College Students Failing at Financial Literacy, According to Recent Study
While many college students understand the importance of making good grades in academic subjects, financial literacy appears to be a real-world course that many are not passing with flying colors. According to a recent study, college students are not budgeting or saving, and many cannot distinguish between financial myths and truths.
The study by U.S. Bank, “Student Perspectives on Money and Finance,” reveals more than a few troubling statistics. Below are selected excerpts:
When asked if their parent(s) or guardian(s) taught them about managing money, students responded as follows:
|51%||Taught me general ways of managing money|
|21%||I learned through example|
|15%||Taught me specifically how to manage money|
|9%||Did not teach me how to manage money|
When asked about the sources they trust most for financial information, parents and guardians maintained a small lead:
|37%||Other financial websites|
Students understand the importance of a budget, but have little practical knowledge:
|66%||Work for their spending money|
|44%||Have little to no knowledge on creating and maintaining a budget|
|21%||Are “barely keeping up” with their day to day personal finances|
When students graded themselves on their money management skills, there was plenty of room for improvement:
Many students don’t fully understand credit and credit scores:
|61%||Believe that once a delinquent loan, credit card balance or bill is paid off, it is removed from your credit report (when actually, a late payment may remain on a credit report for up to 7 years)|
|60%||Believe that using checks and debit cards help to build credit (when in fact check and debit card usage has no impact on your credit score)|
|47%||Believe that a student loan cosigner will not be held accountable for paying off the loan if the student doesn’t find a job (when a co-signer is equally responsible for repayment, regardless of whether or not a student is employed)|
Students were also asked the following questions (the first column represents the percentage who got the answer correct):
|75%||False||A bad credit score can never be rebuilt|
|74%||True||An emergency savings fund should cover at least 3 months of living expenses|
|60%||False||Checking a credit report will hurt your score|
|57%||False||Social Security should be enough for retirement|
|55%||True||One spouse’s bad credit can affect the other’s ability to get a loan|
|52%||True||Too many credit cards can negatively impact your credit score|
|39%||True||Your bank account affects your credit score|
|37%||True||401(k) investments can lose value; they are not guaranteed|
The study also broke down the first survey question (regarding whether parents or guardians taught them about money) by gender:
|53%||50%||Taught me general ways of managing money|
|17%||23%||I learned through example|
|23%||16%||Taught me specifically how to manage money|
|6%||11%||Did not teach me how to manage money|
As a result, women students feel less confident in money management:
|4%||9%||Not at all prepared|
|3%||2%||I haven’t thought about it|
Financial literacy is vitally important for college students, and a lack of knowledge can result in unwise decisions that could haunt them for years. Understanding how to preserve and improve credit scores, manage money, and avoid debt are lessons better learned sooner rather than later.
GoodCall spoke with a financial expert who identified learning how to save money in an emergency fund as one of the first and most basic steps that students can take to avoid expected financial surprises and debt accumulation. Whether they have a full-time or part-time job or receive funds from their parents, students can start saving with any amount.
According to Leslie Tayne, financial attorney, debt expert and author of “Life & Debt,” failing to have an emergency fund may result in having to use a credit card for unexpected expenses, which can result in debt with accrued interest that makes repaying that debt much more challenging.
“My number one tip for people is to arrange for automatic contributions,” says Tayne. “Set up your direct deposit to deposit a portion of your paycheck into a savings account each month. You will find that you will miss that money less if you do not realize it was there in the first place.”
Tayne recommends saving at least 5% of your paycheck or other income each month and advises students to put it into a high-yielding savings account. “Be mindful that although CDs generally offer higher interest rates than other accounts, you want to also ensure the account storing your emergency funds does not require too long of a lock up period, as you want the option to access the monies immediately without penalties during times of emergency.”
She also says that students can take birthday gifts or other financial gifts to put in the emergency fund. The important thing is to continue making contributions. “Make sure you continue funding the account so you will not find yourself having to start from scratch to build it up again in the event that you have to use money from it,” says Tayne. “Even as little as $5.00 or $10.00 a month will keep your emergency savings active, with each amount deposited quickly adding up.
In addition, some colleges offer financial literacy workshops and seminars, and there is a wealth of information available on the Internet. The important thing is for students – especially women students, according to the study– to gain financial knowledge so they can make wise financial decisions. Learning to save money, pay bills on time, avoid unnecessary debt, and invest wisely can result in a strong financial future.