student borrowing, credit card use, & financial literacy dr. angela lyons university of illinois
Post on 26-Dec-2015
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Preview of Coming Attractions…
Research
Best Practices
Creating a Financial Education Action Plan
Where Do We Go From Here?
Financial Trends on College Campuses
Rising college costs
Dramatic growth in student loan amounts
Financial aid has not kept pace with rising costs
Increase in financially independent students
Fewer parents are helping to cover cost
Significant increase in private loan amounts
Growth in credit card usage
Trends in College Students’ Credit Usage
Over 80% have at least one card.
Majority obtain card prior to college or during freshman year.
10-15% have 4 or more cards.
More than 50% repay balances in full.
16% have balances > $1000.
5% report balances > $5000.
Part 1: Research
University of Illinois (UIUC) online study
Focus groups with Illinois community college students
Focus groups with state and national experts
Online study with Midwest college students (10 campuses – almost 30,000 responses)
Financial socialization of students – new study!
The Sample
Data was collected on 10 Midwest campuses (February 2003)
About 168,000 students invited to participate (18% response rate)
26,896 valid responses
The Survey
Current Credit Usage Credit cards Financial aid Other debt
Financial Education Needs Preferences for receiving info Importance of financial education Level of financial knowledge
Demographic Information Year, age, gender, ethnicity, GPA, credit hours, etc. Info on parents Consequences of credit
The majority of students appear to be using credit responsibly and are not accumulating large amounts of debt.
However, there are identifiable groups that are more “at risk” than others for misusing and mismanaging credit.
The Findings
Defining “Financially At Risk”
Four characteristics:
Credit card balance of $1000 or more
Delinquent on payments by 2 months or more
Reached limit on credit cards
Does not pay balance in full each month
Who is Financially At Risk?
Students having difficulty managing their credit cards are having financial difficulties in general.
At-risk students are more likely to receive need-based financial aid, hold other types of debt, and be financially independent.
At-risk students are more likely to have lower grade point averages, to be working more hours, and to report higher earnings.
How students acquire their cards has a significant impact on credit management (aggressive marketing practices by credit card companies have likely contributed to rise in credit card debt).
Groups who have traditionally had difficulty obtaining credit may be at greater risk (i.e. women, minorities, and low-income).
Students are less likely to be at risk if they have taken a personal finance course.
Other groups to consider…
First-year and transfer students
First generation college students
Graduating seniors
Students who have hold on their financial aid refunds
Students who apply for emergency loans because they have spent their financial aid
Students who have been dropped for non-payment of tuition and fees
The Consequences:More than just students’ pocket books…
Academic performance GPA
Degree completion Reduced number of credit hours Dropped out for a semester
Health Mental health (ability to concentrate) Physical health (losing sleep or physical discomfort)
Does “financial strain” affect degree completion?
Large credit card balances significantly increase the likelihood of poor academic performance.
1 in 3 students report that financial situation is “likely” or “somewhat likely” to affect ability to complete degree.
16% reduced number of credit hours because of their financial situation.
6% dropped out for a semester.
Of those financially at-risk, 27% reduced number of credit hours 12% dropped out for a semester
Does “financial strain” contribute to poor health?
As a result of financial situation….
1 in 3 students have difficulty concentrating on their studies.
1 in 4 have lost sleep or experienced physical discomfort.
About 50% of “financially strained” students report health problems.
Preliminary Two-Stage Probit Models
Measures of academic performance, degree completion, and health:
GPA below 3.0 Reduced credit hours Dropped out for a semester Mental health (ability to concentrate) Physical health (losing sleep or physical discomfort)
Three measures of financial strain (instrumented):
Credit card balance of $1000 or more Delinquent on payments by 2 months or more Reached limit on credit cards
Results
Large credit card balances significantly increase the likelihood of poor academic performance and poor health and decrease the likelihood of degree completion.
The magnitude of the effect is largest for academic performance.
Findings are robust across all 3 measures of “financial strain.”
Findings are robust for total sample and students who have credit cards.
IMPLICATION: Consequences go beyond students’ finances
NEW RESEARCH!Financial Socialization of Students
Process of “financial socialization” and the role parents play
Motivation: Financial trends on college campuses Focusing too much on financially at-risk students Research on consumer socialization
Ongoing study: data from UIUC…and UGA, LSU, UIC
Online Financial Fitness Quiz and Focus Groups
Data
Survey 3,061 student invited to participate (20% response rate) 580 valid responses from UIUC (2,745 all campuses) Financial Fitness Quiz (10 financial behaviors) For each behavior, scale from 1 to 5 (1=always and 5=never) Financially at risk if Financial Fitness Score 3 (10% of sample) Demographics: academic year, ethnicity, gender, parents’ marital status,
school funding sources, most significant influence about money
Focus Groups 7 focus groups; 4 at-risk and 3 not at-risk 47 students total from UIUC (108 from all campuses) Challenges recruiting “at-risk” students
Key Findings
Not-at-risk students used more caution and had an aversion to credit cards
Lack of personal responsibility for those at risk (avoiding and postponing)
Differences in family structure
Family income didn’t matter for those not at risk
Financial socialization occurred at very early age for those not at risk Emphasis on saving and setting financial goals Purchasing behavior and “needs” tests Responsible for finances and managing money at an early age Saving vs. accumulating debt (saving established in childhood) Parents “bailing out” their children
Not-at-risk students understood the value of money and worried more about money
Needs vs. wants (Delayed gratification vs. instant gratification; tracking and budgeting vs. impulse shopping)
Verbal vs. non-verbal communication with parents (not-at-risk had vivid, positive memories; at risk had few, if any, memories and these memories were usually parents unhappy about finances)
Not at-risk students had more constructive financial discussions with parents while growing up; viewed as educational and not intrusive
Contradictory financial behaviors from parents of at-risk students
A Word of Caution…
Read media stories carefully.
Look at the student samples being used.
Avoid focusing only on students who are financially at-risk.
Think beyond students’ finances.
Part 2: Best Practices
Rationale for Financial Education on College Campuses
Without a support system, students may perform poorly, drop out, or delay graduation to cope with financial problems.
Some students may be positioning themselves for financial failure prior to graduation.
Students with high debts and delinquent payment history may have difficulty getting good jobs because employers are checking credit reports.
Effective Financial Education Programs for Students
Students learn best when they are “financially engaged” (i.e. practical, real world experience).
Programs must be interactive.
Information must have personal relevance.
Need to find “teachable moments” for college students.
Students need to see “the bigger picture” and the value of being financially responsible.
Examples of Successful Programs
Texas Tech University Red to Black
www.orgs.ttu.edu/r2b/
University of Georgia Peer Financial Counseling
www.uga.edu/osfa/pfc/
Montana State University Student Advocates for Financial Education
www.familyfinance.montana.edu/financePrograms.html
Iowa State University Financial Counseling Center
www.fcs.iastate.edu/financial
Utah State University Family Life Center
www.usu.edu/flc/
Brigham Young University (Financial Path to Graduation)
Key Questions to Ask:
What challenges do you face in providing financial education?
How can you overcome these challenges?
Who are your potential partners?
What financial and non-financial resources are available to you and your partners?
Challenges Facing Campus Administrators
Marketing to students.
Organizing a program with limited time, resources, and expertise.
Staffing, training, and scope of services.
Identifying financial and non-financial resources.
Recognizing potential partners.
Program evaluation.
(What’s working and what isn’t?)
Marketing to Students
Students are listening to the radio station WIIFM.
Jobs!!! Jobs!!! Jobs!!!
Use stories, testimonials, recent news headlines.
Get students involved in the process so they have “buy in” to the program.
Connect with student organizations.
Use the Web effectively!
Delivery Methods
New student orientation (students AND parents) Life skills course Workshops and seminars Student organizations High schools and community groups The Internet
Emerging issues: workshops vs. formal courses prevention vs. intervention peers vs. financial professionals evaluation (what’s working?)
Potential Partners
Campus partners Office of student affairs Student health services Career center Student business services Residence life Student organizations Athletic organizations Parent associations Alumni associations
Cooperative Extension
Consumer Credit Counseling Agencies
Partnering with other campuses to offer training sessions
Community colleges
Financial institutions such as credit unions, banks, credit card companies (a word of caution though…)
Where to look for resources?
Cooperative Extension
National Council for Economic Education (NCEE)
State government (Governor’s Office of Consumer Affairs, Office of Banks and Real Estate, State Student Finance Commission)
Campus resources (business schools, alumni)
Investor Protection Trust and State Securities Regulators
www.investorprotection.org
FICO Score Simulator:
Pay Bills on TimePay Down Balances on Credit CardsPay Down Delinquent Balances FirstSeek New CreditTransfer Credit Card BalancesMiss PaymentsMax Out Credit Cards
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