While there has been an increase in financial experience among incoming college students, they continue to struggle with basic financial management skills or financial planning, according to a recent report from EverFi and Higher One.
The report looks at how to best develop financial literacy models to support future generations and their financial goals. EverFi and Higher One collected data between 2012 and 2015 from about 42,000 college students from traditional four-year public and private schools across the U.S., as well as about 1,000 students from two-year schools. Among the four-year students, 90.5 percent were first-year students, 75 percent were 18-years-old, and 8 percent were 19-years-old. Among the two-year students, 50 percent were first-year students and 40 percent were 18-years-old, 25 percent were 19, and 32 percent were age 20 or older.
According to the report, the data uncovered several trends among four-year college students, including increased experience in high school with credit cards and bank accounts. When asked about how prepared they felt to handle financial challenges, the students surveyed said that money management was the area of college life they felt least prepared to handle. Students with bank accounts and financial literacy education experience felt more prepared to handle money management.
As the number of students who reported they had experience managing their own finances increased between the first year of the study to 2014-15, so did the number who expected that they would need to take out student loans. In 2012 and 2014-15, 61 percent of students reported taking out student loans, compared with 63 percent in 2014-15. Forty-eight percent of students in 2012 had loan amounts under $20,000, a figure that dropped to 45 percent in 2014-15.
And while students say they are taking out more student loans with higher balances, “they have become less likely to plan on consolidating loans and paying them on time and in full,” the report notes. Student loans were the strongest predictor of increased financial stress among the young adults surveyed, specifically the total amount of student loan debt they would have upon degree completion. However, they also reported being more concerned with things like finding a job after graduation and increases in tuition than repaying the loans or managing their money.
While students at four-year, private institutions showed more financial knowledge than those at public four-year schools, it was the students from two-year institutions who provided the most correct answers to questions assessing financial knowledge. These students showed more experience with money management and more responsible behaviors. They also took out fewer student loans (44 percent) and those that were taken out were for smaller amounts of money. Two-year students also showed more financial stress in general than four-year students, as well as more stress about things like tuition, costs of supplies, financial aid, and how to pay for the next year of school.
While financial experience is increasing among incoming college students, there is not an equal increase in basic financial management skills or planning, which is “worrisome” as student loans are being taken out with more frequency and in higher amounts, the report notes.
The results of the survey “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,” according to the report.
Publication Date: 4/7/2015