Financial Planning Made Simple
Students Borrow Less After Watching Financial Literacy Video
In March 2011, the Foundation created the Financial Planning Made Simple (FPMS) tool to teach students about financial management and address the concerns regarding student loan debt. In speaking to the Foundation’s more than 1,000 participating career college campuses, the biggest concern among administrators was student borrowing. Colleges were looking for a way to teach financial literacy to students through a simple, easy tool students could understand.
FPMS is an online-based tool to help career college students protect their future by making responsible borrowing decisions. The program consists of an 18-minute animated video tutorial with the student’s choice of two avatars to walk them through the budgeting, borrowing and repayment process. The video gives students the opportunity to calculate their own budgets by using the downloadable FPMS Student Financial Planning Tool. It allows users to visually see exactly where their money is being spent in hopes of helping students to decrease overspending and increase their savings.
Colleges who participate in the Imagine America Scholarship and Award Programs have one more resource to educate their students – Financial Planning Made Simple.
A survey led by Wonderlic of Imagine America Foundation scholarship and award applicants in 2012, found that 82% of respondents had to take out student loans for school. The alarming news, 55% of those students did not understand all aspects of the student loan process.
What specifically did students not understand?
- 69% did not understand the difference between federal loans and private loans
- 45% did not understand the repayment options
- 39% did not understand the interest accrued on loans
- 14% did not understand their monthly payment amount
One approach to solving this financial illiteracy problem, that shows promise, is a short online resource developed and provided by the Imagine America Foundation called Financial Planning Made Simple (FPMS). After watching an 18 minute video on the basics of budgeting, borrowing, and the repayment process, 49% of respondents said they decide to borrow less money for school.
How much less?
- 37% borrowed $2,500 or less
- 33% borrowed $2,501 to $5,000 less
- 10% borrowed $5,001 to $7,500 less
- 6% borrowed $7,501 to $10,000 less
- 14 % borrowed more than $10,000 less
The results suggest the magnitude of the potential savings based on just one year of borrowing. Reducing student debt by using the effective training and planning tools such as the one provided by the Imagine America Foundation could result in major savings to students and the federal government. According to an analysis done by JBL Associates, if half of the 10.4 million Stafford Loan borrowers reduced the amount borrowed by a third, as was estimated in this study, students would borrow $27.8 billion less in Stafford Loans annually. It is reasonable to assume that the smaller loan amounts would translate into lower default rates in the future.
Having more borrowers use the Financial Planning Made Simple tool could reduce dependence on loans by helping students be realistic about their immediate financial needs and anticipate the long-term repayment burden. Having each new borrower spend 20 minutes learning about student loans and developing a personal budget before taking out a loan could help eliminate unnecessary debt and reduce the longer-term risk of defaults.
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