The need to boost financial literacy

You may have seen the TV ad: A boy walks home carrying an enormous rocket pop, and Dad asks him where his new bike is. The boy sheepishly raises his treat and says, “I traded it.” Dad realizes he’s failed to teach his son about the value of a dollar.

It’s not happening just in commercials.

Staff Writer Larissa Chinwah wrote for Sunday’s paper about how suburban community colleges are beginning to beef up financial counseling for students applying for loans.

We were incredulous to learn that some young adults weren’t even clear on what a loan is.

“Some students don’t understand that you have to pay back a loan,” said Amy Perrin, Elgin Community College’s director of financial aid and scholarships. “We have a high number of first-generation students who don’t understand the expectations.”

The federal government requires all students who get a loan to complete an online entrance counseling session. ECC officials didn’t think that was enough, so the college began its own one-on-one counseling sessions that address topics such as how an applicant spends his or her money, how big a loan is needed and for what and how the applicant expects to pay it back.

So far, ECC counselors have learned that some students aren’t clear that the loan is intended for books and tuition — not vacations. And students don’t have a good grasp of what kind of paycheck they’ll draw once they graduate and get a job.

What precipitated this is a federal student loan default rate — at 8.8 percent — that is the highest in a decade. ECC’s rate is 9.8 percent. Still, the college is doing better than Oakton, Waubonsee, College of Lake County, Harper, McHenry County College and College of DuPage. The default rate at COD is 13.9 percent, higher than more than half the 52 public and private community colleges in the state.

We applaud ECC for initiating this counseling, and we encourage other colleges to follow suit. Keeping the default rate down will ensure that these institutions will be allowed to continue with their student loan programs.

Next spring, COD will begin its own online financial literacy self-assessment. Its associate vice president of enrollment management notes that families don’t spend much time talking about how to balance a checkbook or how to deal with credit cards. Well, we all had better start doing a better job of that with our kids in a hurry.

Financial literacy is acutely important for young people these days, many of whom face a narrow job market and potential financial issues.

At the same time, high schools should pick up on this apparent deficiency in college-bound kids’ knowledge base and do something to improve their chances for a financially secure future.