copyright. 1997, dr. t. k. hira, professor isu 1 financial attitudes, beliefs & behaviors of...

Copyright. 1997, Dr. T. K. Hira, Professor ISU1

Financial Attitudes, Beliefs & Behaviors

Of College Students

Our personal financial situations

Are often better reflections of who we are

internally than of who we seem to be on the

outside

Our money behavior reflects our self-worth

which was shaped by our childhood

What causes excessive behaviors?

No single factor is sufficiently powerful enough to explain excessive behaviors

Multidimensional factors influence excessive behavior: – psychological, – social, – cultural,– environmental:

» economic, market, credit.

Debt vs. credit Credit Use

– Purpose: production/consumption– attitudes: decades of instant gratification

Credit Industry– numerous products - credit cards– technology– high risk lending

Credit Environment: past & present

Need for research

there has been little research on when and how one acquires knowledge of money and the economic system in general or the degree to which family influence carries over into consumption activities as adults

(Abramovitch, et al., 1991).

Previous studies

Credit use and payment practices

Trends and amounts of student loans

Financial socialization in the family

Personal finance knowledge

Objectives.. to understand..

Childhood experiences with money Sources of influence on their financial

behavior Current spending patterns, Use of credit: credit cards, student loans and

other consumer debt, Ability to handle debt repayment responsibility

in the future Feelings about current debt Need for more information

Samples and Data collection

Random sample - in Spring ‘97– 2000 selected – 665 completed the questionnaire– a response rate of 34 percent

Convenient sample -Fall ‘96)– 442 seniors – During student loan exit interview

Limitations of the study

Some information was based on memory of past experiences & their effects,

Difficult separating effects of one specific influence from others,

Cross-sectional sample does not allow to assess change within a person,

Sample drawn from one midwestern state Response rate

Average student - random sample(N=665)

Median age 22 years Gender (female) 51% Never married 82% Ethnicity (white) 85% Student status

– Freshmen 21%– Sophomore 17%– Juniors 23%– Seniors 38%

Average student...random sample

Employed (PT) 61% Current month. income $893 Average T. Debt

$12,353 Av. Income after Grad.

$28,813

Two Aspects of Money Behavior

(1) The "planner"

– part that thinks carefully and plans rationally,

– knows rational decision making strategies,

– recognizes the importance of postponement of

of gratification,

– exercises self control.

Two Aspects of Money Behavior

(2) The "doer"

– part that acts impulsively,

– cannot implement behavior decided upon

through cool, dispassionate reflection,

– interferes with rational decision making by

seeking immediate gratification.» (Thaler and Shefrin,1981).

Money personalities

Spender 22% Worrier 22% Planner 37% Other 20%

According to students themselves..

“Most college students are obsessed with material possessions, image, and living “high on the hog”.

They do this by taking the maximum loans possible with no regard for paying them back. Govt. loans need to be greatly reduced to prevent rapid spending by students and bankruptcy after college.

Over half of the people I know will have over $30,000 in debt upon graduation.”

Spending behavior of college students

Buy things don’t need 56% Shop to celebrate 44% Buy without plan 33% Can’t resist sales 27% Buy what can’t afford 16% Hide spending habits 15% Debt creates problem 11%

Compulsive buying behavior

Lisa says...

“Shopping fills an emptiness in my soul”

Gambling behavior

Proportion involved in gambling 33% Frequency of gambling (yr.) 6 Favorite gambling activity

– slots 11%– sports 12%– black jack/video poker 4%– power ball 3%

Mean $ spent each time $32

Sources of influence on consumer behavior

Socialization agents have been classified into four categories on the basis of formality of the agent and learner type: – formal agents: family or school – informal agents: mass media or peers

(Ward, 1973; Ward, 1974; Talmon, 1963).

Your financial behavior

Do you know your money personality? Who had the most influence on your money habits

– Mom? Dad? Others? What are your strong and weak points when it comes to handling money? What steps have you taken to assure your financial security? What role does money play in your relationships to others?

– friends --parents --siblings --spouse How easy is it for you to talk to others about your money concerns? What is your most important money concern for the:

– present and– the future?

Who influence their money beliefs & behaviors

Father 66% Mother 64% Friends/peers 23% Grandparents

– Grandfather 13%– Grandmother 9%

Religious teachings 9% Media

– Books/mag. 8%– TV/radio 8%

Schools 7%

The Influence of Family on Money behavior

persists well into adulthood.

and it appears to become part of the

developing individual's personality

– (Chaffee et al., 1971).

Allowences - 10 -11 yrs. 43% Check Acts. - 15 -17 yrs 46% Credit card - 18 yrs & older 70% Personal loans -18 yrs & older 43% Particip. in FF discus.15 -17 yrs 37% Knew FFsituation 12 -17 yrs 59% Earned income - 15 -17 yrs 40% Saved money - 9 - 11 yrs 51%

Involvement in financial activities during childhood

Borrowing behavior of college students

Av. number of credit cards 3– 45% 1 or 2– 13% 3 cards– 16% 4 and more

Av. credit card debt $1,027 Av. student loan $5,814 Av. other loans $8,96 Debt at graduation $12,352 Av. expected income $28,813

Feelings about finances..

dissatisfied/VDis

Amount owed 45% Current financial situation 48% Money mgt.. skills 35% Often worry about finances 21% Ability to meet emergencies 43%

Students’ beliefs about their debts...

“..Students believe that all their debts

will be paid as soon as they get their first job. This is a major misconception.

Credit cards are the problem. Most of my friends have $2,000-$4,000 credit card debts, plus $10,000-$15,000 school loans!”

Factors related to total debt

Personality type Family communication Involvement in financial tasks Spending behavior Satisf. w/ money mgt. skills Presence of worries about finances Satisfaction with financial situation

Graduating seniors - exit interviews(N= 442)

Mean amount

Total debt $14,498

Expected payment $211

Expected income $27,653

What are students saying...

“Student loans are my biggest anxiety.

I will graduate in May and do not look forward to all those student

loans ....”

Types and amounts of student loans

Loan type % Mean$ DK$ Subsidized 59 11,142 30% Unsubsidized 36 6,353 16% Plus 11 3,944 4% Other* 16 2,800 3% Total debt 70 14,498

•Pell Grant, Perkins, Stafford,

financial institutions, charitable/religious org.

Student Loans by college

Name ofCollege

Studentreportedaverage

Studentestimate of

payment

Actualpayment 3

Student'sexpectedincome

Graduate'saverage

income for1995-96

Agriculture $14,565 $2,160 $2,144 $25,477 $25,804

Business $13,278 $2,376 $1,954 $29,880 $28,191

Design $14,106 $2,136 $2,076 $22,950 $21,466

Education $16,030 $1,980 $2,359 $23,791 $23,960 4

Engineering $15,065 $2,592 $2,217 $36,146 $37,884

FCS $13,013 $2,292 $1,915 $23,062 $22,279

LAS $15,537 $2,112 $2,287 $24,198 $26,324

3 Based on 8.25% interest and a 10 year standard repayment plan, 1996-97 Student Guide.4 College of Education figures are for 1994-95.

Reasons to borrow....

to be able to attend college 42%

to replace parental support 29%

to support a life style 51%

Loans and employment status

– would have to work w/o loans (94%)

– worked with loans (93%)

Ability to attend college among those with..

Subsidized loans 12%

Unsubsidized loans 6%

Other loans 2%

Feelings about student loans

Wished had borrowed less 58%

Wished had borrowed more 8%

Satisfied w/ amount borrowed 39%

Concerns about repayment

Great concern 15%

Some concern 40%

No concern 45%

Students need information/education

“It is unfortunate that there are not many

known resources that students can turn to for

financial help”.

“We need to take at least one class on

financial survival and company

benefits/insurance”.

College Assumed payment Student 's expectedincome

Payment as a % ofincome

Agriculture $2,144 $25,477 8.42%

Business $1,954 $29,880 6.54%

Design $2,136 $22,950 9.31%

Education $1,980 $23,791 8.32%

Engineering $2,592 $36,146 7.17%

FCS $2,292 $23,062 9.4%

LAS $2,112 $24,198 8.73%

College Ag Bus Design Ed Eng FCS

Do notknowamountof debt

32% 26% 37% 36% 28% 29%

Unsureof theirability torepaydebt

36% 22% 50% 55% 14% 47%

Students debt ...according to students..

“My debt is coming from shopping and not because I have to pay for my own education.

Therefore, my theory is I will be able to pay it all off after graduation.

As of right now, I am not currently in “debt” because I always pay at least the minimum amount due.

Most kids will be deeper in debt from college loans.”

Customers’ ability to function

The constantly changing financial environment requires an educated consumer.

In technically advance and changing financial services industry whether the consumer will function well or not depends on– whether or not the consumer has skills

necessary to understand the options, make appropriate selections among available alternatives, and understand his/her responsibility of the selected option

Who is responsible to educate consumers..young and adult

Financial institutions– all lenders: educational and non educational

Commercial institutions Employers Borrowers

– themselves and their children Educators

– schools and colleges– adult and continuing education

for giving me the opportunity

to be with you

THANKSTHANKS

copyright. 1997, dr. t. k. hira, professor isu 1 financial attitudes, beliefs & behaviors of...

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