Students Entering College Get a 'D' In Financial Literacy

Filed under: Student Loans, College, Education, Financial Education

Reading, writing, and arithmetic are fine, but there's a life basic that many college lack: financial literacy, according to "Money Matters on Campus," a report from financial aid company Higher One and education technology company EverFi. That's a growing problem, as the trend of increased levels of loans taken to pay for college means that graduating students will face greater financial pressures without necessarily having the skills to manage them.

The survey of 42,000 first-year college students in four-year and two-year schools across the U.S. covered such topics as banking, savings, credit cards and school loans. It was the latest in an annual series that started in 2012.

Although respondents have increased experience with credit cards, bank accounts and student loans compared to previous years, such "responsible planning behaviors" as budgeting and reviewing accounts decreased. In addition, increased levels of loans were matched by fewer plans of how to pay them back. Students entering two-year colleges typically had more responsible financial behaviors than those going into four-year colleges. On the whole, the percentage of students reporting responsible behaviors declined from 2012 to 2014, whether paying bills on time, reviewing bills, paying off credit cards, following budgets to limit spending or balancing checkbooks.

Overall, students who had entered two-year colleges showed more responsible behavior than those in four-year schools. For example, only 25 percent of four-year students kept receipts, while 53 percent of two-year students did. Eighty-three percent of two-year students checked account balances, compared to 62 percent of four-year students. While 60 percent of two-year students used personal financial budgets, only 39 percent of four-year students did.

Relatively few students receive formal training in financial literacy. Only 34 percent of four-year students took a high school course in the subject. For two-year students, the amount was 24 percent.

To some degree or other, most students entering college -- and adulthood -- over the years have had a bit of a shock, as they had to be far more active in managing their affairs than before. But the cost of school is hitting many hard. Tuition, costs of books and supplies, getting enough financial aid and having sufficient money to last a semester are significant causes of stress for many.

Managing money will become only more important as the students move toward graduation. In 2012, 71 percent of graduating college students had loan debt, according to The Institute for College Access & Success.

"All college students are stressed financially, regardless of their experience or knowledge or behaviors," Mary Johnson, vice president of financial literacy and student aid policy at Higher One, told MarketWatch.com. "The one area that seemed to make it worse is the level of student loans."

For good reason, too. Sixty-three percent of four-year students and 44 percent of two-year students taking part in the study reported having school loans. A little more than half of the latter had less than $10,000 in loans, compared to 25 percent of four-year students. And 22 percent of four-year students had more than $40,000 in loans, while only 5 percent of two-year students did.

 

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