New Financial Literacy Study Reveals Opportunities

By Deb Stewart

They’ve graduated from high school and are in college. They’re ready for independence, ready to take on the world. So, what aren’t they ready for?

In a recent survey, Everfi asked 104,000 college students from 410 institutions that question. Sixty-six percent said they were prepared to keep up with coursework. Sixty-five percent were prepared to stay organized. But only 33 percent felt they were prepared to manage money.

Behaviors underlying the money management response add color to the issue. Of the total sample:

  • Only 62 percent reported that they stopped spending when resources were low.
  • 25 percent made a purchase to improve their mood.
  • 10 percent bought something they really couldn’t afford.

“Poor, impulsive decision making like this is especially problematic when 15 percent of the sample claimed they currently lived ‘paycheck to paycheck’—25 percent for two-year students,” said Dan Zapp, senior director of research at Everfi. “And while money management resources are widely available, only 14 percent have ever used a program or application for this purpose.”

A recently published study by Credit Karma/Qualtrics (a survey of 1,045 U.S. consumers) reported similar findings. The study found that nearly 40 percent of millennials have spent money they didn’t have—and gone into debt—to keep up with their peers. More than one third doubt they’ll be able to sustain their lifestyle for another year without going into debt. Credit Karma reports that its millennial members already have $46,713 in debt on average.

How student loans fit into the picture.

Financial stress doesn’t stop with spending behavior. Everfi’s study took a closer look at borrowing and how students are feeling about that part of their financial life. It found that 60 percent of students will take out loans for college.

“We found that while most of these students (around 65 percent) do plan to pay off their student loans on time and in full, only 39 percent plan to consolidate their loans to achieve this,” Zapp explained. “No matter what the total balance, repayment of student loans after graduation represents a significant financial challenge for these young adults and most do not currently feel prepared to overcome that obstacle. Over half of the students taking out loans (54 percent) reported that they ‘worried about their debts,’ while only 31 percent of the students without loans felt the same anxiety,” he added.

Everfi asked what would make students feel less stressed. Here’s how they responded:

  • Making a plan to pay off my loans – 66 percent
  • A better understanding of loan repayment options – 60 percent
  • Having easy access to my balances so I can see my total repayment amount – 56 percent
  • Reminders of what my student loan payments are likely to be – 52 percent
  • Knowing how to limit the amount of loans I take out – 48 percent
  • Finding the right person to talk to on campus – 42 percent
  • More information about my responsibilities and consequences before taking out a loan – 37 percent
  • Nothing, the information I receive now meets my needs – 15 percent

Think about that last point. Only 15 percent of student borrowers feel that they have the information they need.

A checking and credit card checkup.

In the Everfi study, only 37 percent of respondents had a credit card. But 80 percent of those acquired the card when they were 18 or younger, reflecting the ready availability of credit for students transitioning from high school to college.

Students in two-year colleges were more likely to have more than one card than four-year students and are significantly more likely (44 percent vs 13 percent) to have had a late payment. Balances for these two-year students are higher than their peers, with the cards often used to finance their education.

Everfi researchers associated a “stress score” to each of their respondents based on answers to survey questions. Interestingly students with credit cards had lower stress scores than those without—and students with a checking account also had slightly lower scores.

“We believe that familiarity with these financial resources may provide some level of anxiety reduction for young adults as they allow for more options when managing expenses,” Zapp said.

Virginia is a financial literacy lab.

The Jumpstart Coalition for Personal Financial Literacy has recognized the need to expand financial education across all schools. Toward that end, Jumpstart recently launched Project Groundswell, with the 2025 goal of:

  • Increasing the number of U.S. elementary, middle and high school students receiving financial education by 25 percent
  • Growing the number of teachers trained in personal finance education by 25 percent.

Laura Levine, Jumpstart’s president and CEO, commented, “The 25 percent growth goal is a starting point. Jumpstart and its partners don’t plan to stop until every child is getting a sufficient financial education in school.”

The commonwealth of Virginia already requires economics and financial literacy education for all high school and middle school students. What effect has that had?

Stress scores for students coming from Virginia are notably lower than students from other states. Fewer (33 percent) have credit cards, and those who do tend to carry lower balances than the population at large. Ninety-four percent of Virginia grads have a checking account. And of those, 65 percent have recently checked their balance. Sixty percent of Virginia graduates felt “prepared” to manage money in college and 45 percent used a budget in the past year. “Virginia is a great example of the impact of consistent financial literacy,” Zapp said.

What can we do?

With this information, how do we begin to make a difference?

  • Advocate As Virginia’s mandate has shown, state requirements for financial literacy education make a difference. Get involved with your state government and encourage them to provide resources and time to bring this to your schools.
  • Volunteer at your elementary, middle and high schools Through programs like ABA’s Teach Children to Save, banks can partner with schools to provide financial literacy skills to children and youth of all ages. Some banks have even developed their own school programs.
  • Go into colleges, universities, and two- year institutions On-campus bank facilities continue to grow in numbers. Some innovative programs are deepening the advice element of the student-bank relationship. A partnership between the University of Oklahoma and MidFirst Bank puts MoneyCoaches on the OU campus. OU’s objective is to improve retention and graduation by ensuring that students have a plan in place to pay for their college experience. Financial reasons are often a major roadblock to completing a degree.
  • Continue to develop and offer banking packages to students – Using financial products is associated with lower stress scores for these students. Continuing to provide affordable student banking packages and sound financial counsel is key to transitioning students to financially independent adults.

Combining these approaches will have a compounding effect. Not just on the students you touch but on their families and communities as well. Let’s get going.

Deb Stewart is a contributing editor to ABA Bank Located in Charlotte, N.C., she is an independent consultant working for the financial services industry. Email: [email protected].