|College Students’ Financial Literacy Slipping Despite Increase in National Attention|
Test Scores Were Down on Higher One’s Annual National Survey Measuring Basic Financial Management Knowledge Indicating Need for Shift in Focus of Existing Efforts
[New Haven, CT – April 28, 2011] – Scores on a nine-question quiz to measure current college students’ basic financial management knowledge administered by Higher One, Inc. were down from last year, with more than 70 percent of students surveyed receiving a failing score. In total, less than 30 percent of the survey’s 5,488 respondents answered six or more questions correctly, with more scores in the bottom levels than the previous year.
“As National Financial Literacy Month draws to a close, we are surprised to see that college students still do not understand basics of financial management, such as how to avoid over-drafting or how and when one should prepare an emergency fund,” said Mary Johnson, Financial Literacy and Consumer Advocacy Program Manager for Higher One, a financial services provider that works with colleges and universities.
Supporting the 5 percentage point decline are answers to two of the questions --how many months’ expenses do financial planners recommend setting aside in an emergency fund? And what are good examples of when you should use those funds? -- more than half of the respondents reported that they are in fact saving very little (less than 1% of income).
“Most financial planning experts recommend an amount equal to 3-6 months of your normal expenses, but, more recently, with unemployment lasting much longer than the norm, we are beginning to see recommendations for an even greater cushion, especially for older adults for whom it might take longer to find another job,” Johnson explained.
Of the nine questions asked, the percentage of correct responses increased marginally for three questions that related to: 1) the cost of obtaining a FICO score, 2) the liabilities when a credit card is stolen and 3) what you should do if you have too many credit cards.
“The fact that students scored somewhat better on questions related to some of the more common areas of education around credit cards indicates our efforts are beginning to pay off,” Johnson said. “Now our focus must broaden to include other pertinent financial literacy topics such as saving and the importance of financial planning.”
“Students need to understand that emergency funds should be used for just that, emergencies, such as unexpected medical expenses, car repairs or house repairs. These funds should not be used for other savings goals such as vacations or new purchases. And, if you require the use of your emergency savings, be sure to replenish the fund as soon as possible,” Johnson said.
In terms of who should be providing this financial education, nearly half of respondents reported that “there is a lot of room for improvement” in terms of the financial literacy programs their schools provide. Respondents do acknowledge, however, that the onus for teaching these topics also falls on parents. While last year, about 6 percent of respondents felt the responsibility to teach financial literacy belonged to their parents, this year nearly 25 percent of students believed it to be their parents’ job.
“Whether you are a parent, a school or a bank, it is important to keep in mind that educating students should include more than just providing them with tips and suggestions. Students should be asked to use this knowledge in simulations and other real-life problems and scenarios,” Johnson said.
To encourage schools to implement innovative financial literacy programs on their campuses, Higher One announced a new Financial Literacy Counts grant program earlier this month. Grants ranging from $2,000 to $5,000 are available to all accredited U.S. non-profit colleges and universities and may be used to support student awareness campaigns, workshops, online financial literacy tools and other activities and resources that promote financial literacy and provide opportunities for students to increase their personal financial management skills and abilities.
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