College Students Miss Mark on Financial Literacy, Survey Shows
LendEdu, an online marketplace created to offer student loan borrowers insight into their personal finances and loans without damaging their credit, has released its 2016 College Students and Personal Finance Study — and the results show a high degree of financial uncertainty among college students.
The study surveyed current college students on basic personal finance knowledge and tried to gain insight into how they are managing money. The survey is comprised of results reported from 455 undergraduate and graduate students at three different four-year institutions on the East Coast. Each respondent answered 25 questions related to finances and money management. All of the information provided was self-reported, and the survey team was administered by LendEdu.
In its introduction, the survey acknowledges a general lack of financial literacy in the United Sates. Currently, only 17 states require high school students to take a class in personal finances. Unsurprisingly, the results exhibited students “lacking basic knowledge and confidence” on financial matters. The researchers hope that their findings will impel educators and policymakers to include high formalized coursework on personal finances in high schools, colleges, and universities.
Students reported widespread uncertainty in their ability to manage their personal finances. Only 8% of students gave themselves an “A” in terms of successfully managing their money, while 59% of respondents would grade themselves with a “C” or worse. Moreover, almost half of respondents (43%) said they do not keep track of monthly spending, and more than half of students (58%) are not saving money each month.
In terms of expenditures, 38% of students cited food as their biggest monthly expense, and another 25% ranked alcohol/drugs. By learning how to manage money better, students would likely save heavily on these expenses and be able to devote it to other costs associated with being a student, like rent, which 29% of students identified as their biggest monthly expense.
Largely, students are not pulling in high incomes. 27% of students reported that they do not have a source of income, while another 40% of students were working part-time or had an on-campus job. The fact that students are not making much money adds greater emphasis to the need for financial literacy. Students must learn how to make the most of limited funds.
Perhaps most pressingly, students report widespread ignorance about more complex financial issues that will impact them upon entering the workforce. For example, 74% of students believe that the interest rate paid on a savings account is greater than 1%, with 10% believing it is somewhere between 5% – 7%. These are wildly optimistic expectations about interest rates, which typically fall well below 1%. Additionally, 60% report having minimal or no knowledge about financial investments, and almost half of respondents (48%) reported having minimal or no knowledge when it comes to retirement savings.
The report makes clear the urgent need for financial literacy coursework. Only a handful of years of a person’s life is spent as a student; financial literacy is vital for a successful and meaningful professional and personal life beyond college. Thus, a strong, working knowledge of personal finance will not only improve one’s livelihood as a student but will greatly serve them as working adults who save, invest, and pay with credit.
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