHave not taken a business finance course