Guest Post: Saving for Completion

Today, Dan Broun, a program director at MDC, puts a finer point on the difference between financial literacy and financial capability—and what that difference can make for student retention and completion.

While developmental education can be a key to helping students reach their educational goals, the reasons so many community college students drop out before completion often have nothing to do with academics. Indeed, a recent Public Agenda study found that 54 percent of students who stopped school cited “having to work and make money” as the primary reason for leaving before attaining a credential, and 60 percent described the cost of non-tuition fees as a major barrier to completion. 

And it is not just the lack of money that is making it hard for students to finish: it also can be a fundamental lack of understanding on how to manage one’s finances. In 2008, Jump$tart Coalition found that among high school students the level of financial literacy was only 48 percent; among college students the figure was 62 percent. 

With these disturbing trends in mind, many colleges are addressing students’ “financial capability” as way to increase student success. The term “financial capability” is actually not just a turn of phrase with limited meaning—it is the idea that mere financial literacy, the term of choice for many years, is not enough. Whereas literacy implies just giving students information about basic finances, financial capability equips students with the tools to change long-term behavior.  While no standard definition of financial capability exists, this one from the Center for Financial Services Innovation captures the standard elements:

• Being able to cover monthly expenses with income
• Tracking spending
• Planning ahead and saving for the future
• Selecting and managing financial products and services
• Gaining and exercising financial knowledge.”

While financial literacy instruction may help students learn the differences between credit and debit cards, savings and checking accounts, and loans and grants, building financial capabilities affects students’ behavior over the long term by helping them learn how to apply financial management knowledge.

So how can a community college begin to build financial capability among its students? Many colleges are finding that using an integrated service delivery approach is the best way. Using the Center for Working Families approach, colleges provide students with access to financial coaching, college and community-based support services, and assistance in applying for public benefits such as food and nutrition programs, financial aid, and the Earned Income Tax Credit. (This model has appeared on Accelerating Achievement before.) In some cases, students use online systems, to apply for multiple types of benefits with one application. Students also may receive assistance obtaining traditional financial services, such as savings and checking accounts. At Central New Mexico Community College, students have access to a financial coach, financial workshops, and other supports to help them establish a checking, savings, and matched savings program. In this CWF example, financial coaches provide one-on-one help with budgeting, setting financial goals, and identifying additional financial resources.

The impact of financial capability programs such as the CWF on students and institutions can be profound, especially when measured by retention. At Des Moines Area Community College, students participating in financial education programs boast an 80 percent retention rate, far surpassing the college’s overall rate of 57 percent. At Central New Mexico Community College, an integrated service delivery approach to build financial capability has had a significant impact – 61 percent of students who received multiple services through their program reached a short-term goal such as receiving a scholarship or staying in school, compared to 16 percent of students who only received one service.

With the growing realization that community colleges can play a significant role in the nation’s economic recovery and success, they are being asked to sharpen their focus on accelerating student progress all the way to completion. That makes the importance of increasing student financial capability no small matter. Academic skills and financial aid are not enough. In order for students to make it all the way through, they must be able to understand and manage their finances. Acquiring and applying financial tools, skills, and knowledge, and building financial capability, leads to financial empowerment, a path students need to establish in order to ensure a promising future for themselves and their families.

Dan Broun is a program director at MDC.

To learn more about CWFs, download this Annie E. Casey Foundation report: An Integrated Approach for Fostering Family Success:  How Three Model Sites Are Implementing the Center for Working Families Approach.