Students preparing to begin college and take more control over their personal finances in many cases lack the skills and knowledge to make responsible financial decisions and repay their student loans, according to a new survey from EverFi.
The survey collected data from a nationally representative sample of more than 100,000 incoming college students — most from four-year institutions — in more than 410 institutions across the country. Overall, the survey found that most respondents struggled to answer basic financial literacy questions, and on average only answered two of six questions correctly.
"This is a critical time frame because so many students are taking on increased responsibility for their own fiscal decisions through loans, credit cards, and personal finance management," the survey said. "Overall researchers have found that while young adults in higher education were taking on increasing responsibility for their finances they displayed a clear lack of skills, knowledge, and confidence in their abilities to do so."
Since its last report two years ago, EverFi said little has changed, and the data "paints a rather uninspiring picture" of incoming college students' financial literacy.
Part of that lack of understanding may come from the fact that many students have not been formally taught about managing their finances. Overall, the survey found that just 40 percent of four-year students and 45 percent of students attending two-year institutions had ever taken a personal finance course.
Meanwhile, most students (60 percent) said they expected to take out loans for college. But just 15 percent of those students said they felt they had the education, information, and resources to be able to pay off their loans in the future.
"There is obviously room for education and growth in regard to the financial capability of young adults in higher education in the United States. However, increased knowledge alone is not the only solution to develop financial literacy. It should include information as well as personal experience," the survey said.
While nearly all respondents (90 percent) said they had experience with a checking account, just 60 percent were personal accounts, while the rest were joint or custodial accounts. Still, just 59 percent said they had checked their balances in the past year. Fewer students also reported creating (40 percent) or using (43 percent) a budget.
EverFi also examined a sample of students in Virginia, where economics and financial literacy education is required for middle and high school students. The survey found that additional education may have accounted for improved knowledge and lower stress.
"It seems then that there needs to be a combination of solid state mandates and policies for financial education, making it a priority for schools, as well as good implementation and enforcement of those policies within the states," the survey said. "Where we see the two of those combined is where young adults seemed the most primed for financial success."
Publication Date: 4/9/2018