On the Campus

Emerging Adulthood and Adolescent Life

College Students' Financial Literacy and Behavior

How wisely do college students conduct their consumer/financial affairs?

Every April, economic and financial matters come to the fore of millions of Americans' minds, as tax-filing time rolls around. Accordingly, I devote my April column to college students' financial literacy and behavior. From a lifespan developmental perspective, a crucial element of college life is that students generally have greater freedom to make personal decisions, including financial ones, than at younger ages. Also, brain development, so important for wise decision-making, is not thought to be completed until the early twenties (or perhaps beyond).

For several years, now, the nation has heard horror stories of how some college students have gotten themselves into thousands of dollars of credit-card debt and, in extreme cases, committed suicide. Eighteen is the youngest age one can make a legal contract (including acquisition of a credit card), although a new federal law has established some necessary conditions for anyone to obtain a credit card when younger than 21. To help with such matters, Consumers Union has an online document called "Credit Card Tips for College Students."

According to a 2006 academic conference paper by Brenda Cude and colleagues, the interest that researchers, college officials, and others have shown regarding college students' financial knowledge and behavior has tended to focus on one aspect of it -- credit cards. In an attempt to broaden the knowledge base on students' financial practices, Cude and colleagues have conducted surveys on four college campuses, the results from two of which they report in their paper. One of their major findings, regarding optimal and non-optimal financial behaviors, is that, "Students were most likely to avoid writing bad checks and to pay bills on time, and least likely to save monthly, to have a budget, and to balance a checkbook..."

Another study, by J.J. Xiao and colleagues, which appeared in the June 2008 National Council on Family Relations (NCFR) newsletter, compared college students of different academic class levels on their positive financial behavior. Contrary to the authors' expectations, financial behavior appeared to get worse the longer students were in college. As an example, seniors (78%) were most likely to report having credit-card debt, whereas first-year students (49%) were least likely. Also, whereas nearly half (49%) of seniors failed to pay credit-card balances in full, the figure was 29% for first-years.

Another of Cude and colleagues' themes is that "campus administrators need to be aware that issues related to students' financial management often extend beyond the financial aid office." Texas Tech, my home university, seems to be ahead of the curve in offering a center that provides wide-ranging financial advice, for students by students, known as the Red-to-Black program (the name is a clever play on our school colors and how they map onto red ink and black ink). Red-to-Black offers walk-in counseling sessions and other assistance in areas such as credit, budgeting, saving, investing, and moving into roles beyond college (e.g., employee benefit packages, buying a car or home). I personally am not affiliated with Red-to-Black, but I always invite a student spokesperson from the program to speak in my courses on young adulthood.

As Cude and colleagues conclude, "the implications of poor financial management can affect more than students' finances. It can affect their academic performance, mental and physical well-being, and even their ability to find employment after graduation..."

Of course, financial struggles are not limited to college students. In fact, financial issues likely play a more complex and challenging role for young people of modest economic means who could qualify academically for college, but are reluctant to apply, for fear of getting themselves deep into debt with college-tuition costs. In their new book Not Quite Adults, Richard Settersten and Barbara Ray suggest that the choice of not going to college, as a money-saving strategy, will likely backfire. On pp. 31-33, Settersten and Ray provide statistics on the amount of student debt commonly faced by college graduates and the increment in earnings college degree-holders are likely to receive, compared to their less-educated counterparts. 

Ideally, the trend toward increasing publicity, education, and legislation focused on young adults' financial behavior will help them conduct their money matters more wisely than has previously been the case. There remains considerable room for improvement, though.

Alan Reifman, Ph.D., is a Professor of Human Development and Family Studies at Texas Tech University.

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