On average, 1.5 million people graduate from college every year in the US. In our current environment, many of these recent graduates are struggling to pay down their credit card debt and student loans, searching for jobs and trying to desperately to figure out how to gain financial independence. According to a recent study by Sallie Mae, college seniors graduate with an average of $4,138 in credit card debt, up 44% from 2004. Further research shows that people in the 18 to 24 age bracket spend nearly 30% of their monthly income just on debt repayment. (A recommended amount for debt obligation stands at 10% of net income.)[1] If that doesn't strike a chord, the number of 18 to 24-year-olds declaring bankruptcy has increased 96% in 10 years.[2] As our nation strives to find solutions for the dire state of the economy, many recent graduates attempt to find solutions for their financial burdens without any educational background in personal finance. If we can bring financial education to the 1.5 million people who graduate each year in debt, we could prevent them from making future financial mistakes and empower them with greater financial well being. Then, I believe, we will have found a solution for their financial problems and a great way to improve our current economy.
Without any formal personal finance instruction in our high school or college curricula, many college seniors who graduate in the red will continue to make common financial mistakes that only exacerbate their debt burdens. To illustrate this problem, consider the following example. Take Jane. Jane has just graduated college with $3,000 in credit card debt and $20,000 in student loans. She hopes that with her new job in the big City and a steady income, she can pay down her debt slowly over time. Due to the economic downturn however, Jane loses her job. Now, without any stream of income, Jane can barely pay her monthly rent and cannot afford to pay down her debt. With eighteen percent APR, Jane's credit card debt is quickly increasing. Unaware of the implications of mounting debt payments on her credit score and future financial health, Jane is not only in big trouble but must continue to live on credit in order to get by.
Unfortunately, it appears this Jane example is not a rare one! Without any formal personal finance education or trustworthy resources to tell them otherwise, the majority of people in the 18 to 24 year old age bracket do not know how to use credit effectively, tackle debt or make wise decisions when it comes to spending. In the 2009 study of undergraduate credit card spending by Sallie Mae, the majority of undergraduates students polled reported they lived beyond their means and eighty-two percent carried balances and incurred finance charges each month. Interestingly enough, eighty-four percent think they needed more education on financial management topics to better manage their finances. I believe we can positively affect these young individuals' financial well being and in effect, the future state of the economy by providing them with access to basic, trustworthy personal finance education.
By teaching twenty-somethings year olds responsible debt management practices, we can help them create a balanced lifestyle and find peace of mind through increased financial awareness, smart saving and long-term investing. As a result, we can create a new generation that is both financially savvy and financially positive - a generation financially empowered to take on the future. Obama - how's that for food for thought?!
As a twenty something year old trying to master my own personal finances, I am intimately aware of the lack of educational resources focused on personal finance. As an entrepreneur, I want to do something about it. For the past two years, I have dedicated my time and energy to building a Company that offers a solution for young people and the nation at large by way of trustworthy personal finance education. LearnVest provides women with the necessary tools and resources to manage their personal finances; it's core mission, to positively contribute to society through education and ultimately, the promotion of self-sufficient and financially aware women. At the same time, the Company hopes to raise awareness on the state of financial literacy in America and the need for personal financial education across all age groups and genders.
LearnVest is trying to make a difference and like our subscribers, we are continually trying to learn. I wrote this article with the hopes that it would open up discussion so please feel free to comment below. We welcome your feedback and your thoughts on this pertinent topic.
[1] Generation Broke: The Growth of Debt Among Young Americans.
[2] Richmond Credit Abuse Resistant Education (CARE) Program.