How Early Financial Attitudes, Knowledge and High School Preparation

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Money Matters ON CAMPUS

How Early Financial Attitudes, Knowledge, and High School Preparation Influence Financial Decisions

2014

How Early Financial Attitudes, Knowledge, and High School Preparation Influence Financial Decisions

Money Matters on Campus details the findings of a survey of 65,000 first-year college students from across the U.S. conducted by EverFi and sponsored by Higher One. Students were surveyed on a variety of pertinent topics around banking, savings, credit cards, and school loans. This report outlines the survey’s key findings, examining the financial attitudes and behaviors of students to better understand what most significantly predicts positive and negative financial outcomes. www.moneymattersoncampus.org

Table of Contents

Executive Summary

4

Introduction

5

Methodology and Demographics

7

Results Brief

9

Results

11

Consistency Across the Years

11

Banking/ Debt/ Credit Card Behavior Financial Attitudes Factor Analysis

New Aspects for 2013—2014

16

Matriculation School Type Demographics High School Financial Literacy Requirement Financial Knowledge

Conclusions and Implications

25

Citations

28

Collaborators

29

Executive Summary Lackluster levels of financial knowledge along with unhealthy attitudes and behaviors surrounding money management were revealed during the most recent economic downturn, bringing the development of financial literacy into the national spotlight. Over the past few years, there has been a noted recovery in our nation’s economy (National Bureau of Economic Research, 2014), but has there also been a concomitant increase in the development of financial literacy among Americans? With an increasing number of states requiring financial literacy courses for high school graduation, have these efforts garnered positive impacts in this critical domain? Beyond this, what are the most influential community and individual characteristics that play a role in the socialization of financial capacity? In an attempt to answer these questions, this study examines the knowledge, attitudes and behaviors of over 65,000 young adults from undergraduate institutions across the United States. Students were surveyed on their financial history, perspectives on money management, as well as their past and planned fiscal behaviors. Results mirrored those found in 2012-2013 and significant differences were found among students based on age, race, gender, and institution type. Findings support efforts to mandate financial literacy in high school and highlight the strong connection between knowledge, attitudes, and behaviors in this area. This study also addresses the importance of personal experience in the development of this critical skill.

Policy makers, practitioners, and educators should encourage more and differentiated financial literacy education components in K-12 schools across the U.S. Further—to maximize the likelihood that students will make sound financial decisions and increase their chance of success and degree completion— colleges and universities should provide financial education early on in a student’s college experience, taking into account attitudinal, behavioral, and demographic differences.

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Introduction Although financial literacy, its development, and its impact on fiscal behaviors have been receiving increased public attention for several years—especially the efficacy of programs designed to teach financial capability—there is a scarcity of research on how this critical skill is trending in the U.S. Young adults in particular have consistently displayed deficient levels of understanding and action regarding money management and planning for future economic goals (Lusardi, Mitchell, & Curto, 2010). Very little seems to be known, however, about whether this situation is moving in a positive or negative direction. While most research on the subject focuses on the inability of specific financial literacy education initiatives to make significant or lasting impacts on students, much less inquiry has been devoted to understanding the comprehensive process through which young people are socialized to develop their knowledge and attitudes around financial literacy. In last year’s Money Matters on Campus survey, researchers found a strong correlation between incurring early debt and not being affiliated with a banking institution with an increased risk of negative financially related outcomes and risky attitudes/behaviors—both concurrently and later in life. These at-risk students were significantly less likely to be affiliated with a bank and more likely to demonstrate extremely risky attitudes and behaviors towards spending, saving, and debt (e.g. more likely to have problems with their students loans later on in their collegiate career). It was suggested that while financial knowledge alone plays a strong predictive role in increasing healthy fiscal outcomes, financial literacy education programs should also be augmented with attitudinal and behavioral components to increase their impact on real world decision-making. The current investigation set out to understand areas of college student financial literacy that have yet to be clearly addressed by previous literature. First, this investigation wanted to understand if there are any trends detected over time in student finance-related attitudes, behavior, or knowledge. Over the past few years, there has been a noted recovery in our nation’s economy (National Bureau of Economic Research, 2014), but has there also been a concomitant increase in individuals’ understanding of critical finance-related issues? This report will look at data from 2012-2014 in an attempt to address this question.

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Second, researchers were interested in better understanding the long-term impacts of early education on student financial literacy. There is some evidence that early financial socialization by parents, peers, and the community enhances financial understanding in children and young adults (Harter & Harter, 2007; Jorgensen & Salva, 2010; Kim, LaTaillade, & Kim, 2010). These studies suggest that early financial education and socialization may be how young adults develop financial values that foster financial independence and facilitate the successful negotiation of adulthood (Kim & Chatterjee, 2013). Although this evidence rings true, the perception in the U.S. is that financial education should be solely left up to the formal education system— yet, only 17 states require a personal finance course in high school and only six states require the testing of financial knowledge (National Council on Economic Education, 2014). Further, in the states that have mandated a financial education requirement, do students show any identified differences in the socialized development of fiscal attitudes and behaviors? The current investigation looks at the state-by-state variation of student financial literacy in an attempt to determine if state-mandated financial education early in high school has a lasting impact on financial literacy in college. Finally, this investigation sought to address all of these issues within the context of individual and community characteristics—most specifically, understanding financial literacy within the framework of a student’s gender and the type of school they attend. Research generally shows that women are less knowledgeable about finances than men (Hung, Yoong, & Brown, 2012). However, some have suggested that this is merely an artifact of the institutionalization of the math-gender stereotype, paired with the maintenance of the male-led financial household (Schmitz & Bova, 2013). Much of the research suggesting this gender-based discrepancy is solely based on financial knowledge alone and does not take into account women’s finance-related attitudes and behaviors. Using data around college student finance-related attitudes, knowledge, and behaviors, this investigation tested that idea in an attempt to determine whether women are really at a higher risk than their male counterparts. Additionally, this investigation revealed new findings that suggest a significant variation of financial literacy across school type (e.g. public, private, private-religious) and other demographic characteristics. This report reflects upon each of these goals and includes a discussion of practical implications for policy, practice, and research in each section.

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Methodology and Demographics In a continuation of the collaboration between EverFi and Higher One, data was collected from approximately 65,000 undergraduate students across the U.S. on their financial attitudes, behaviors, and knowledge. These students were surveyed on a variety of pertinent topics around banking, savings, credit cards, and school loans. The survey was deployed just before the implementation of an online education program around college wellness. The majority of participants (88 percent) were first-year college students (mean age = 18.6 years). Most students (72 percent) were 18 years old and another 16 percent were 19 years old. All students were enrolled in traditional four-year public and private colleges or universities across all 50 states.

100%

were enrolled in traditional four-year publ public and private colleges or universities across all 50 states

88%

were first-year college students

59%

had mothers with at least a college de degree

57%

had fathers with at least a college deg degree

12% were ages 20-24

Age

Gender

Ethnicity

16% were 19 years old

Most students (72%) were 18 years old

67% Caucasian/white

54% female

12% Asian/Pacific Islander 11% Hispanic/Latino 9% Black/African American