Money Matters ON CAMPUS. How College Students Behave Financially and Plan for the Future

Transcription

1 Money Matters ON CAMPUS How College Students Behave Financially and Plan for the Future 2015

2 How College Students Behave Financially and Plan for the Future Money Matters on Campus details the findings of a survey of 42,000 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.

3 Table of Contents Executive Summary 4 Introduction 5 Methodology and Demographics 7 Results Brief 8 Results 10 Financial Behaviors 10 New Behaviors for Financial Attitudes 15 Financial Knowledge 19 Financial Stress 21 Conclusions and Implications 27 References 30 Collaborators 32

4 Executive Summary As the number of students attending institutions of higher education has steadily increased over the past decade, tuition rates have concurrently swelled in kind, pushing an unprecedented number of young adults with sizeable student loan debt into an unstable job market. It is more important than ever that college students are equipped with the knowledge, perspectives, skills and habits to successfully navigate the fiscal burdens that stand in the way of their financial independence. This study aims to encapsulate a variety of influences on the development of financial capability into an ecological model that provides a framework for understanding how to best support the next generation of adults in achieving their financial goals. EverFi and Higher One have conducted intensive research into the financial attitudes, knowledge and behaviors of college students for three years, with representative samples averaging more than 50,000 students per year. Overall, the data suggest that financial experience among incoming college students has increased, but there has not been a concurrent increase in basic finance management skills or fiscal planning. Findings continue to note independent effects of knowledge, attitudes, behaviors and financial stress on the fiscal capability of young adults. This analysis not only provides insight into the context within which financial literacy develops, but also highlights the various domains within this life skill and the necessity for early exposure to financial literacy education and personal experience. Policy makers, practitioners, educators and researchers are encouraged to consider the larger context within which young adults learn to become autonomous agents in their financial future. Significant progress has been made in the development and encouragement of financial literacy education for all students, but more work needs to be done to support responsible financial behavior throughout development and educate young adults on the significant impact student loans can have on their well-being. 4

5 Introduction Throughout the past decade, outstanding student loan debt has increased at an alarming rate in terms of both the number of students taking out loans and the average size of those loans (Monge-Naranjo, 2014). Along with steady increases in tuition rates, new college graduates face an unstable job market, with graduates aged having an 8.5 percent unemployment rate and 16.8 percent underemployment rate (Shierholz, Davis, & Kimball, 2014). Further, delinquency and default rates are increasing over time, especially among students who do not graduate. In fact, borrowers who dropped out of college without earning a degree were more than four times more likely than those that graduated to default on their loans, 16.8 percent versus 3.7 percent (Ngyen, 2012). Ratcliffe & Mckernan (2015) recognize that growing student loan debt has contributed to generations X and Y having less wealth than their parents generation at the same age 25 years ago. A growing number of young adults are delaying personal and financial life goals including continued education, marriage, having children and financial independence (Gale, 2014). Student loan burdens can prevent young adults from saving, investing, building credit and buying a home. It is not surprising that Gallup (2014) recently found that the overall well being of college graduates was directly tied to the total amount of loans borrowed to finance their education. Currently, more than half of those with student loans report being concerned about their ability to repay the debt (Ratcliffe & Mckernan, 2015). One way to steel future generations against the sizeable fiscal challenges that await them upon graduation is to provide a solid, engaging education in financial literacy that works to improve their knowledge, attitudes and behaviors. Financial education has been shown to improve the quality of fiscal decisions, but levels of financial literacy and promising financial behaviors among young adult consumers suggest an increased need for policies that promote financial literacy education at scale (Finke & Huston, 2014). Financial capability is not only correlated with individual outcomes (debt reduction, bankruptcy prevention, less stress), but also with broad 5

6 economic development that impacts everyone (job growth, borrowing rates, investments). However, there is still not a consensus on the efficacy and best practices associated with broad financial education for young adults (Lusardi & Mitchell, 2013). Much of this discrepancy is due to the misperception that financial interventions should generate large, uniform behavioral changes for students (Mitchell & Lusardi, 2015). It is important to understand that financial literacy development does not take place in a vacuum it is surrounded by overlapping spheres of influence. To that end, it becomes extremely important to understand the context within which young adults are acquiring fiscal knowledge, skills and perspectives. Wendy Way (2014) suggests an ecological model to connect the disparate facets that influence financial capability development just as similar models have been successfully employed to promote behavior change in the public health domain (Figure One). Using this framework, combined with the vast wealth of survey data on the attitudes, experiences and plans of college students, this research report provides context around how financial literacy development takes place for young adults on campuses. Philosophical and Ideological Financial Literacy Goals Policy and Systems Community/Organization Interpersonal Individual SPACE OF EDUCATIONAL INTERVENTION AFFORDANCES OF TECHNOLOGY Learning Tasks and Processes, Motivation, and Accessibility LEARNER Learner Characteristic, Prior Knowledge and Skills, Trigger Events, Learning Context Unit of Practice for Behavior Change Educational Outcomes Consumer Financial Behavior Figure One Financial literacy education is becoming increasingly more prevalent in high schools and colleges in the U.S. and this study has the unique opportunity to provide insight to professionals in higher education regarding the personal, community and policy factors that have the most influence on financial knowledge and behavior. Financial behavior is not just a function of factual knowledge and skills, but also a complex array of other personal, interpersonal and environmental factors. (Way, 2014) 6

7 Methodology and Demographics In a continuation of the collaboration between EverFi and Higher One, data was collected from approximately 42,000 college students across the U.S. on their financial attitudes, behaviors and knowledge. The majority of the financial literacy survey questions were retained from 2012 to the present study. Students were surveyed on a variety of pertinent topics around banking, savings, credit cards and student loans. The survey was deployed just before the implementation of an online education program on college wellness, primarily at the beginning of the fall 2014 semester. The majority of participants (90.5 percent) were first-year college students (mean age = 18.6 years). Most students (75 percent) were 18 years old and another eight percent were 19 years old. All students were enrolled in traditional four-year public and private colleges or universities across the U.S. The sample was demographically representative of American college students, with 55.5 percent of respondents being female and 68.3 percent Caucasian/white (non-hispanic). Additionally, 70 percent of students had at least one parent with a college degree. Students were almost entirely from four-year public (70 percent), private (17 percent) and private religious (12 percent) institutions. These samples have remained very similar across the three years of the study. In order to expand the breadth of the survey s insights this year, a small sample of approximately 1,000 students from several two-year institutions across the country was compiled to more closely investigate the unique strengths and challenges these young adults possess related to financial literacy development and education. These students were 58 percent female and 83 percent Caucasian/white (non-hispanic). Only 50 percent were firstyear college students, while 40 percent were 18 years old, 25 percent were 19 years old and 32 percent were 20 years old. Sixty-four percent had at least one parent with a college degree. 7

8 Results Brief This investigation comparing data collected from revealed several interesting trends in the responses of college students. Young adults reported increased experience in high school with credit cards, bank accounts and the expected acquisition of student loans. Even though respondents stated that they were anticipating borrowing more and more frequently, they had fewer plans for repaying those loans. In general, responsible planning behaviors decreased over time, but risky financial moves such as using payday lenders or taking out cash advances on credit cards, remained stable. Students from two-year institutions reported more experience with money management, less and smaller loans, and more responsible behaviors than their peers from four-year institutions. In a continuation of efforts from previous years to determine which attitudinal perspectives are the strongest predictors of financial literacy and behavior, this study conducted a factor analysis of the questions that have remained consistent across the three years of this research endeavor. The larger factor structure remained intact over time, including: Cautious Financial Attitudes, Indulgence for Status and Social Gain, Utilitarian Financial Behavior, Debt as a Necessity, Possessions Providing Happiness, Spending Compulsion and Aversion to Debt. However, several items shifted between constructs, and another factor Financial Contentment emerged from the data this year. These financial attitude and behavior factors proved to be strong predictors of both responsible and risky fiscal outcomes. Attitudes varied with personal characteristics in a similar manner as previously found, and community college students had a more responsible perspective on financial literacy than students at four-year institutions. Questions assessing financial knowledge proved to be quite difficult for the students in this year s sample, but the number of correct responses increased with an individual s personal experience with money management and financial literacy education. Students at private four-year institutions generally had more financial knowledge than their peers at four-year public schools. However, students from two-year institutions had the most correct answers on average when compared to other groups. Findings supported the independent influences of both financial experience with a checking account and financial literacy education, especially in students from two-year institutions which provides a unique context for this growing, and historically under-studied, population. This year s investigation also considered how the emotional and mental impact of fiscal independence fits into the study s framework. Financial stress was found to be only weakly associated with fiscal attitudes, education, experience or knowledge. The strongest predictor of increased financial stress 8

9 was the total amount of student loan debt students expected upon completion of their program. However, students overwhelmingly reported that they were most bothered by finding a job after graduation and were less concerned with money management and loan repayment. Interestingly, two-year students not only experienced more financial stress than fouryear students, but also were more concerned about tuition, cost of supplies, financial aid and how to pay for another year of school. Finally, respondents were asked how prepared they felt to handle several of the challenges that students face, including keeping up with coursework, staying organized and managing time and money. Consistently, students reported feeling less prepared to manage their money than any other aspect of college life, though this was greatly improved by experience with a transactional bank account and experience with financial literacy education. Two-year students also reported feeling much more prepared to manage their money and all other aspects of higher education when compared to four-year students, who did not vary among school type. As might be expected, education and certain types of personal experience were highly related to levels of self-efficacy in this domain. These results have implications for campus-based financial literacy education programs suggesting that it is important for colleges and universities to be aware of the context surrounding the development of financial literacy among their student population. The findings also highlight the importance of attitudinal, behavioral, knowledge-based and stress-related components in the development of fiscal interventions for young adults. 9

10 Results EXAMINING STUDENT CHARACTERISTICS USING WAY S ECOLOGICAL MODEL This report s goal is to begin developing a framework for understanding financial literacy development at the most basic and student-centered level, and then continue to invite complexity. Findings focus on the individual characteristics that influence financial literacy and how these interact with one another and with influences at the community and policy level. Findings will be presented in four broad domains of financial capability among college students: Financial Behaviors, Financial Attitudes, Financial Knowledge and Financial Stress. Financial Behaviors EverFi and Higher One have conducted intensive research into the financial attitudes, knowledge and behaviors of college students for three years, with representative samples averaging more than 50,000 students per year. This now allows for the interpretation of linear trends in consistent data points over time. FINANCIAL EXPERIENCE From 2012 to , reported experience of students managing their own finances has increased. This year s results showed students were more likely to have any credit cards as well as more likely to have more than one. However, they were also more likely to have paid their credit card bills late and have a larger total outstanding balance. Respondents were also more likely to report having a checking account over time and less likely to have a custodial account. Consistent with the research literature, since the first year of the study, more students reported taking out student loans (61 percent to 63 percent) and the total expected balance on those loans increased as well. In 2012, 48 percent of students had loan amounts under $20,000 this fell to 45 percent in

11 RISKY FINANCIAL BEHAVIORS The results found no significant linear relationship in a student s engagement in risky financial behaviors, which remained stable over time and included decisions to: write checks without enough money, buy things they couldn t afford, make only minimum credit card payments, pay credit card payments late or compulsive buying. PLANNED BEHAVIORS Over time, students have decreased their likelihood of engaging in the following responsible fiscal behaviors (when asked if they planned to do so in the next year ): follow a budget, pay credit card bills on time and in full, review bills for mistakes, save and invest, contact a credit bureau, use a debit card rather than credit card for everyday expenses, balance their checkbooks every month and buy only the things they need (Figure Two). Further, although students reported taking out more loans with higher balances, they have become less likely to plan on consolidating loans and paying them on time and in full (Figure Three). It is important to remember that many of these students are early in their college careers and have not yet begun to make payments on their student loans. Young adults should stay apprised of their outstanding loan balances and what those payments are likely to be post-graduation while still in school. More opportunities should be provided for students to learn about possible repayment and/ or consolidation options early on and throughout their college experience. This may increase the probability that students will handle these payments responsibly after graduation. 90% Pay credit card bills on time 80% Review bills 70% Pay entire credit card bill 60% Follow a budget to limit spending 50% Save and Invest 5-10% of income 40% Balance checkbook 30% Contact credit bureau Figure Two 11

12 100% 80% 60% 40% 20% 0% Paying off loans Making student loan payments on time Consolidating loans Figure Three HIGH STAKES PLANNED BEHAVIORS In terms of the most influential financial plans, responses have remained stable across time. No linear trend has been found in risky financial plans (using payday lenders, using a credit card to get a cash loan, overspending on credit limit, declaring bankruptcy, dropping out of college before earning a degree or writing a check without enough money in the account). However, the percentage of students that reported these planned behaviors is troubling and there was also no increase in responsible financial plans, such as building an emergency fund or saving for retirement. 12

13 COMMUNITY COLLEGE SAMPLE While similar trends were found in the financial behaviors of students from public and private four-year institutions from past studies, this year s responses were also compared to those of students attending two-year institutions (Table One). Community college/technical college students reported fewer (44 percent versus 63 percent) and smaller student loans than the larger sample, but they were more likely to have multiple credit cards and higher outstanding balances. Students from two-year institutions also were less likely to be banked than their younger peers at four-year institutions (82 percent compared to 88 percent), but more often had a joint or individual account, compared to a custodial account. TABLE ONE FOUR-YEAR INSTITUTIONS ( 42,000) TWO-YEAR INSTITUTIONS ( 1,000) Have any student loans? 63% 44% Less than $9,999 25% 51% $10,000 to $19,999 21% 21% $20,000 to $29,999 22% 13% $30,000 to $39,999 11% 9% More than $40,000 22% 5% Outstanding credit balance Less than $1,000 76% 54% $1,000 to $2,499 13% 19% $2,500 to $4,999 5% 12% $5,000 to $9,999 3% 9% $10,000 or more 3% 6% Have a checking account? 88% 82% Your own (individual account) 60% 65% Joint account 14% 28% Custodial account 20% 5% Don't know 6% 1% 13

14 New Behaviors for This year, survey results for both samples included several novel questions regarding financial behaviors (Figure Four). Generally, these numbers were positive, with the majority of students responding that they (at least occasionally) check their balances and stop spending when resources are low. Concurrently, few students reported that they avoid checking their account balances or live paycheck to paycheck. However, perhaps because they are a bit older, students from two-year institutions reported much healthier financial behaviors than students at four-year institutions. Twoyear students were nearly twice as likely to keep their receipts and to use a budget, even though they were 10 percent more likely to live paycheck to paycheck and four times less likely to have their money managed by their parents. Both samples reported surprisingly low rates of technology usage when it comes to personal finance management, highlighting the need to provide highly connected young adults with education and resources that they find engaging and effective (Way, 2014). Comparing four- and two-year college students on new financial questions included in this survey. Four-Year Students Two-Year Students 17% 4% say they don t manage their money; their parents do it for them 12% 8% say they don t check their balances because they are too nervous 25% 53% keep their receipts 16% 26% live paycheck to paycheck 62% 83% check their account balances 39% 60% use budgets 72% 87% stop spending when their resources are low 14% 18% have used a money management app or program Figure Four 14

15 Financial Attitudes In continuing efforts from previous years to determine which attitudinal perspectives are the strongest predictors of financial literacy and behavior, this study conducted a factor analysis of the 37 items that have remained consistent across the three years of this research endeavor. Changes in items associated with previous factor analyses are highlighted in Table Two. FACTOR STRUCTURE CHANGES While some items within the factors loaded differently than in past years, and the rank order of the factors changed, it is encouraging to see that the overall factor of the financial attitudes questions remained relatively intact. This year, several of the items (which in the past loaded negatively on other factors), combined to form a new construct, called: Financial Contentment. These factors, including Financial Contentment, were found to be significant predictors of financial behaviors including: banking, saving, investing, loan behavior, credit card behavior and risky financial choices. 15

16 TABLE TWO: Factor Analysis of Student Financial Attitudes and Behaviors FACTOR Cautious Financial Attitudes Indulgence for Status and Social Gain Possessions Providing Happiness SURVEY ITEMS INCLUDED IN THE FACTOR: The lower a person s income, the more important it is to save money every month You should always save up first before buying something You should stay home rather than borrow money to go out for an evening on the town Once you are in debt it is very difficult to get out Students should be discouraged from using credit cards I worry about my debts Using credit cards might lead people to spend more money than they can afford I like to own things that impress people The things I own say a lot about how well I m doing in life Some of the most important achievements in life include acquiring material possessions I admire people who own expensive homes, cars and clothes If I have money left over at the end of a pay period, I just have to spend it I d be happier if I could afford to buy more things My life would be better if I owned certain things I don t have It sometimes bothers me quite a bit that I can t afford to buy all of the things that I d like Debt as a Necessity Utilitarian Financial Behavior Aversion to Debt Spending Compulsion Debt is an integral part of today s lifestyle Taking out a loan is a good thing because it allows you to enjoy life as a student Students have to go into debt It is better to have something now and pay for it later The longer I wait to start saving for retirement, the easier it will be to save and reach my goal It is OK to have an overdraft if you know you can pay it off I don t pay much attention to the material objects other people have I try to keep my life simple, as far as possessions are concerned I don t place much emphasis on the amount of material objects people own as a sign of success I usually buy only the things I need There is no excuse for borrowing money Owing money is basically wrong Banks should not give interest free overdrafts to students The things I own aren t all that important to me I enjoy spending money on things that aren t practical Buying things gives me a lot of pleasure I like a lot of luxury in my life Financial Contentment I put less emphasis on material things than most people I know I have all the things I really need to enjoy life I wouldn t be any happier if I owned nicer things It is OK to borrow money in order to buy food * New This Year 16

17 FACTOR ANALYSIS TRENDS It is slightly difficult to compare attitudinal trends at face value because the factors did not remain exactly the same across years, but in observing the items that remained consistent within their constructs across time, college students have: become more fixated on possessions, less utilitarian, more indulgent, but less accepting of debt (because it is seen as less of a necessity). FACTOR VARIATIONS From 2012 to , healthy financial attitudes consistently increased with age, year in school and parental education level; and females have continued to show healthier financial attitudes than males. Consistent with findings from previous years, financial attitudes displayed more materialism, more compulsion, less caution and less aversion to debt as time spent on campus increased. Some of this impact is likely due to the increased financial experience, older age and less diverse racial and ethnic makeup of students who took the survey later in the fall 2014 semester or early in the spring 2015 semester. 17

18 FINANCIAL LITERACY EDUCATION According to state policies listed in the Council for Economic Education s Survey of the States (2014), only 17 states in the U.S. mandate financial literacy education and only six states require testing of finance management skills for graduation from high school (Figure Five). College students who graduated from high schools in states with higher standards for financial literacy education were more cautious, less accepting/more averse to debt, and less focused on purchasing and possessions. While this gives some insight into the impact of broad policy on financial attitudes, only about 40 percent of students from these states reported they took a financial literacy course in high school. Also noteworthy, impactful experience with a financial literacy course appeared to be a greater influence on fiscal development than state policy, as students who reported taking a course in high school were healthier in their perspectives than those who graduated from one of the states with such a requirement, but did not indicate they had taken a course. States Requiring Financial Literacy Course for Graduation: Alabama Arizona Florida Georgia Idaho Louisiana Missouri New Hampshire New Jersey North Carolina North Dakota Oklahoma Tennessee Texas Utah Virginia West Virginia Require Financial Literacy Course for Graduation Require Testing of Personal Finance for Graduation Figure Five States Requiring Testing of Personal Finance for Graduation: Colorado Delaware Georgia Michigan Missouri Texas 18

19 COMMUNITY COLLEGE SAMPLE Just as last year, students from four-year public schools displayed generally more responsible financial attitudes than those from private secular and religious four-year universities. However, while the two-year college sample was older and less diverse, community and technical college students reported being more cautious, less indulgent, less fixated on possessions and much more averse to debt than the four-year sample, even when compared to students from public institutions. Financial Knowledge College students financial knowledge has been found to be a significant predictor of not only loan debt, but also overall well being (Norvilitis & MacLean, 2010). Based on the work of Lusardi and colleagues, the survey included widely agreed upon measures of general financial knowledge, covering topics such as net worth, financial planning, inflation, student loans and credit history. Similar to previous years findings, students on average answered only 2.3 questions out of six correct, and knowledge increased with age, parental education, healthy financial attitudes and financial experience. Male students also tended to get more answers correct than their female peers, but knowledge was not related to time spent on campus, suggesting students do not gain much objective financial understanding during this brief college experience. Private school students generally had more financial knowledge than public school students. However, students from two-year institutions had the most correct answers on average when compared to other groups (Table Three). It can be argued that these two-year students may have the highest degree of personal financial knowledge due to their age, financial experience and general lifestyle differences this two-year sample also reported the lowest rates of financial literacy education in high school. This data provides some insights into the independent influences of both financial experience and financial education on fiscal knowledge (English, 2014). While the survey was not able to ascertain the high school graduation state of the two-year students, it is clear that those who had personal experience with financial literacy education scored higher than those who did not (for both the two-year and four-year samples). Generally, the financial literacy standards in the high school graduation state of four-year students had a positive influence on their objective financial knowledge. However, a greater 19

20 difference in scores was found between students who did and did not have a checking account (2.27 versus 2.17). The independent influences of finance education and money management experience are especially profound in the community college sample. We found a change in knowledge scores of 0.15 points when comparing the impact of taking a financial literacy course in high school, but a 0.57 points shift comparing banked to unbanked students. These findings support the unique context, strengths and needs of community college students that should be recognized when studying or providing financial literacy development to this population (McKinney, Gross, & Burridge, 2014). TABLE THREE FOUR-YEAR AGGREGATE PUBLIC PRIVATE - SECULAR PRIVATE - RELIGIOUS TWO-YEAR SAMPLE ( 42,000) ( 29,000) ( 7,000) ( 5,000) ( 1,000) Took a fin lit course in high school? 34% 35% 30% 35% 24% Financial Knowledge Aggregate Reported Taking Fin Lit Course Did Not Report Taking Fin Lit Course Banked Unbanked HS State Required Fin Lit Course HS State Required Finance Testing

21 Financial Stress As the myriad of influences on the financial development of young adults continue to be unveiled, it becomes necessary to also consider the emotional and mental impact of fiscal decisions. Financial stress has been linked to negative academic, personal and health outcomes before and after graduation (Trombitas, 2012). However, less research has been committed to discover how this personal characteristic fits into the framework of student financial wellness. Student loan debt has continued to delay young adults achievement of economic milestones; however, when asked what fiscal topics cause them the most stress, students overwhelmingly reported that they are most bothered by external factors and are less concerned with money management and loan repayment (Figure Six). Which causes you the most stress when you think about finances? Four-Year Students Two-Year Students 69% 67% 55% 68% 54% 67% Finding a job after graduation How much tuition may go up Cost of books and school supplies 50% 58% Having enough money to last the semester 48% 58% 47% 41% 46% 58% Applying for financial aid/having enough financial aid Keeping track of spending How to pay for/afford another year at school 44% 44% The amount of student loans I will be taking out 36% 34% 35% 18% Overdrafting/ managing a bank account Keeping up with my peers Figure Six 21

22 FINANCIAL EDUCATION While it stands to reason that personal finance education would help mitigate the stressful impact of fiscal decisions, this is not supported by the results of this study. There was no significant difference in the reported stress levels for any of the concepts in Figure Six for students who graduated from a state with enhanced requirements for financial literacy or students who reported taking a financial literacy course in high school. Reported levels of financial concern were also uncorrelated with measures of financial knowledge, which suggests that the policies and programs currently in place may increase understanding but not reduce anxiety. FINANCIAL EXPERIENCE Financial stress seems to be a valuable addition to the financial literacy framework, as it does not directly vary with fiscal experience. The analysis found only negligible to very weak correlations with all financial behaviors, including: having a checking account, experience with credit cards, number of credit cards or total outstanding credit card balance. Stress levels did not change in relation to student age, year in school or the amount of time spent on campus before being surveyed, although these are all linked to increased experience with personal money management. The only fiscal behaviors that moderated financial stress were those related to student loans. The total amount of student loan debt expected upon graduation was moderately to strongly positively correlated with stress related to: the amount loans being taken out, how to afford another year at school, cost of books, having enough money for the semester and possible tuition hikes. Student loan debt was also weakly correlated with anxiety in regards to finding a job after graduation and personal finance management. Further, weak correlations with financial stress were also found in relation to college students planned loan behaviors, although no other planned behaviors displayed a significant connection with concern over finances. 22

23 FINANCIAL ATTITUDES Of the constructs investigated, one s perspective on the importance of responsible financial behavior, financial independence and wealth accumulation would be expected to play a role in the amount of pressure one feels to manage their money. However, this was hardly the case in this analysis, as only negligible to weak negative correlations to financial stress levels were found with Cautious Financial Attitudes and Debt as a Necessity factors. This suggests that financial stress is an issue for all young college students regardless of their financial experience, financial knowledge or behaviors. To be truly successful, financial education for these students requires strategies for reducing anxiety around money management and financial planning. However, the efficacy of these strategies will depend on characteristics of the student sample. DEMOGRAPHIC VARIATIONS Financial stress seems to be very sensitive to socialization factors as results showed variations in anxiety levels across several demographic characteristics (Figure Seven) (Heckman, Lim, & Montalto, 2014). In general, as parental education level increased, reported financial stress decreased. Female students reported significantly higher rates of financial stress in all aspects, but especially when compared to males on the issue of finding a job after graduation (60 percent versus 78 percent). Further, Caucasians reported being the least stressed by finances, while Hispanic/Latino students reported the highest levels of stress across all categories. These findings are likely tied to socioeconomic status, as parental education levels among these students also varied in kind. Similarly, students from public and religious private four-year institutions reported higher levels of anxiety about finances than their peers from secular private schools (also probably related to their financial backgrounds). All three groups were most concerned about finding a job after graduation. 23

24 Interestingly, two-year students not only experienced more financial stress than four-year students, but also were more concerned about tuition, cost of supplies, financial aid and how to pay for another year of school, as shown in Figure Six. Considering that these same students also reported taking out much fewer and smaller loans, these findings suggest that young adults attending two-year institutions are relying more on their own resources to finance their education, and may have more limited means to do so. Average Percentage of Student Stress Levels Public Private - Secular Private - Religious Two-Year Institutitions Male Female Some High School High School Grad / GED Technical School Grad Some College College Graduate Graduate School Parental Education Caucasian / White Hispanic / Latino Black / African American Asian / Pacific Islander Native American Indian 0% 10% 20% 30% 40% 50% 60% 70% Figure Seven 24

25 FINANCIAL PREPAREDNESS Finally, respondents were asked how prepared they felt to handle several of the challenges that face students in higher education, including keeping up with coursework, staying organized and managing their time and money (Figure Eight). Consistently, students reported feeling less prepared to manage their money than any other aspect of college life. Financial preparedness increased slightly with parental education, financial literacy standards in high school and age, but was not related to financial stress, knowledge or any of the attitudinal factors. Female students reported feeling less prepared than males, and those who identified themselves as Asian/Pacific Islander felt the least prepared to manage their own money compared to any other racial/ethnic background. Reported levels of preparation in four- and two-year students. Four-Year Students Two-Year Students 73% 81% 70% 81% were prepared to keep up with coursework were prepared to stay organized 67% 72% were prepared to find help and resources to succeed 63% 75% 58% 71% were prepared to manage time were prepared to manage money Figure Eight Feeling prepared to manage money in college was not related to a student s experience with credit cards it actually decreased as they got cards earlier in life or their loan-related behaviors. Respondents with a checking account, especially an individual account, however, were markedly more prepared than those who were unbanked. This strongly suggests that experience with managing a bank account is a key component of developing independent financial capability. Increased experience with transactional accounts for high school students would be of great benefit to promoting self-efficacy. Further, while only about a third of respondents had a course in high school on personal finance management, they were 10 percent more likely to report 25

26 being prepared to manage money in college. Two-year students also reported feeling much more prepared to manage their money and all other aspects of higher education when compared to four-year students, who did not vary among school type. As might be expected, education and certain types of personal experience are highly related to levels of self-efficacy in this domain. How prepared young adults felt in managing their money was correlated with both current and planned responsible financial behaviors, but this analysis cannot determine if feeling prepared leads one to engage in smarter fiscal behaviors or if behaving responsibly causes one to feel more prepared. Regardless, these findings support existing research that finds self-efficacy in financial management influences the behaviors and intentions of college students (Xiao et al., 2014). Increased experience with transactional accounts for high school students would be of great benefit to promoting self-efficacy. 26

27 Conclusions and Implications PRACTICE These findings are valuable for professionals working to improve the state of financial literacy among America s young adults. They not only provide insight into the context within which fiscal capability develops, but also highlight the various domains within this life skill. Overall, the data suggest that financial experience among incoming college students is increasing, but there has not been a concurrent increase in basic finance management skills or fiscal planning. This is worrisome as students continue to take out more and higher student loans, affecting their lives both before and after graduation from college. Educators in high school and postsecondary education should provide students with more information about the value of a college degree compared to the price they pay and convey the impact large student loans can have on life after college (Lee & Mueller, 2014). Although many college students seem to feel that debt is a necessity for obtaining a degree and choose to worry about the consequences of their loans later, there are a number of paths available today that can help young adults gain an education beyond high school without crippling themselves financially in the future. Financial literacy interventions should include guidance on the best programs and financial options for those degrees, as well as continued emphasis on the impact college loan debt can have later in life. 27

28 Those who develop financial literacy education programs for students should incorporate structured experience with finance management, as it can be seen that practice and information play related, but independent, roles in this model (Danes & Brewton, 2014). Statewide policies that require financial literacy courses in high school appear to increase overall knowledge gain, but are less influential in shifting attitudes or changing behaviors and perspectives. Measures of program efficacy should encompass the development of knowledge and attitudes, as well as behavioral and socio-emotional impacts. Further, even though students today are increasingly connected to mobile devices, few reported having used mobile technologies to perform money management activities. To build financial capability, financial education programs need to incorporate technologies being used by young adults and focus on how to manage finances now, combined with a traditional model that teaches why money management is necessary for the future. Understand the context within which financial literacy is developing Measure the various components of financial capability to study their influence and interactions Promote financial education at scale, staring early, and include experience with transactional accounts designed for students new to banking RESEARCH These findings provide valuable insight into the context within which financial literacy develops among young adults, but only scratch the surface of the complexity of Way s (2014) ecological model. This study focused almost entirely on the individual-level characteristics that play a role in the development of financial literacy. Every student will respond slightly differently to individual interventions, and more data needs to be collected on the characteristics of programs that are successful at moving the needle on student attitudes, behaviors, knowledge and distress. This includes the structure of the courses, the makeup of the classrooms, the measures used to evaluate the programs, and the larger school, community, and geographical cultures within which these interventions exist. The dataset compiled by EverFi and Higher One allows not only for the investigation of financial literacy development among specific sub-groups and populations, but also for testing more complex behavioral and hierarchical models. The investigators understand that this analysis likely provides more 28

29 questions than answers for the research field, but welcome collaboration in determining how to best improve instruments used, examine the data, and test advanced hypotheses using sound methodology and statistical procedures. There are still constructs that influence financial literacy development that are not included in this model and under-researched in the literature in general. These include the psychological and sociological factors that play a role in this domain, especially as related to financial attitudes and financial anxiety. Also to be considered is the lasting impact certain fiscal experiences have on individuals, including dropping out of college, defaulting on loans and declaring bankruptcy. Learning more about these experiences will help strengthen the case for educating young adults about the effects of student loan debt, making plans early to manage finances and plan for the future, and shifting views on the importance of financial literacy and the role students play in their fiscal development. Research the larger context of the ecological model presented Continue to test more complex behavioral and statistical models to link all of these influences Focus on averting the damaging consequences of current student loan trends 29

30 References Danes, S. M. & Brewton, K. E. (2014). The role of learning context in high school students financial knowledge and behavior acquisition. Journal of Family and Economic Issues, 35, English, L. M. (2014). Financial Literacy: A Critical Adult Education Appraisal. New Directions for Adult and Continuing Education, 2014(141), Finke, M. S. & Huston, S. J. (2014). Financial Literacy and Education. Investor Behavior: The Psychology of Financial Planning and Investing, Gale, W. G. (2014). Student Loans Rising: An Overview of Causes, Consequences, and Policy Options. Gallup, Inc. (2014). Great jobs, great lives: The 2014 Gallup-Purdue Index report. Heckman, S., Lim, H. & Montalto, C. (2014). Factors related to financial stress among college students. Journal of Financial Therapy, 5(1), 3. Lee, J. & Mueller, J. A. (2014). Student Loan Debt Literacy: A Comparison of First-Generation and Continuing-Generation College Students. Journal of College Student Development, 55(7), Lusardi, A. & Mitchell, O. S. (2013). The economic importance of financial literacy: Theory and evidence (No. w18952). National Bureau of Economic Research. McKinney, L., Gross, J. P. & Burridge, A. B. (2014). How community colleges can help prevent financial hardship among student borrowers. Community College Journal of Research and Practice, 38(2-3), Mitchell, O. S. & Lusardi, A. (2015). Financial Literacy and Economic Outcomes: Evidence and Policy Implications. Monge-Naranjo, A. (2014). Recent trends in student loans: more loans and higher balances. Economic Synopses, 2014( ). National Council for Economic Education. (2014). Survey of the states: Economic and personal finance education in our nation s schools in New York: NCEE. Nguyen, M. (2012). Degreeless in Debt: What Happens to Borrowers Who Drop Out. Charts You Can Trust. Education Sector. Norvilitis, J. M. & MacLean, M. G. (2010). The role of parents in college students 30

31 financial behaviors and attitudes. Journal of Economic Psychology, 31(1), Ratcliffe, C. & McKernan, S. M. (2015). Who Is Most Worried about Student-Loan Debt?. communities. Shierholz, H., Davis, A., & Kimball, W. (2014). The class of 2014: the weak economy is idling too many young graduates. Trombitas, K. S. (2012). Financial Stress: An Everyday Reality for College Students. Inceptia. Lincoln, NE. Way, W. L. (2014). Contextual Influences on Financial Behavior: A Proposed Model for Adult Financial Literacy Education. New Directions for Adult and Continuing Education, 2014(141), Xiao, J. J., Ahn, S. Y., Serido, J., & Shim, S. (2014). Earlier financial literacy and later financial behaviour of college students. International Journal of Consumer Studies, 38(6),

32 Collaborators ABOUT HIGHER ONE Higher One partners with colleges and universities to lower their administrative costs and to improve graduation rates. We provide a broad array of payment, refund disbursement and data analytics and management tools to institutions that help them save money and enhance institutional effectiveness. And for students, we offer financial literacy programs and convenient, flexible and affordable transaction options to help them manage their finances. Higher One s products and services support more than 1,900 schools and approximately 13 million enrolled students. More information about Higher One can be found at ABOUT EVERFI, INC. EverFi, Inc. is the leading education technology company focused on teaching, assessing, and certifying K-12 and college students in the critical skills they need for life. The company is powering a national movement in 50 states that enables students to learn using the latest technology, including rich media, 3D gaming, simulations, social networking, and virtual worlds. EverFi s AlcoholEdu for College is one of the few education technology programs proven to reduce student alcohol use and negative consequences, as demonstrated through independently conducted, empirical research funded by the National Institutes of Health. EverFi has reached more than 7 million students with its online learning platforms. Learn more at everfi.com. 32