We hear a lot about the student loan crisis, but really, that’s just a symptom of the true problem. Most young people and young adults in high school, college and just starting out in the real word just don’t seem to have the financial savvy they need to make wise choices with their money. A study out of Arkansas State University quizzed college students on different aspects of financial knowledge and the results are startling and disturbing.
The High Costs of Not Knowing About $$$
A prior study out of Youngstown State University found that, when quizzed about personal finance, college students could answer only about half of the questions asked and that non-business majors did even worse. The study we’re covering today produced similarly dim results but focused on asking students about their own financial circumstances rather than personal finance in general. The intent of the study was to see how (and/or if) poor decisions while in college can haunt them for years to come, particularly when it comes to student loans.
Here’s What You Don’t Know (Whether You Know It or Not)
After speaking with 513 students at 10 colleges and universities, here’s some of the most interesting findings:
- 29% of first year students didn’t know how much they just took out in student loans
- 20% of first year students didn’t know how much they owed on their credit cards
- Most overestimated their future earnings by nearly $15,000 per year
The good news is that once students got past their freshman year, they grew more money smart, but they bad news is, financial decisions made on this learning curve could last for years or even decades to come. Another interesting point to note in the study data is that women in the study are more savvy about finances than their male counterparts.
Here’s What Helps Amp Up Your Money Smarts
Financial literacy begins at home long before you get to college. Turns out, as annoying as your parents can be sometimes, they’re the ones that lay the groundwork for your future financial smarts. College students whose parents took a hands-on approach are less likely to get into trouble with credit cards. This is critical because poor decisions early on can last. Those with less financial skills are also likely to take on higher interest debt based on their lack of understanding.
To get past the learning curve, the earlier you get a bank account and a debit card, the faster you’ll start getting wise about money. Practice makes perfect and even if you don’t have a lot of money to play with – as in high school or while in college – you’ll still develop much-needed money management skills.
Make sure you know how much your living expenses truly are including your cell bill, credit card payments, car insurance, etc – even if your parents are footing the bill. This way you have no illusions about what your lifestyle costs – this is important information for when the bills become yours after college.
Finally, the study revealed that those that received financial literacy instruction and information from college personnel were more knowledgeable. This is important because while high school guidance counselors and personal finance instructors know more general information about paying for college and managing money, it’s college resources that truly understand how scholarships, student loans and credit cards work for college students. So be sure to take advantage of campus resources on personal finance!
One of the best ways to stay on track financially is to read our blog often for money advice for college students and graduates just getting started. Also, if you’re borrowing to pay for college, sign up for Tuition.io’s free student loan tool to track your debt so you don’t over-borrow. You can see the monthly payments you’ll face and the powerful impact of making interest payments while still in school.