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University of Kentucky's plan to help students with financial literacy: Hands on investing

With concerns about college costs and the growing burden of student debt, one state university has a plan to change how its students manage their finances.

In addition to spending millions on financial aid, the University of Kentucky will offer investment accounts to all of its students by 2023.

University president Eli Capilouto said he believes the accounts will help students learn financial literacy, even if it doesn’t make them rich.

“It’s investing in yourself,” Capilouto said in an exclusive interview with USA TODAY ahead of the university’s official announcement. “To me, this is experiential learning on steroids. We’re going to learn with our students. They’ll be our partners too in how we craft these to be impactful.”

The university’s plan comes at a time when public discourse on college costs and student finances is louder than ever thanks to President Joe Biden’ canceling billions in student loan debt. The university’s program, called UK Invests, also could help students jump-start their future savings while teaching healthy financial habits.

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Giving students access to financial markets comes with some risk. The microinvesting company Robinhood recently settled a wrongful death lawsuit involving a 20-year-old college student who killed himself after seeing a negative account balance of more than $700,000. And some question whether investment accounts are really what struggling students need to complete their education.

Eli Capilouto, the president of the University of Kentucky, plans to make investment accounts available to all of the public’s university’s students by fall 2023. He said the goal is to encourage students to invest themselves while promoting healthy long-term behaviors.

The University of Kentucky’s administrative team, however, said students are asking questions about investing. No student will be required to have an account, but those who don’t have them will miss out on money the university intends to deposit in the accounts as incentives for healthy behaviors, such as going to the gym.

What’s more, some students will chart these waters with or without the university’s guidance. The allure of cryptocurrency and social media users banding together to bet on the stock market has pushed investing, and the potential to make money fast, into a new spotlight.

How will the University of Kentucky’s investing program work?

The university will partner with Fidelity to offer the accounts to students. (It did not pay the company, and it won’t own individual accounts opened by students.) The program will start with about 600 student athletes. A change in NCAA rules now allows athletic departments to provide academic achievement awards, which means the university can dole out $1,000 to $6,000 to these students over a year, depending on their scholarships. They will receive that money in chunks throughout the year if they keep up their grades, follow the student code of conduct, and complete financial education courses.

The university will expand the program to prospective students who ultimately enroll by spring 2023. They hope to make it available for all of the university’s roughly 33,000 students and to launch a pilot program for employees by fall 2023.

Students will access their accounts via the Fidelity app, which will be customized for University of Kentucky students. From there, students will have access to four curated mutual funds to start, said Kelly Lannan, a senior vice president at Fidelity. These options will be simpler to manage compared with advanced trading options, and Lannan said it was important to “ensure that investing is safe and it should not be scary.”

University of Kentucky students walk near the institution’s Jacobs Science Building in 2019. The public institution in Lexington, Kentucky, plans to give all of its students investment accounts by fall 2023 to help promote financial literacy.

“That’s why we really put guardrails by starting with these particular funds versus anything else,” Lannan said.

The accounts don’t have fees or investment and account minimums, university spokesman Jay Blanton said.

The university wants to teach students about the benefits of saving money early and encourage healthy behaviors. To that end, if a student goes to the gym, takes a meditation class or even visits the career counseling center, the university will deposit money into their investment accounts. Students also will receive money if they take financial literacy courses, but they won’t be required to do so to access the accounts.

“If we’re trying to get them in the habit of saving, and we’re going to give micro rewards to save, are there other behaviors we also want to incentivize?” said Kirsten Turner, the university’s vice president for student success.

The institution will deposit at least $1 million in donated and private funds into student accounts in the first year. The long-term goal is to raise money from donors to fuel the program. The university also plans to redirect money that might have been spent on free T-shirts, bags or other swag toward student investment accounts.

The investment accounts come after the university has spent years and millions on financial aid for students. Eric Monday, the university’s senior vice president for finance, said that in the past decade the institution had tripled the amount given to students without expectation of repayment, to $160 million this year.

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According to the federal government, the University of Kentucky’s average annual cost is about $18,200, which is below the national average of $19,500 for these types of schools. That cost drops sharply for low-income families.

About 25% of students receive a Pell Grant, an award geared toward students from low-income families.

Will students use these investments accounts?

Amelia Pace, 21, vice president of the University of Kentucky’s student government, said she would appreciate the opportunity to learn more about investing. Pace, a senior, said she has a Roth IRA, but she otherwise doesn’t have a lot of familiarity with saving for the long term.

“There’s quite a few barriers when it comes to the terminology,” she said. “It gets overwhelming very quickly.”

Universities in recent years have been criticized for lavish spending on student recreation options, like lazy rivers or rock climbing walls, that entice students but drive up the cost of tuition. Pace doesn’t see the investment accounts as a frivolous expenditure and said any money in the account is for students to keep.

A research group at Temple University found in a 2021 survey that 3 of 5 students struggled to find enough food or keep a roof over their head, according to Bryce McKibben, a senior director at the Hope Center for College, Community and Justice.

He said that he could see how teaching students how to invest at an early age could be useful but that many low-income students struggle with more immediate needs. He also said it would be crucial that the university provide a safety net to make sure students don’t put themselves in financial jeopardy. McKibben questioned too whether the university was making it more difficult for students to access money they might need by putting it in an investment account.

“Students need cash,” McKibben said. “It’s one thing to teach students about the principles of financial management and give them the tools to be successful, but the biggest problem students face when managing their money is having enough of it.”

This article originally appeared on USA TODAY: University of Kentucky’s idea to help students: investment accounts