Low levels of financial literacy pose barrier to higher education

Students who could most benefit from postsecondary financial assistance are not taking advantage of it, and it may be because they lack financial literacy…

Toronto, September 1, 2011 – Students who could most benefit from postsecondary financial assistance are not taking advantage of it, and it may be because they lack financial literacy — knowledge of the costs, benefits and available aid associated with higher education.

Despite rising postsecondary enrolments in Ontario overall and improvements to financial aid programs, the number of students from low-income families attending postsecondary institutions has remained static over the last two decades. And for those low-income students who do pursue higher education, approximately half are not taking advantage of government grants and loans for which they are eligible, according to a new report from the Higher Education Quality Council of Ontario (HEQCO).

Low-income students tend to vastly overestimate the cost of postsecondary education (PSE) while both low- and high-income youth underestimate the economic benefits of attending university. And knowledge about financial aid programs is lacking even among university students who hold student loans.  Yet there are few programs in Canada addressing educational financial literacy and targeted to low-income youth according to the report Financial Literacy of Low-income Students: Literature Review and Environmental Scan

The report’s authors — Marc Frenette and Jennifer Robson of the Ottawa-based Social Research and Demonstration Corporation (SRDC) — say that knowledge of student financial aid is poor in Canada although somewhat better than in the US, where less than half of the public reports knowing ‘a lot’ or ‘a good amount’ about how to get PSE financial aid. 

More than one-third of guidance counsellors in a US study agreed with the statement, “Students from lower-income families should avoid student loans because the consequences of default are so severe.” Only 16 per cent strongly disagreed with the statement.  “Given the well-established literature showing large returns to schooling,” say Frenette and Robson, “these results suggest that guidance counsellors may themselves benefit from financial literacy education.”

In Canada, only the Toronto-based Pathways to Education Canada and Manitoba-based Career Trek address educational financial literacy and are targeted to low-income youth. The Ontario government has announced funding for the SRDC’s Life After High School project, where students receive information about PSE and financial aid, as well as guided assistance in completing application forms. An SRDC pilot of the Life After High School project is already underway in British Columbia.

The report’s authors call for more Canadian studies on the general topic of financial literacy as a barrier to PSE for low-income youth and on the effectiveness of financial literacy in helping these youth pursue higher education.

HEQCO is sponsoring a public conference on financial literacy Nov. 3-4 at the Toronto Delta Chelsea Hotel. Fear of Finance: Financial Literacy and Planning for Postsecondary Education will feature leading researchers discussing their work in educational financial literacy, innovators sharing their approaches to improving financial literacy and an in-depth discussion session on next steps toward improving financial literacy, particularly for traditionally under-represented students.  Visit http://heqco.ca for details. 

Test your educational financial literacy with this short quiz and check out this video of HEQCO Research Director Fiona Deller discussing financial literacy and its connection to issues affecting low income students.

About the Higher Education Quality Council of Ontario

The Higher Education Quality Council of Ontario is an arm’s-length agency of the Government of Ontario, created through the Higher Education Quality Council of Ontario Act, 2005. It is mandated to conduct research, evaluate the postsecondary education system and provide policy recommendations to the Minister of Training, Colleges and Universities to enhance the quality, accessibility and accountability of Ontario’s higher education system.

For further information, please contact:

Susan Bloch-Nevitte
Executive Director, Communications
Higher Education Quality Council of Ontario
(416) 212-5242