Money. Matters ON CAMPUS. How Early Financial Attitudes, Knowledge, and High School Preparation Influence Financial Decisions

Transcription

1 Money Matters 2014 ON CAMPUS How Early Financial Attitudes, Knowledge, and High School Preparation Influence Financial Decisions

2 How Early Financial Attitudes, Knowledge, and High School Preparation Influence Financial Decisions Money Matters on Campus details the fi ndings of a survey of 65,000 fi rst-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 fi ndings, examining the fi nancial attitudes and behaviors of students to better understand what most signifi cantly predicts positive and negative fi nancial outcomes.

3 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 Matriculation School Type Demographics High School Financial Literacy Requirement Financial Knowledge Conclusions and Implications 25 Citations 28 Collaborators 29

4 Executive Summary Lackluster levels of fi nancial knowledge along with unhealthy attitudes and behaviors surrounding money management were revealed during the most recent economic downturn, bringing the development of fi nancial 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 fi nancial literacy among Americans? With an increasing number of states requiring fi nancial literacy courses for high school graduation, have these efforts garnered positive impacts in this critical domain? Beyond this, what are the most infl uential community and individual characteristics that play a role in the socialization of fi nancial 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 fi nancial history, perspectives on money management, as well as their past and planned fi scal behaviors. Results mirrored those found in and signifi cant differences were found among students based on age, race, gender, and institution type. Findings support efforts to mandate fi nancial 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 fi nancial literacy education components in K-12 schools across the U.S. Further to maximize the likelihood that students will make sound fi nancial decisions and increase their chance of success and degree completion colleges and universities should provide fi nancial education early on in a student s college experience, taking into account attitudinal, behavioral, and demographic differences. 4

5 Introduction Although fi nancial literacy, its development, and its impact on fi scal behaviors have been receiving increased public attention for several years especially the effi cacy of programs designed to teach fi nancial 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 defi cient 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 specifi c fi nancial literacy education initiatives to make signifi cant 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 fi nancial literacy. In last year s Money Matters on Campus survey, researchers found a strong correlation between incurring early debt and not being affi liated with a banking institution with an increased risk of negative fi nancially related outcomes and risky attitudes/behaviors both concurrently and later in life. These at-risk students were signifi cantly less likely to be affi liated 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 fi nancial knowledge alone plays a strong predictive role in increasing healthy fi scal outcomes, fi nancial 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 fi nancial 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 fi nance-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 fi nance-related issues? This report will look at data from in an attempt to address this question. 5

6 Second, researchers were interested in better understanding the long-term impacts of early education on student fi nancial literacy. There is some evidence that early fi nancial socialization by parents, peers, and the community enhances fi nancial understanding in children and young adults (Harter & Harter, 2007; Jorgensen & Salva, 2010; Kim, LaTaillade, & Kim, 2010). These studies suggest that early fi nancial education and socialization may be how young adults develop fi nancial values that foster fi nancial independence and facilitate the successful negotiation of adulthood (Kim & Chatterjee, 2013). Although this evidence rings true, the perception in the U.S. is that fi nancial education should be solely left up to the formal education system yet, only 17 states require a personal fi nance course in high school and only six states require the testing of fi nancial knowledge (National Council on Economic Education, 2014). Further, in the states that have mandated a fi nancial education requirement, do students show any identifi ed differences in the socialized development of fi scal attitudes and behaviors? The current investigation looks at the state-by-state variation of student fi nancial literacy in an attempt to determine if state-mandated fi nancial education early in high school has a lasting impact on fi nancial literacy in college. Finally, this investigation sought to address all of these issues within the context of individual and community characteristics most specifi cally, understanding fi nancial 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 fi nances 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 fi nancial household (Schmitz & Bova, 2013). Much of the research suggesting this gender-based discrepancy is solely based on fi nancial knowledge alone and does not take into account women s fi nance-related attitudes and behaviors. Using data around college student fi nance-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 fi ndings that suggest a signifi cant variation of fi nancial literacy across school type (e.g. public, private, private-religious) and other demographic characteristics. This report refl ects upon each of these goals and includes a discussion of practical implications for policy, practice, and research in each section. 6

7 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 fi nancial 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 fi rst-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 public and private colleges or universities across all 50 states 88% were first-year college students 59% had mothers with at least a college degree 57% had fathers with at least a college degree 12% were ages Age Gender Ethnicity 16% were 19 years old Most students (72%) were 18 years old 54% female 67% Caucasian/white 12% Asian/Pacific Islander 11% Hispanic/Latino 9% Black/African American <1% Native American/Alaskan 7

8 The sample was demographically representative of American college students, comprised of 54 percent female; 67 percent Caucasian/white (non-hispanic); 12 percent Asian/Pacifi c Islander; 11 percent Hispanic/Latino; 9 percent black/ African American; and < 1 percent Native American/Alaskan. Additionally, 57 percent of students had fathers with at least a college degree, and 59 percent had mothers with at least a college degree. Students were almost entirely from public (70 percent), private (18 percent), and private-religious (12 percent) institutions. The majority of the fi nancial literacy questions on attitudes and behaviors were retained from last year s study. However to provide new insight on this topic, several fi nancial literacy knowledge questions primarily based on the work of Lusardi, Mitchell, & Curto (2009) and Mandell (2008) were also added. Also new this year, researchers attempted to measure the impact of college matriculation on overall fi nancial literacy. Exposure to a variety of new perspectives, new environments, and new opportunities during the fi rst semester of college can be highly infl uential for impressionable incoming fi rst-year students, many of whom are navigating aspects of independent living for the fi rst time. This year the sample included about 53,000 students as they were coming on to campus for the fi rst time (from July to November 2013) and nearly another 12,000 students after they had spent a few months immersed in the college experience (from mid-november 2013 to February 2014). 8

9 RESULTS BRIEF This investigation comparing data collected in to revealed nearly identical patterns of responses in relation to credit card and banking behavior and general fi nancial attitudes. Just as last year, the current study found that as credit card debt and/or school loan debt increased, students were more likely to demonstrate unhealthy attitudes and behaviors towards spending, saving, and debt. Having a checking account was again found to signifi cantly predict fi scal behaviors such as budgeting, saving, and managing debt. This provided strong evidence to support recommendations from last year s report that fi nancial literacy and socialization efforts in college need to focus on these behavioral and attitudinal areas. As they did in the study last year, researchers were able to identify seven key factors of fi nancial attitudes and behaviors: 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. These fi nancial attitude and behavior factors continued to be strong predictors of both responsible and risky fi scal outcomes including: being late on credit card payments; plan to follow a budget; plan to start structured savings; likelihood to withdraw from college; planned high risk fi nancial behavior (credit card cash advances and payday lenders); paying student loans on time and in full; and having a checking account. The analysis compared students who took the fi nancial literacy survey at the beginning of the fall 2013 semester to those who responded near the end of the fall semester/beginning of the spring 2014 semester and found that even a brief period of time spent on campus can signifi cantly infl uence fi scal attitudes and behaviors. Demographically, it was found that male students were less healthy in almost every aspect of fi nancial behavior than female students, despite having higher levels of fi nancial knowledge. Signifi cant differences in fi nancial literacy were also found based on age, race, socioeconomic status, and the type of institution the student was affi liated with (public, private, private-religious). To investigate the long-term impacts of early education on fi nancial literacy, students were asked to list the state in which they graduated from high school. Then, using the Council for Economic Education s Survey of the States 2014 report, researchers compared respondents from the 17 states that mandate fi nancial literacy education for all students to states that do not. While those students who have prior fi nancial literacy education experience did not show much difference in terms of past behavior to their peers, they are signifi - cantly more responsible in nearly EVERY aspect of planned behavior, loan behavior, banking behavior, and credit behavior. Their attitudes toward money management are also much more healthy in that they are more fi nancially cautious, less accepting of debt 9

10 as a necessity, less fi xated on possessions, and more averse to incurring debt in general. Perhaps the most compelling facet in this year s research was the inclusion of several purely fi nancial knowledge-based questions. While the general fi ndings were not spectacular, with students on average getting 2.3 out of six questions correct, fi nancial knowledge signifi cantly increased with responsible fi scal attitudes and behaviors, age, fi nancial literacy education experience and socio-economic status. Of note, no more than 50 percent of students responded correctly to any one question. And in particular, only 12 percent of respondents knew both what to do if they fi nd they have too many credit cards and how much money to set aside for emergencies. These results have implications for campus-based fi nancial literacy education programs suggesting that it is important for colleges and universities to be aware of demographic differences within their student population in order to account for them when refi ning curriculum and/ or delivery methods. The fi ndings also highlight the importance of attitudinal and behavioral components in the development of a fi nancially literate adult. 10

11 Results In the second year of this research collaboration, results from the current investigation will be presented in two broad sections: 1) pertinent analyses that have been replicated across the and survey periods, and 2) novel fi ndings for , including new questions and new variables used for creating subgroups within the larger sample. Consistency Across the Years BANKING/ DEBT/ CREDIT CARD BEHAVIOR In terms of overall structure and response distributions, the data collected in was very similar to that collected in , with the exception of being late on a credit card payment at least once in the last year, which declined from 7.6 percent to 3.4 percent this year. Students reported nearly identical patterns of responses in relation to credit card and banking behavior and general fi nancial attitudes (see table 1). Just as last year, this study found that as credit card debt and/or school loan debt increased, students were more likely to demonstrate unhealthy attitudes and behaviors towards spending, saving, and debt. Having a checking account was again found to signifi cantly predict fi scal behaviors such as budgeting, saving, and managing debt. TABLE 1: Year over year comparison CREDIT Students with any credit cards 28.2% 29.2% Of those students with credit cards: More than one credit card 24.6% 26.5% Over $1,000 in credit card debt 23.7% 23.7% Over $5,000 in credit card debt 4.3% 4.4% Late on payment (at least once in the last year) 7.5% 3.4% STUDENT LOANS Students who will have loans when they graduate 60.8% 60.9% Will have over $5,000 in student loan debt 57% 58% Will have over $10,000 in student loan debt 46% 47% 11

12 TABLE 1: Year over year comparison (continued) BANKING Have a checking account 86% 86% Of those with a checking account: Have an individual checking account 58.4% 60% Have a custodial checking account 22.5% 21% Have a joint checking account 12.4% 12.3% Unsure of account type 6.7% 6.7% As can be seen, no strong differences existed between the and samples in their credit, debt, and banking behavior. Overall, students from this year s survey tended to report engaging in irresponsible fi nancial behaviors less frequently than students did last year. However, students in the sample also stated that they were less likely to engage in protective fi scal behaviors in the near future. While this combination of results may seem a bit confusing, it could be due to students this year having (on average) less personal fi nancial experience than students did last year. Thus, they would have had less of a chance to make fi nancial mistakes and less interest in planning for the future. FINANCIAL ATTITUDES FACTOR ANALYSIS All fi nancial attitude questions were retained in the survey from last year, and a great deal of consistency was found between response distributions comparing and Some differences included students this year reporting they worried a bit less about debt than last year and general trends in increased materialism and acceptance of debt over time. As a whole, patterns of fi scal attitudes in the matriculating college student population persisted between years, and the next step was to reduce the long list of survey items into manageable domains of interest. Just as last year, researchers were able to identify seven key factors of fi nancial attitudes and behaviors (see table 2). These factors contain student attitudes and behaviors around the topics of banking, saving, and loan and credit card debt. They are identical to the factors found in , though one item ( I usually buy only the things I need ) moved from being included with Utilitarian Financial Behavior to being an item that adds to the Spending Compulsion factor. 12

13 TABLE 2: Factor analysis of student financial attitudes and behaviors FACTOR Cautious Financial Attitudes 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 fi rst before buying something You should stay home rather than borrow money to go out for an evening out on the town Once you are in debt it is very diffi cult to get out Students should be discouraged from using credit cards I worry about debts Indulgence for Status and Social Gain 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 I like a lot of luxury in my life Utilitarian Financial Behavior 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 put less emphasis on material things than most people I know The things I own aren t at all that important to me Debt as a Necessity Spending Compulsion Possessions Providing Happiness 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 I enjoy spending money on things that aren t practical Buying things gives me a lot of pleasure If I have money left over at the end of a pay period, I just have to spend it [Reversed] I usually buy only the things I need 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 [Reversed] I wouldn t be any happier if I owned nicer things [Reversed] I have all the things I really need to enjoy life Aversion to Debt There is no excuse for borrowing money Owing money is basically wrong Banks should not give interest free overdrafts to students [Reversed] It is okay to borrow money in order to buy food 13

14 The replication of these fi ndings provides strong support for the validity of these factors in summarizing fi nancial attitudes in the survey. However, it was still necessary to determine if these attitudinal factors were signifi cant in predicting reported fi nancial behavior. Hierarchical regression analysis was used to examine how each of these factors impacted seven key measures of fi nancial outcomes: being late on credit card payments; plan to follow a budget; plan to start structured savings; likelihood to withdraw from college; planned high risk fi nancial behavior (credit card cash advances and payday lenders); paying student loans on time and in full; and having a checking account. With hierarchical regression analysis, the level of impact these factors have on each of the seven key measures of fi nancial outcomes is able to be rank ordered, while holding constant the impact of all other factors (see table 3). While the rankings of these predictors changed slightly since , it is still clear that these fi nancial factors are strong predictors of both responsible and risky fi scal behaviors. 14

15 TABLE 3: Hierarchical regression analysis of student attitudes and behaviors impacting key measures of financial outcomes KEY OUTCOMES: SIGNIFICANT PREDICTORS (IN RANK ORDER) Late on credit card payment (at least once in past year) Debt as a Necessity (+) Utilitarian Financial Behavior (-) Cautious Financial Attitudes (-) Indulgence for Status and Social Gain (+) Plan to follow a budget (in the next year) Cautious Financial Attitudes (+) Indulgence for Status and Social Gain (-) Spending Compulsion (-) Debt as a Necessity (-) Start a structured savings plan (5-10% of monthly income) in the next year Likelihood to withdraw from college (in the next year) High risk financial behavior (in the next year) Paying student loans on time and in full (in the future) Having a checking account Cautious Financial Attitudes (+) Spending Compulsion (-) Debt as a Necessity (-) Indulgence for Status and Social Gain (-) Cautious Financial Attitudes (-) Debt as a Necessity (+) Aversion to Debt (-) Cautious Financial Attitudes (-) Debt as a Necessity (+) Indulgence for Status and Social Gain (+) Aversion to Debt (-) Cautious Financial Attitudes (+) Debt as Necessity (-) Spending Compulsion (-) Indulgence for Status and Social Gain (-) Possessions Providing Happiness (-) Cautious Financial Attitudes (+) Utilitarian Financial Behavior (+) Spending Compulsion (-) Again, Cautious Financial Attitudes, Debt as a Necessity, and Spending Compulsion were found to be among the most consistent and strongest predictors of fi nancial outcomes, further highlighting the suggestion made in last year s report that fi nancial literacy curriculum and socialization need to focus on these behavioral/attitudinal domains. 15

16 New Aspects for From a research perspective, it is extremely encouraging to see the replication of fi ndings and confi rmation of theories across multiple independent studies. However, the state of fi nancial literacy among young adults in general does not appear to be improving. In an effort to investigate further the relationship between fi nancial attitudes and behaviors and the development of fi scal capability in young adults, new perspectives were considered in this year s research. To better comprehend how each student s unique environment and experience play a role in their understanding of fi nancial capacity, researchers studied the infl uence of several characteristics: matriculation, school type, demographic variations, fi nancial literacy requirements in high school, and fi nancial knowledge. MATRICULATION One new aspect included this year was the infl uence of matriculation to college. Research shows that one of the best ways to increase fi nancial literacy in adolescence and adulthood is to provide fi nance management experience (Kim & Chatterjee, 2013). For many Americans, entrance into college marks the fi rst opportunity to take control of one s own fi nances and deal with making diffi cult fi scal decisions. The analysis compared students who took the fi nancial literacy survey at the beginning of the fall 2013 semester to those who responded near the end of the fall semester/beginning of the spring 2014 semester. It was found that students taking the survey in the end of fall/spring reported that they were more likely to have credit cards, to have more than one credit card, to have paid their credit card bill late at least one time, and to have their own checking account. However, students from early fall were more likely to plan to pay off all their student loans and pay them on time. This is probably directly related to the amount of personal fi nancial experience each group has had, in that students responding in the end of fall/spring had more of an opportunity to start lines of credit and pay bills. While the negative shift in predicted responsible behaviors seems troubling, this is likely due to early fall respondents being overly optimistic in their ability to manage student loans while those students with more personal experience may realize the diffi culties of paying off a large debt over a long period of time. 16

17 In regards to the seven factors listed above, end of fall/spring respondents, when compared to early fall respondents, are less cautious, less indulgent, more utilitarian, more accepting of debt, more compulsive, more fi xated on possessions, and less averse to debt. It should be noted that there were several signifi cant differences in the demographics of the two groups, which may account for some of these fi ndings, including higher percentages of Caucasian students, older students, and students at public institutions in the spring sample. SCHOOL TYPE As certain types of institutions are inclined to draw different populations of students, this year researchers also considered school type (public, private, private-religious) as gleaned from each college s or university s website as a variable which might affect fi nancial attitudes and behaviors. In general, students attending public institutions were less responsible with spending and credit cards, but (seemingly contradictory) more averse to debt, perhaps due to personal/familial experience with debt. Public college students were also more likely to have their own checking accounts, but students attending private colleges were more likely to have a credit card and to have gotten it earlier. Unsurprisingly, private college students had the highest levels of parental education (our proxy for socio-economic status), but also expected to have the highest levels of student loan debt when they leave college. 17

18 Based on the seven factors, students at public institutions were the most cautious, most accepting of debt as a necessity, most fi xated on possessions, and most averse to debt in general. Students at private institutions were the least indulgent and least compulsive possibly because they don t see their purchases as indulgent or compulsive due to vast resources and do not see debt as a necessity. Students from private-religious institutions displayed the least utilitarian fi nancial attitudes. DEMOGRAPHICS Due to differential socialization, research has also found signifi cant differences between genders in levels of fi nancial literacy and fi nancial experience (Hung, Yoong, & Brown, 2012; Schmitz & Bova, 2013). This investigation found that males and females were very similar in their rates of taking out school loans; the amount of their student loans and their likelihood to pay them back; likelihood to have a credit card; and their amount of credit card debt. However, males were more materialistic than females, worried less about debt, and were generally more accepting of incurring debt. Males were also much more likely to report engaging in risky fi nancial behaviors and less likely to pay credit card bills on time. In fact, males were less healthy in almost every aspect of fi nancial behavior, apart from planning for retirement. However, females stated that they got more anxious about not shopping and were more likely to get a high from shopping. Females had more credit cards 18

19 and got them earlier (so they have more credit experience), but males were more likely to have their own checking account while females were more likely to have a joint account. When comparing men and women on the seven factors, males were less cautious than females, more indulgent, less utilitarian, more accepting of debt, more fi xated on possessions, and less averse to debt. However, females reported being more compulsive. Additionally, this study found several other demographic differences that necessitate mentioning, including higher levels of fi nancial literacy and healthy behavior among older students. As they aged, students became less materialistic; more likely to consolidate their loans and pay them on time and in full; less likely to pay credit card bills late; and more likely to have a personal checking account. However, they also became less likely to put 5-10 percent of their income away in savings. Students were more likely to have a credit card (and to have more than one) as they got older and those students had more of a chance to make a late payment. But younger students reported getting credit cards earlier, suggesting that parents may be more likely to give students credit cards in high school. Credit card debt remained stable until around 21 years of age, when it increased, likely as a factor of having been in the workforce for a period of time. Some risky and protective behaviors displayed no discernable pattern over time, so were obviously being infl uenced by other experiences. In terms of race/ethnicity, the healthiest attitudes and behaviors were consistently found among Caucasian students, but this group also reported the highest levels of fi nancial experience including: getting a credit card earlier, having more than one credit card, having a personal checking account, and paying a credit card bill late. This also helps explain why Caucasians reported 19

20 the most responsible planned behaviors for money management and some of the most risky possibilities as well. Caucasian students appear to have had more personal experience making fi nancial decisions and so were more likely to know about all of the options available to them, both reliable and irresponsible. Race and ethnicity differences in fi nancial literacy are likely driven to some degree by cultural differences in the socialization of this concept, but they are probably more of an artifact of higher levels of socio-economic status (SES). The proxy measurement for SES in this study was a student s report of their parents highest level of education. Caucasian undergraduates had parents with the highest levels of education, and likely, the highest income. Strong correlations were found between parental education and a) fi nancial experience, b) responsible fi nancial decisions and plans for the future, c) reduced engagement in risky behaviors, and d) healthy attitudes as they were more fi nancially cautious, less compulsive, less accepting of debt as necessary, more utilitarian, less indulgent, and less focused on possessions. HIGH SCHOOL FINANCIAL LITERACY REQUIREMENT Researchers in the fi nancial literacy education space are still divided on whether this type of instruction does work or if it only provides short-term gains, primarily in knowledge and not in actual behavior (Hastings, Madrian, & Skimmyhorn, 2012). To examine this, all students were asked to list the state in which they graduated from high school. Then, using the Council for Economic Education s Survey of the States 2014 report, respondents from the 17 states that mandate fi nancial literacy education for all students were compared to respondents from states that do not. While those students who may have had prior fi nancial literacy education experience roughly 30 percent of the entire sample showed almost no difference in terms of past behavior in comparison to their peers, other than being less likely to pay credit card bills late, they were signifi cantly more responsible in nearly EVERY aspect of planned behavior, loan behavior, banking behavior, and credit behavior. Their attitudes toward money management were also much more healthy in that they were more fi nancially cautious, less accepting of debt as a necessity, less fi xated on possessions, and more averse to incurring debt in general. These fi ndings are very encouraging for supporters of fi nancial literacy education as they suggest that students who are exposed to instruction in this domain not only increase their knowledge on the subject as examined further in the section below but also show real advantages in fi scal attitudes and behaviors long after the course is over when compared to their less-educated cohort members. States with Financial Literacy Requirement: Alabama Arizona Florida Georgia Idaho Louisiana Mississippi Missouri New Hampshire New Jersey North Carolina North Dakota Oklahoma Tennessee Texas Virginia West Virginia 20

21 The Need to Start Young FINANCIAL KNOWLEDGE Perhaps the most compelling new facet in this year s research was the inclusion of several purely fi nancial knowledge-based questions founded on the exhaustive work of investigators in this fi eld who seek to connect what individuals know about fi nances to what they actually do (Lusardi, Mitchell, & Curto, 2009; Mandell, 2008). While the general fi ndings are less than stellar (see table 4), it is important to know how much, and in what way, fi nancial knowledge might be related to emerging fi nancial attitudes and behaviors. 21

22 TABLE 4: Knowledge-based financial literacy questions QUESTION As a general rule, how many months' expenses do financial planners recommend that you set aside in an emergency? If you have too many credit cards, what should you do? What is the formula for calculating net worth? Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would your ability to buy something with the money in this account be: Which of the following about federal student loans is not true? RESPONSE FREQUENCIES 1 to 3 months expenses (27%) 3 to 6 months expenses (49%) 6 to 12 months expenses (12%) 12 to 15 months expenses (3%) Close as many as possible (50%) Request a higher credit limit (4%) Be cautious about closing cards (12%) Assets plus liabilities (21%) Liabilities minus assets (10%) Assets minus liabilities (53%) Assets divided by liabilities (6%) More than today (21%) Exactly the same (10%) Less than today (37%) Don t know (23%) For certain federal loan programs, the interest on your loans is paid for by the federal government while you are in school and during grace periods (25%) Your parents must sign a promissory note before loan funds are distributed (34%) Entrance loan counseling for all fi rst-time borrowers is required (19%) You will have to pay back your student loans even if you do not complete your degree or fi nd employment after college (13%) If a late payment is sent to a collections agency, how long will it remain on your credit history even if you have paid it off? Less than a year (19%) 1 to 3 years (35%) 4 to 5 years (15%) 6 to 7 years (16%) 22

23 While no more than half of the students answered any question correctly, the majority did choose the appropriate response for half of the items. On average, students got only 2.3 questions correct, but that average increased with parental education, age, fi nancial literacy education, and responsible fi nancial behaviors and attitudes (see table 5). Students attending private institutions got more answers correct than students attending public institutions, who were both superior to private-religious students. Caucasian students had more correct responses than any other group, and, surprisingly, males scored higher than females on these knowledge questions. This is curious as fi nancial knowledge is expected to be highly correlated with fi nancial capability in general, but this fi nding suggests that the young adults who know the most about money aren t necessarily the ones behaving the most responsibly, and fi nancial attitudes may play a key role. As the number of correct answers increased, students moved toward the healthier end of the seven factors: they were more cautious, less indulgent, more utilitarian, less accepting of debt as a necessity, less compulsive, and less focused on possessions. TABLE 5: Average correct responses to financial knowledge questions GENDER AVERAGE CORRECT Male 2.4 Female 2.26 SCHOOL TYPE AVERAGE CORRECT Public 2.32 Private 2.46 Private-religious 2.19 HIGH SCHOOL GRADUATION STATE AVERAGE CORRECT Fin lit course required 2.36 Fin lit course not required

24 TABLE 5: Average correct responses to financial knowledge questions (continued) PARENTAL EDUCATION MOTHER FATHER Not applicable Some high school High school graduate/ged Technical school graduate Some college College graduate Graduate school RACE/ETHNICITY AVERAGE CORRECT Caucasian/white 2.4 African American 2.15 Asian/Pacific Islander 2.22 Hispanic/Latino 2.27 Native American/Alaskan 2.13 AGE AVERAGE CORRECT

25 Conclusions The consistency of high-level fi ndings across time is encouraging because it suggests progress in understanding this complex issue. However, the state of fi nancial literacy among young adults in general does not appear to be improving. Levels of fi nancial knowledge are still disappointing and those that need these critical money management skills the most (minorities, those from low SES backgrounds, and those with little fi nancial knowledge) are not thriving in this domain. This study posits a few implications for practitioners and investigators in this space to consider helping turn these fi ndings into actionable plans and positive outcomes. Implications PRACTICE These results may have implications for campus-based fi nancial literacy education programs suggesting that it is important that colleges and universities are aware of the key demographic differences discussed above so that they can account for them when developing curriculum and/or delivery methods. Practitioners are encouraged to measure the knowledge, attitudes, and behaviors of their entire population, but especially their incoming students so they are aware of the culture surrounding fi nancial literacy at their institution. This can help identify areas that require the most focus for improvement as well as healthy trends that can be encouraged. Measuring individual differences in student fi nancial attitudes, behaviors, and knowledge before any program implementation can allow practitioners to better assess the effi cacy of their interventions. Just as every student comes to campus with a different socialization experience, individuals and specifi c subgroups will have varying responses to the types of programs and activities offered to them to increase their fi nancial literacy. A many-pronged approach is suggested so that students may explore options and fi nd the pedagogy that is the most suitable. Some students may prefer intensive one-on-one counseling, while others may not require direct instruction and choose to utilize resources only for specifi c situations. There is no one size fi ts all strategy for the development of fi nancial capability and it would behoove institutions to bear this in mind when creating and evaluating interventions. This can help practitioners make decisions about which programs might be the most effective for specifi c students so they can be directed toward those options. It will also encourage program evaluation practices and innovative development of new tools and resources. 25

26 Finally, it is recommended that students, especially those fi rst coming on to campus, be encouraged to take personal responsibility for their fi nances within the context of fi nancial literacy programs and beyond. Personal fi nancial experience with credit, banking, budgeting, and saving can have immense and lasting impacts for students. Higher education institutions could do a lot to move the needle on fi nancial literacy attitudes and behaviors by including personal experience activities in their interventions and also scaffolding the transition toward independent money management for their students. Many students learn much better by being instructed how to be responsible than being told why it is important. This may also help temper the perspectives of less-experienced students by making programs more realistic and accessible and less idealistic. Know your student population Provide options for maximum effectiveness among varied subgroups Measure individual differences and response to specific programs Encourage and support financial experience RESEARCH While evidence here makes a strong case for requiring fi nancial literacy education for all K-12 students, further research should be conducted on the socialization of fi nancial literacy and the overall context/processes through which we acquire our concepts and beliefs about personal fi nance management. Obviously there are gender-based, culture-based, and cohort-based differences in the development of the concept of fi nancial literacy and responsibility, and the onus for shaping adult fi nancial behavior cannot only be on K-12 schools and institutions of higher education. It is imperative that we learn more about how the overlapping spheres of infl uence in an individual s life contribute separately and in tandem with one another in building this critical skill. While there is a strong link between fi nancial knowledge, fi nancial experience, and fi nancial literacy, there are other factors at play in this dynamic which must be disentangled. Further, this study group included only students who were attending four-year institutions, and while these fi ndings are compelling, it would be important to conduct similar research on students attending twoyear institutions. Researchers can aid practitioners by also focusing their studies on the individual differences in fi nancial literacy among incoming college students and how those may have been crafted through socialization. Those in the research and practice domains should collaborate to study how best to fi t intervention programming with specifi c student-level and community-level characteristics to maximize the effi ciency and lasting impact of fi nancial literacy courses. Beyond this, 26

27 investigators should continue to analyze which programs are the most effective in both K-12 and higher education and develop best practices for all states and institutions that mandate this type of education. As was suggested last year, attitudinal and behavioral components need to be incorporated into pedagogy as they have a unique and signifi cant relationship with fi nancial knowledge in general and fi nancial outcomes specifi cally. Financial perspectives and decisions are much more likely to be sculpted by the socialization process than knowledge alone, and thus, these aspects of fi nancial literacy are more diffi cult to access and change. However, programs that successfully impact attitudes and behaviors through a combination of learning and hands-on exercises will see the most profound and lasting gains in their populations of interest. Further investigate the socialization of financial literacy and how it might be different for varying subgroups Examine differentiated programs and methods to see which work the best for specific subgroups Study which programs are the most effective and continue to develop best practices for lasting impact Discover how attitudes and behaviors can best be incorporated into pedagogy 27

28 Citations Harter, C. L., & Harter, J. F. R. (2007). Assessing the Effectiveness of Financial Fitness for Life in Eastern Kentucky. Retrieved March, 2014, from aeaweb.org/annual_mtg_papers/ 2007/0105_1015_1204.pdf. Hastings, J., Madrian, B., & Skimmyhorn, W. (2012). Financial literacy, fi nancial education, and economic outcomes. Working paper, National Bureau of Economic Research, paper no Hung, A., Yoong, J. & Brown, E. (2012). Empowering women through fi nancial awareness and education. OECD Working Papers on Finance, Insurance and Private Pensions, 14. OECD Publishing. Jorgensen, B. L., & Salva, J. (2010). Financial literacy of young adults: The importance of parental socialization. Family Relations, 59, Kim, J., & Chatterjee, S. (2013). Childhood fi nancial socialization and young adults fi nancial management. Journal of Financial Counseling and Planning, 24, Kim, J., LaTaillade, J., & Kim, H. (2011). Family processes and children s fi nancial socialization. Journal of Family and Economic Issues, 32, Lusardi, A., Mitchell, O.S., Curto, V. (2009). Financial literacy among the young: Evidence and implications for consumer policy. Working Paper, National Bureau of Economic Research, paper no Mandell, L. (2008) The Financial Literacy of Young American Adults: Results of the 2008 National Jumpstart Coalition Survey of High School Seniors and College Students. The Jumpstart Coalition for Personal Financial Literacy, Washington DC, les/2008surveybook.pdf. National Bureau of Economic Research (2014). NBER Business Cycle Dating Committee. Cambridge, Mass. National Council on Economic Education (2014). Survey of the states: Economic and personal fi nance education in our nation s schools in New York: NCEE. Schmitz, A., & Bova, K. (2013). Women and Financial Literacy. ProLiteracy White Paper, October, ProLiteracy, Syracuse, NY 28

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