an analysis of personal financial lit among college students

8/13/2019 An Analysis of Personal Financial Lit Among College Students

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FINANCIALSERVICES REVIEW , 7(2): 107-128 Copyright 1998 by JAI Press Inc.ISSN : 1057-0810 All rights of reproduction in any formreserved

n nalys is of Personal Financia l Li teracy m on gC ol lege Students

H a i y a n g C h e n a n d R o n a l d P. Vo l p e

This study surveys 924 college students to examine their personal inancial literacy; therelationship between the literacy and students' characteristics; and impact of the liter-acy on students' opinions and decisions. Results show that participants answer about53 of questions correctly. Non-business majors, women, students in the lower classranks, under age 30, and with little work experience have lower levels o f knowledge.Less knowledgeable students tend to hoM wrong opinions and make incorrect deci-sions. It is concluded that college students are not knowledgeable about personalfinance. The low level of knowledge will limit their ability to make informed decisions.

I . ~ T R O D U C T I O N

T h e a b i li ty t o m a n a g e p e r s o n a l f in a n c e s h a s b e c o m e i n c r e a si n g l y i m p o r t a n t i n t o d a y sw o r l d . P e o p l e m u s t p l a n f o r l o n g - t e r m i n v e s t m e n t s f o r t h e ir r e ti r e m e n t a n d c h i l d r e n s e d u -c a t io n . T h e y m u s t a l s o d e c id e o n s h o r t - te r m s a v i n g s a n d b o r r o w i n g f o r a v a c a ti o n , a d o w npay m ent fo r a house , a ca r loan , and o the r b ig - t icke t i tems . Add i t iona l ly, t hey m us t m ana gethe i r ow n m ed ica l and l i f e in su rance needs .

U n f o r t u n a t e l y, s tu d i es h a v e s h o w n t h a t A m e r i c a n s h a v e i n a d e q u a te k n o w l e d g e o f p er -sona l f inances (EB RI , 1995 ; K PM G , 1995; PS RA , 1996 , 1997 ; Op pen he im er Fund s /Gi r l sInc . , 1997 ; Vang uard G rou p /M on ey Ma gaz ine , 1997) . Th ey f a il t o m ake co r rec t dec i s ionsbecause they have no t r ece ived a sound pe r sona l f inance educa t ion (HSR, 1993 ; Hi ra ,1993 ; O N e i l l , 1993).

Th i s s tud y has th ree pu rposes . F i r st , it p rov ides ev iden ce o f pe r sona l f inance l i te r acyamong co l l ege s tuden t s . Second , i t examines why some co l l ege s tuden t s a re r e l a t ive lym o r e k n o w l e d g e a b l e t h a n o t h er s . T h e a n a l y si s m a y h e l p u s i d e n t i fy f a c t o r s t h a t d e te r m i n et h e l e v e l o f c o m p e t e n c y p o s s e s s e d b y c o l l e g e s t ud e n ts . T h e t h i r d p u r p o s e i s t o e x a m i n ehow a s tuden t s kno wle dge in f luences h i s /he r op in ions and dec i s ions on pe r sona l f inanc ia lissues.

Haiyang C h e n Professor of Finance, The Williamson College of Business Administration,Youngstown State University, Youngstown, Ohio 44555; Phone: (330) 742-1883; Fax: (330) 742-1459; E-mail: [email protected]. Ro nal d P. V olpe Pro fessor of Finance, Th e WilliamsonCollege of Business Adm inistration, Youngstown State University, Y oungstown, Oh io 44555.


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108 FINAN CIAL SERVICES REVIEW 7(2) 199 8

Th e pap e r i s o rgan ized a s fo l lows . Sec t ion I I r ev iew s p rev ious s tud ies on f inanc ia l l it -e racy. Sec t ion I I I d i scusses m e thod o logy . Sec t ion IV p resen t s re su l ts . Sec t ion V conc lud esthe pape r.

I I . L I T E R AT U R E R E V I E W

M ost o f the p rev ious s tud ies a re conduc ted by p rac t i t ione r s in the f inanc ia l s e rv ice indus -t r y. T h e y f o c u s o n m o n e y m a n a g e m e n t a n d i n v e s t m e n t - r e l a t e d i s s u e s . T h i s e m p h a s i s i scons i s t en t w i th f ind ings o f the Cer t i f i ed F inanc ia l P lanne r s , i nd ica t ing these i s sues a reimp or tan t a reas o f pe r sona l f inanc ia l p l ann ing (N EFE , 1993-1996 ) . T he r e su l ts o f t heses tud ies show tha t t he pa r t i c ipan t s gene ra l ly answ ered f ewe r than 60 o f su rve y ques t ions

correc t ly.P r io r s tud ies o f h igh sch oo l s tuden t s con s i s t en t ly f ind tha t they a re no t r ece iv ing a

g o o d e d u c a t i o n i n p e r s o n a l f i n a n c i a l f u n d a m e n t a l s a n d h a v e p o o r k n o w l e d g e ( B a k k e n ,1967 ; CF AJA M EX , 1991; HS R, 1993; Langrehr, 1979 ; NA EP , 1979) . In a r ecen t s tudy o f1 ,509 h igh schoo l sen io r s f rom 63 schoo l s , Mand e l l (1997) r epor t s an ave rage co r rec t s co reo f 5 7 i n t h e a r e a s o f i n c o m e , m o n e y m a n a g e m e n t , s av i n g s a n d in v e s t m e n t , a n d s p en d i n g .His conc lus ion i s tha t s tuden ts a re l eav ing schoo l s wi thou t the ab i l i ty to m ake c r i t ica l dec i -s ions affec t ing the i r l ives .

D o a d u lt s h a v e a g o o d c o m m a n d o f p e r s o n a l f in a n c e a n d i n v e s t m e n t s ? R e s u l ts o f s ev -

e ra l stud ies su gges t t ha t t hey do no t. P r ince ton Surv ey Resea rch Asso c ia t e s (1997) su rv eys1 ,770 househo lds na t ionwide on the i r f inanc ia l kno wle dge and f ind an ave r age co r rec tsco re o f 42 . Th i s re su l t show s tha t househ o ld f inanc ia l dec i s ion mak er s do no t hav e ag o o d g r a s p o f b a s i c f i n a n c e c o n c e p t s . I n an o t h e r s t u d y o f 5 22 a d u lt w o m e n , 5 6 a r e f o u n dn o t v e r y k n o w l e d g e a b l e a b o u t i n v e s t i n g ( O p p e n h e i m e r F u n d s / G i r ls I n c . , 1 9 97 ).

W o r k e r s d o n o t s a v e a d e q u a t e l y f o r r e ti r e m e n t a n d m a k e i n v e s t m e n t d e c is i o n s t h a t ar et o o c o n s e r v a ti v e . A K P M G ( 1 9 95 ) s u r v e y o f 1 , 18 3 e m p l o y e r s fi n d s e m p l o y e e s c o n tr i b u teon ly abou t 5 o f the i r i ncom e to 40 1K p lans , a l though the typ ica l p l an a l lows a 14 con-t r ibu t ion . The ev idence ind ica te s tha t em ploy ees a re no t max im iz ing the i r bene f i t s . Add i -

t iona l ly, t he low sav ings r a t e and the low re tu rn f rom conse rva t ive inves tmen t s may no tp r o v i d e e n o u g h i n c o m e f o r a f i n a n c i a l l y s e c u r e r e t i r e m e n t . E m p l o y e e B e n e f i t R e s e a r c hIns t i tu t e (1995) p rov ides fu r the r ev idence tha t mos t Amer icans do no t s ave su ff i c i en tr e t i r emen t funds and m ay have a f a l se sense o f f inanc ia l conf idence and secur ity. The s tudysurveys 1 ,000 cu r ren t wo rke r s and r e t ir ees on f inanc ia l kno wled ge is sues . Ab ou t 71 o fa l l wo rke r s and 81 o f r e t ir ees sco re 60 o r l e ss . The Ins t itu t e o f Cer t i f i ed F inanc ia l P lan -ners (1993) surveys 123 Cer t i f ied Financia l P lanner l icensees and f inds tha t f inancia l i l l i t -e r a c y i s a m a j o r p r o b l e m w h e n i t c o m e s t o m a k i n g i n d i v i d u a l f i n a n c i a l d e c i s i o n s . P o o rk n o w l e d g e o f i n v e s t m e n t fu n d a m e n t a l s is th e m o s t c o m m o n p r o b l e m e n c o u n t e r e d b y th e i rcl ients .

Th e r e su l ts o f two na t iona l su rveys sug ges t t ha t i nves to r s do no t have a so l id know l -edge o f inves tme n t is sues . P r ince ton S urvey R esea rch A ssoc ia t e s (1996) in t e rv iews 1 ,001inves to r s and f inds tha t on ly 18 o f them a re f inanc ia l ly l i te r a te . Van guard Gr oup /M one yM agaz in e (1997) su rv ey 1 ,467 mutua l fund inves to r s a t 59 shopp in g ma l l s ac ross the coun-t ry. Th e ave rag e co r rec t s co re on a 20 -ques t ion qu iz is app rox im a te ly 45 .


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inan cial Literacy 109

Mos t pub l i shed s tud ies focus on f inanc ia l l i t e racy among h igh schoo l s tuden t s anda d u lt s. F e w o f t h e m h a v e e x a m i n e d c o l l e g e s tu d e n ts e x c e p t fo r D a n e s a n d H i r a ( 19 8 7 ) a n dVolpe , Chen , and Pav l i cko (1996) . Danes and Hi ra (1987) su rvey 323 co l l ege s tuden t sf rom Iow a S ta te Univers i ty us ing a ques t ionna i re cov er ing know ledge o f c red i t ca rd , insur-

ance , pe r sona l loans , r ecord keep ing , and overa l l financ ia l managem ent . Th ey f ind tha t thep a r ti c ip a n ts h a v e a l o w l e v e l o f k n o w l e d g e r e g a r d i n g o v e r al l m o n e y m a n a g e m e n t , c r e d i tca rds , and insurance . They a l so f ind tha t ma les know more abou t insurance and pe r sona lloans , bu t f em ales know m ore abo u t is sues cov ered in the sec t ion o f overa l l f inanc ia l man-a g e m e n t k n o w l e d g e . M a r r ie d s tu d e n ts g e n e r a ll y a re m o r e k n o w l e d g e a b l e a b o u t p e r so n a lf in a n c e . Vo l p e , C h e n , a n d P a v l i c k o ( 1 9 9 6 ) f o c u s o n k n o w l e d g e o f i n v e st m e n t . T h e y s u r v e y454 s tuden ts f ro m a s t a te un ive r s i ty in the M idwes t a nd f ind tha t the ave rage cor rec t scoreof the pa rt i c ipan t s is 44 , sugges t ing tha t they have inadequa te know ledge . Th ey a lso f indtha t ma le s tuden t s a re m ore kno wled geab le than fem ale s tudent s , and bus iness m ajors a re

m o r e k n o w l e d g e a b l e t h a n n o n - b u s i n es s m a j o rs .W h i l e t h e p r i o r re s e a r c h h a s p r o v i d e d e v i d e n c e o f p e o p l e ' s p e r s o n a l f i n a n c e k n o w l -

edge and im proved o ur unders tand ing o f the i ssue , it su ffe r s f rom severa l weak nesses . Fo rexam ple , bo th s tud ies on c o l l ege s tuden ts use samples f ro m a s ing le un ive r s ity. M any s tud-ies cove r se lec ted a reas in pe r sona l f inances , neg lec t ing o the r s . Fur the rmo re , the va l id i tyof the su rvey ins t ruments i s ques t ionab le bec ause o f the l imi ted num ber o f i tem s inc ludedin the ques t ionna i res . These l imi ta t ions a re co m pou nde d by the fac t tha t m any p r io r s tud ieson ly rep or t the l eve l s o f f inanc ia l l i te racy w i thou t ana lyz ing the fac to r s tha t in f luence peo-p l e ' s k n o w l e d g e . N o n e o f t h e p re v i o u s s tu d ie s h a v e e x a m i n e d h o w a n i n d i v i d u a l 's k n o w l -edge impac t s the i r op in ions regard ing pe r sona l f inance i s sues and f inanc ia l dec i s ionmaking .

I I I . M E T H O D O L O G Y

This s tudy uses a com preh ens iv e ques t ionna i re des igned to cov er ma jor a spec ts o f pe r sona lf inance . I t inc ludes f inanc ia l l it e racy on genera l know ledge , sav ings and bo r rowing , insur-ance , and inves tm ents . Th e su rvey pa r t ic ipan t s a re a sked to answer 5 2 ques t ions inc lud ing

36 mul t ip le -cho ice ques t ions o f the i r knowledge on pe r sona l f inance , e igh t ques t ions o fthe i r op in ions and dec i s ions , and e igh t ques t ions on dem ograph ic da ta . Th e su rve y is usedin a p i lo t s tudy to re f ine the ins t rum ent . T he va l id i ty and c la r ity o f the su rve y a re fu r the reva lua ted by two ind iv idua l s who a re know ledgea b le in pe r sona l f inance . The qua l i ty andcons i s t enc y o f the su rvey a re fu r the r a s sessed us ing Cron bac h ' s a lpha . A c op y o f the ques -t ionna i re can be found in the App end ix .

T h e r e s p o n s e s f r o m e a c h p a r t ic i p a n t a re u s e d t o c a lc u l a te t h e m e a n p e r c e n t a g e o f c o r-rec t scores fo r each que s t ion , sec t ion , and the en t i r e su rvey. Co ns i s t en t wi th the ex i s t ing l i t-e ra tu re (Danes & Hi ra , 1987 ; Volpe , Chen , & Pav l i cko , 1996) , the mean pe rcen tage o f

cor rec t scores i s g roup ed in to (1 ) m ore than 80 , (2 ) 60 to 79 , and (3 ) be low 60 . Th ef i rs t ca tego ry represen t s a r e l a tive ly h igh l eve l o f know ledge . T he second ca tegory repre -sen t s a med ium leve l o f know ledge . T he th i rd ca tegory represen t s a r e l a t ive ly low leve l o fk n o w l e d g e .

Prev ious resea rch sugges t s tha t l eve l s o f f inanc ia l l i t e racy va ry among subgroups o fs tuden ts (Volpe , Chen , & Pav l i cko , 1996). Th i s s tudy p rov ides fu r the r ev idence o f the d if -


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110 F I N A N C I A L S E RV I C E S R E V I E W 7 2 ) 1 99 8

f e r e n c e s u s in g a n a l y s is o f v a r i a n c e A N O VA ) . T h e d i f f e r e n c e s a re fu r t h e r a n a l y z e d u s i n gl o g i s t i c r e g r e s s i o n m o d e l s . T h e p a r t i c i p a n t s a r e c l a s s i f i e d i n t o t w o s u b g r o u p s u s i n g t h em e d i a n p e r c e n t a g e o f c o r r e c t a n s w e r s o f t h e s a m p l e . S t u d e n ts w i t h s c o r e s h i g h e r t ha n t h es a m p l e m e d i a n a r e cl a s si f ie d a s th o s e w i t h r e l a ti v e l y m o r e k n o w l e d g e . S t u d e n t s w i t h

s c o r e s e q u a l t o o r b e l o w t h e m e d i a n a r e c l a s s i f i e d a s s tu d e n t s w i t h r e l a ti v e l y l e s s k n o w l -e d g e . T h i s d i c h o t o m o u s v a r i a b l e i s t h e n u s e d i n t h e l o g i s t i c r e g r e s s i o n a s t h e d e p e n d e n tv a r i a b le , w h i c h i s e x p l a i n e d s i m u l t a n e o u s l y b y a ll o f t h e i n d e p e n d e n t v a r i a b l e s .

T h e i n d e p e n d e n t v a r i a b l e s u s e d i n t h e l o g i s t i c r e g r e s s i o n a r e v a r i a b l e s s u c h a s a c a -d e m i c d i s c i p li n e , c l a s s r a n k , g e n d e r, r a c e , n a t io n a l i t y, w o r k e x p e r i e n c e , a g e , a n d i n c o m e .T h e c o e f f i c i e n ts r e p r es e n t t h e e f f e c t o f e a c h s u b g r o u p c o m p a r e d w i t h a r e fe r e n c e g r o u p ,w h i c h i s a rb i t r a ri l y s e l e c t e d . F o r e x a m p l e , M A J O R i s c o d e d a s 1 i f a p a r t i c i p a n t i s a n o n -b u s i n e s s m a j o r, 0 o t h e r w i s e . T h e r e f e r e n c e c a t e g o r y i s a b u s i n e s s m a j o r. I f t h e l o g i st i cc o e f f i c i e n t o f th e v a r i a b l e i s n e g a t i v e , t h e n i t m e a n s t h a t c o m p a r e d w i t h b u s i n e s s m a j o r s ,

t h e n o n - b u s i n e s s m a j o r s a r e as s o c i a te d w i t h d e c r e a s e d l o g o d d s r a ti o o f b e i n g m o r e k n o w l -e d g e a b l e a b o u t p e r s o n a l f i n a n c e.T h e l o g is t ic m o d e l t a k e s o n t h e f o l l o w i n g f o r m :

l og [ p / 1 - p ) ] = B 0 + B I M A J O R ) + B 2 C L A S S R A N K 1 ) + B 3 C L A S S R A N K 2 ) +B 4 C L A S S R A N K 3 ) + B s C L A S S R A N K 4 ) + B 6 G E N D E R ) + B T R A C E 1 ) +

B s R A C E 2 ) + B 9 R A C E 3 ) + B l o R A C E 4 ) + B 1 1 N AT I O N A L I T Y ) +B I 2 E X P E R I E N C E 1 ) + B I a E X P E R I E N C E 2 ) + B I 4 E X P E R I E N C E 3 ) +

B 1 5 E X P E R I E N C E 4 ) + B I 6 A G E 1 ) + B I 7 A G E 2 ) + B 18 A G E 3 ) + B 1 9 I N C O M E 1 ) +B 2 o I N C O M E 2 ) + B 21 I N C O M E 3 ) +i 1 )

w h e r e

P

M A J O R =C L A S S R A N K 1 =C L A S S R A N K 2 =C L A S S R A N K 3 =C L A S S R A N K 4 =

G E N D E R =R A C E 1 =R A C E 2 =R A C E 3 =R A C E 4 =N AT I O N A L I T Y =E X P E R I E N C E 1 =E X P E R I E N C E 2 =

E X P E R I E N C E 3 =

E X P E R I E N C E 4 =

A G E 1 =A G E 2 =

t h e p r o b a b i l it y o f a s tu d e n t w h o i s m o r e k n o w l e d g e a b l e a b o u tp e r s o n a l f i n a n c e .1 i f a p a r t i c ip a n t i s a n o n - b u s i n e s s m a j o r, 0 o t h e r w i s e .1 i f a pa r t i c ipan t i s a f r e shm an , 0 o the rw i se .1 i f a p a r t i c ip a n t i s a s o p h o m o r e , 0 o t h e r w i s e .1 i f a pa r t i c ipan t i s a j un io r, 0 o the rwi se .1 i f a pa r t i c ipan t i s a s en io r, 0 o the rw i se .

1 i f t he pa r t i c ipan t i s a ma le , 0 o the rw i se .1 i f a pa r t i c ipan t i s W hi t e , 0 o the rw i se .1 i f a p a r t ic i p a n t i s A f r i c a n A m e r i c a n , 0 o t h e r w i s e .1 i f a pa r t i c ipan t i s H i span i c , 0 o th e rw i se .1 i f a p a r t i c ip a n t i s A m e r i c a n I n d i a n , 0 o t h e r w i s e .1 i f t he pa r t i c ipa n t i s a f o r e ig n s tuden t , 0 o the rw i se .1 i f a p a r t ic i p a n t h a s n o e x p e r i e n c e , 0 o t h e r w i s e .1 i f a p a r t i c i p a n t h a s m o r e t h a n 0 t o l e s s t h a n 2 y e a r s o f e x p e r i -e n c e , 0 o t h e r w i s e .1 i f a p a r t i c i p a n t h a s 2 t o l e s s t h a n 4 y e a r s o f e x p e r i e n c e , 0 o t h e r -w i se .1 i f a pa r t i c ipan t ha s 4 t o l e s s than 6 y ea r s o f exp e r i enc e , 0 o th e r-w i s e .1 i f a p a r t i c i p a n t i s i n th e a g e g r o u p o f 1 8 - 2 2 , 0 o t h e r w i s e .1 i f a p a r t i c i p a n t i s i n t h e a g e g r o u p o f 2 3 - 2 9 , 0 o t h e r w i s e .


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Financial Literacy 111

A G E 3

I N C O M E 1

I N C O M E 2

I N C O M E 3

= l i f a p a r t i c i p a n t i s i n t h e a g e g r o u p o f 3 0 - 3 9 , 0 o t h e r w i s e .

= 1 i f t h e p a r t i c i p a n t is i n t h e i n c o m e g r o u p o f le s s t h a n 1 0 , 0 0 0 , 0

o t h e r w i s e .

= 1 i f t h e p a r t i c i p a n t is i n t h e i n c o m e g r o u p o f 1 0 , 0 0 0 - 2 9 , 9 9 9 , 0

o t h e r w i s e .= 1 i f t h e p a r t i c i p a n t i s i n t h e i n c o m e g r o u p o f 3 0 , 0 0 0 - 4 9 , 0 0 0 , 0

o t h e r w i s e .

T A B L E 1C h a r a c t e r i s t i c s o f t h e S a m p l e

Number of Participants Percentage

A . E d u c a t i o n1. Acade mic Disciplinesa) Business Majors 431 52.6b) Non-Business Majors 389 47.4

2. Class Ranka) Freshm an 156 17.2b) Sophom ore 157 17.3c) Jun ior 160 17.7d) Senior 326 36.0e) Gra duate 106 l 1.7

B . D e m o g r a p h i c C h a r a c t e r i s ti c sI . Gender

a) Male 395 44.4b) Fema le 495 55.6Racea) W hite 763 85.0b) Afr ican-American 59 6 .6c Asian 47 5.2d) His panic 14 1.6e) Native Am erican 15 1.7

3. Nationali tya) USA 740 93.4b) Foreign (other than US A) 52 6.6

E x p e r i e n c e2. Years of W ork Experience

a) None 32 3.9b) Less Than Two Years 78 9 .5c) Tw o to Less Tha n Fou r Years 134 16.3d) Four to Less Th an Six Years 194 23.6e) Six Years or M ore 384 46.7

2. Years of Agea) 18 to 22 395 43.7b) 23 to 29 289 32.0c) 30 to 39 151 16.7

d) 40 and over 69 7 .6I n c o m eI . Las t Year ' s Income

a) Un der 10,000 184 21.7b) 10,000 to 29,999 224 26.4c) 30,000 to 49,999 192 22.6d) 50,000 or more 248 29.2

C

D


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112 FINAN CIAL SERVICES REVIEW 7(2) 199 8

To de te rm ine the imp ac t o f f inanc ia l l i te r acy posses sed by the pa r t i c ipan t s on the i rop in ions , s tuden t s a re a ske d to r ank pe r sona l f inance i s sues us ing f ive ca t egor i e s : ve ryi m p o r t a n t, s o m e w h a t i m p o r t a n t, n o t s u r e, s o m e w h a t u n i m p o r t a n t, a n d v e r y u n i m p o r t a n t.They a re a l so a sked to make dec i s ions on the r e l a t ed f inanc ia l i s sues . As in the log i s t i creg res s ion ana lys i s , t he sample i s pa r t i t i oned in to two g roups o f s tuden t s wi th r e l a t ive lymore knowledge and those wi th r e l a t ive ly l e s s knowledge . S ince the i s sues a re r e l a t ed toeach sec t ion in the su rvey, t he sec tion me d ian pe r cen tag e o f co r rec t answ ers i s u sed to cl a s -s i fy the sam ple . Cross - t abu la t ions and Ch i - squ a re t e s t s a re used to de te rm ine i f t he d i ff e r-ence o f the two g roup s ' op in ions and dec i s ions a re s t a ti s t ica l ly s ign i f ican t .

I V . R E S U LT S A N D A N A L Y S I S

Th e ques t ionna i re s a re sen t t o 1 ,800 s tuden t s f rom 14 co l l ege campu ses . Th ey inc lude bo thpub l i c and p r iva te schoo l s , ma in and b ranch cam pus es o f l a rge un ive r s i ti e s , and sma l l com -m uni ty co l l eges in Ca l i fo rn ia , F lo rida , Ken tucky, M assachuse t t s , Oh io , and Pennsy lvan ia .Nine hund red tw en ty - fo ur s tuden t s f rom 13 cam pus es pa r t i c ipa ted in the su rvey, rep resen t -ing a r e spo nse r a te o f 51 .33 . De ta i led cha rac te r i s t ic s o f the samp le are p resen ted in Tab le 1.

In t e rm s o f educa t ion , abou t 52 .6 o f the pa r t i c ipan t s a re bus iness ma jo r s . Th i r ty - s ixpe rcen t o f the pa r t i cipan t s a re sen io r s wi th the r e s t even ly d i s tr ibu ted am ong f r e shm an ,s o p h o m o r e , j u n i o r, a n d g r a d u a t e s t u de n ts . I n t e r m s o f d e m o g r a p h i c b a c k g r o u n d , m o s t o f

the pa r t i c ipan t s a re wh i t e and U .S . c i t izens . Female pa r t ic ipan t s r ep resen t abou t 55 .6 o ft h e s a m p l e . M o s t p a r ti c ip a n t s h a v e m o r e t h a n t w o y e a r s o f w o r k e x p e r i e n c e. A b o u t 7 5 . 7of the s tuden t s a re f rom 18 to 29 yea r s o f age . Miss ing r e sp onses caus e the sam ple s i ze tova ry f ro m 792 to 905 ; the re fo re , va r ious sa mp le s i zes have b een used to ca l cu la t e va l id pe r-centages in Table 1 .

A O v e r a l l R e s u l t s o f t h e S u r v e y

Th e ove ra l l r e su lt s a re p resen ted in Ta b le 2 . The m ean p e rcen tag e o f co r rec t sco res isg roup ed in to th ree ca t egor i e s : ove r 80, 60 -79 , and be low 60 . The h ighes t s co re is p resen tedf i r s t , wh ich i s fo l lowed by lower sco res wi th in each sec t ion . The ove ra l l mean pe rcen tageof co r rec t s co res i s 52 .87 , i nd ica t ing on ave rag e the pa r t i c ipan t s answ ered on ly abou tha l f o f t he su rvey ques t ions co r rec t ly. Th e m ed ian pe rcen tage o f co r rec t s co res is 55 .56 .Th e r e l iab i l i ty o f the 36 -ques t ion su rvey i s 0 .85 . Th e l a rge Cron bach a lpha ind ica te s tha tthe ques t ionna i re i s r e l iab le , wh ich fu r the r inc reases i ts va l id ity. The f ind ings sugges t t ha tco l l ege s tuden t s ' kno wled ge on pe r sona l f inance i s i nadequa te.

One r eason fo r the low l eve l o f knowledge i s t he sys t ema t i c l ack o f a sound pe r sona lf inance educa t ion in co l l ege cu rr i cu la . M os t o f the h ighe r educa t ion ins t it u t ions pu t l i tt leemphas i s on s tuden t s ' pe r sona l f inance educa t ion (Danes & Hi ra , 1987) . Even bus inessschoo l s do no t r equ i re s tuden t s to t ake a Pe r sona l F inance Management cour se (B ia l a sze -wsk i , Pencek , & Z ie t low, 1993) . Accord ing to a su rve y by Gi tm an and Bacon (1985), on ly5 o f bus iness schoo l o ffe r s an underg rad ua te ma jo r in f inance se rv ices . G iven the l ack o fpe r sona l f inance educa t ion , i t i s no t su rp r i s ing the r e su l ts sho w tha t co l l ege s tuden ts haveinadequa te knowledge on pe r sona l f inance .


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Fina ncia l Literacy 113

TA B L E 2M ean Percentage of Correct Responses to Each Survey Question Each Section

and the En tire Survey

Level of Personal Finance Knowledge

Low Medium HighBelow 60 60-79 Over 80

I . G e n e r a l K n o w l e d g eP e r s o n a l F i n a n c e L i t e r a cyL e g a l R e q u i r e m e n t s f o r A p a r t m e n t L e a s eA p a r t m e n t L e a s i n g C o s t sA s s e t L i q u i d i tyS p e n d i n g v s . S a v i n g P a t t er nC h e c k i n g A c c o u n t R e c o n c i li a ti o nN e t W o r t h C a l c u l a t i o n 5 6 . 4 9P e r s o n a l F i n a n c i a l P l a n n i n g 5 2 . 3 8

Ta x C r e d i t v s . Ta x D e d u c t i o n 2 7 . 3 8M e a n C o r r e c t R e s p o n s e s fo r t h e S e c t i o nM e d i a n C o r r e c t R e s p o n s e s f o r t h e S e c t io n

I I . S a v i n g s a n d B o r r o w i n gC r e d i t w o r t h i n e s sC o n s u m e r C re d i t R e p o rt S o u r c esD e p o s i t I n s u r a n c eC h e c k i n g A c c o u n t O v e r d ra f tsC o m p o u n d I n t er e s t 5 6 . 39C e r t i fi c a te o f D e p o s i t Te r m s 5 0 . 3 2L o a n C o - S i g n C o n s e q u e n c e s 4 4 .7 0A n n u a l P e r c e n t a g e R a t e 3 3 . 2 3C r e d i t C a r d U s e 2 3 .8 1M e a n C o r r e c t R e s p o n s e s fo r t h e S e c t i o n 5 4 . 4 7M e d i a n C o r r e c t R e s p o n s e s f o r t h e S e c t i o n 5 5 . 5 6

I I I . I n s u r a n c eA u t o I n s u r a n c e R a t e D e t e r m i n a t i o nR e a s o n t o B u y I n s u r a n c eH e a l t h I n s u r a n c e C h a r a c t e r is t i c sI n s u r a n c e C o n f l i c t R e s o l u t i o n 4 8 . 7 0H o m e o w n e r s ' I n s u r a n c e C h a r a c t e r b ~ ic s 4 8 . 8Te r m I n s u r a n c e C h a r a c t e r i s ti c s 3 2 . 1 4M e a n C o r r e c t R e s p o n s e s f o r t h e S e c t io n 5 9 . 2 4M e d i a n C o r r e c t R e s p o n s e s f o r t h e S e c t i o n

I V. I n v e s t m e n t sM u t u a l F u n d S e l ec t io nC o m m o n S t o c k I n v e s t i n g fo r S e l e ct ed I n v e s t m e n t G o a l sR e t i r e m e n t - B e n e f i t s o f E a r l y I n v e s t m e n t 5 3 . 6 8M u t u a l F u n d I n v e s t m e n t R e t u r n 4 7 . 08H i g h R i s k R e t u r n I n v e s t m e n t S u i t a b il i ty 4 5 . 3 5I n t e re s t R a t e C h a n g e s a n d Tr e a s u r y B o n d P r i c e 3 6 . 9 0M u n i c ip a l B o n d I n v e s t m e n t 3 4 .3 1D o l l a r - c o s t - a v e r a g i n g 3 3 . 2 3Inv es tm en t Dive r s i f i ca t ion 30 .1 )9M u t u a l F u n d C h a r g e s 2 9 . 0 0

F o r e i g n E x c h a n g e R a t e s 2 8 . 5 7M u t u a l F u n d O w n e r s h i p C h a r a c t e r i s t ic s 1 2 .4 5M e a n C o r r e c t R e s p o n s e s f o r t h e S e c t i o n 4 0 . 3 7M e d i a n C o r r e c t R e s p o n s e s f o r t h e S e c t i o n 4 1 . 6 7

M e a n C o r r e c t R e s p o n s e s f o r t h e E n t i r e S u r v e y 5 2 . 8 7M e d i a n C o r r e c t R e s p o n s e s f o r t h e E n t i r e S u r v e y 5 5 . 5 6

75.1174 .0373 .487 0 . 8 962 .55

6 3 . 7 06 6 . 6 7

76 .9572 .086 9 . 1 66 3 . 6 4

74 .356 4 . 9 4

6 6 . 6 7

6 4 . 9 46 4 5 0

80 .95

8 6 . 4 7


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114 FINA NCIA L SERVICES REVIEW 7(2) 199 8

A n o t h e r r e a s o n f o r t h e l o w l e v e l o f k n o w l e d g e c a n b e a t tr i b ut e d t o t h e y o u n g a g e s o fthe pa r t i c ipan t s . As show n in Tab le 1 , abou t 44 o f the pa r t i c ipan t s a re 18 to 22 yea r s o fage , and abou t 76 a re under 30 . Th e ma jo r i ty o f them a re in a ve ry ea r ly s t age o f the irf inanc ia l l if e cyc le . A t th i s s t age o f the cyc le , t hey a re expos ed to a l imi t ed n um ber o f

f inanc ia l i s sues r e l a ted to gene ra l know ledge , s av ings and bor row ing , and insu rance . Dur-ing th i s pe riod , mo s t o f the i r incom es a re spen t on consu m pt ion r a the r than inves tmen t .Th ese f ac to r s m ay exp la in the d i ffe rences in the mean pe rcen tage s o f co r rec t answers fo rt h e s e c ti o n s o f G e n e r a l K n o w l e d g e (6 3 . 7 0 ) , S a v i n g s a n d B o r r o w i n g (5 4 . 47 ) , I n s u r an c e(59 .24 ) , and Inve s tm en t (40 .37 ) . A fu r the r look in to the sco res on ind iv idua l ques t ionsshow s tha t s tuden t s sco re h ighe r on i s sues wi th wh ich they a re f ami l ia r. Fo r exam ple , theh ighes t s co re i s r e l at ed to au to in su rance . S tuden t s a re f ami l i a r w i th the i s sue because m anyo f t h e m o w n c a r s a n d h a v e t o p a y a h i g h e r a u t o i n s u r an c e p r e m i u m . S t u d e n ts a l s o s co r e re l -a t i v e ly h i g h o n a p a r t m e n t l e as e s . T h e y k n o w m o r e a b o u t t h e s e is s u e s b e c a u s e t h e y n e e d t o

ren t apa r tm en t s du r ing the i r co l l ege yea r s . In con tra s t , s tuden t s hav e l i tt le expe r i ence w i tht ax , t e rm l i f e in su rance , and m os t o f inves tm en t top ic s . Subseq uen t ly, t hey ea rn low sco resin these areas .

B Analysis of Results by Subgroups of the Sample

In th i s s ec t ion , t he r e l a t ionsh ip be tween pe r sona l f inanc ia l l i t e r acy and pa r t i c ipan t s 'e d u c a t i o n , w o r k e x p e r i e n c e , i n c o m e a n d o t h e r d e m o g r a p h i c b a c k g r o u n d a r e e x a m i n e d .Ta b l e 3 s h o w s t h e m e a n p e r c e n t a g e o f c o r re c t r e s p o n s e s f o r S e c t i o n I ( G e n e r al K n o w l -

edge) , Sec t ion I I (Sav ings and Bo r rowin g) , Sec t ion I I I ( Insu rance ) , Sec t ion IV ( Inves t -m e n t ) , a n d t h e e n ti r e s u r v e y b y d i f fe r e n t s u b g r o u p s . A N O V A h a s b e e n u s e d t o d e t ec t i fpa r t i c ipan t s f rom va r ious subg roups h ave d i ff e ren t leve l s o f know ledge .

Pa r t i c ipan t s ' ed uca t iona l backg round h as a s ign i f ican t impac t on the i r know ledge . Theresu l t s fo r the en t i r e su rvey c l ea r ly show tha t bus iness ma jo r s a re more knowledgeab let h a n n o n - b u s i n e s s m a j o r s. O n a v e r a g e , t h e b u s i n e ss m a j o r s a n s w e r e d 6 0 . 7 2 o f t h e s u r v e yques t ions co r rec t ly ; the non-bu s iness m a jo r s , 49 .94 . T h i s pa tt e rn o f bus iness m a jo r sansw er ing abou t 8 to 12 m ore ques t ions co r rec t ly than non-b us iness m a jo r s i s pe r s i s -t en t th rough ou t the ind iv idua l s ec t ions . The t e s t ing r e su l ts o f A N O V A ind ica te tha t the d i f-

feren ces are s ta t i s t ica l ly s igni f icant a t the 0 .01 level .The f ind ings a l so sugges t t ha t pa r t i c ipan t s f rom d i ff e ren t c l a s s r anks have d i ff e ren tl eve l s o f f inanc ia l knowledge . Genera l ly, g radua te s tuden t s know more than the under-g radua te s tuden t s , and jun io r and sen io r s tuden t s a re m ore know ledge ab le than those f romthe lower r anks . Aga in , t he d i ff e rences in the l eve l o f l i t e r acy among d i ff e ren t r anks a res ta t i s t ica l ly s ign i f icant a t the 0 .01 level .

Tab le 3 shows pa r t i c ipan t s ' knowledge va r i e s wi th the i r demograph ic cha rac te r i s t i c s .T h e p e r c e n t a g e s o f c o r r e c t a n s w e r s f r o m t h e f e m a l e p a r ti c ip a n t s ( 5 0 .7 7 ) a r e lo w e r t ha nthose f rom the ma le pa r ti c ipan t s (57 .40 ) . Th i s pa t t e rn pe r s i s t s am ong a l l s ec t ions inc lud-ing the ove ra l l r e su l t s . The va lues o f F - s t a t i s t i c sugges t t ha t t hese d i ff e rences a re h igh lys ign i fi can t. P a r t i c ipan t s f ro m d i s s im i l a r e thn ic back groun ds hav e d i ff e ren t leve l s o f f inan-c ia l knowledge. Al though the d i fferent scores are s ta t i s t ica l ly s igni f icant , no s ingle sub-g roup can c l a im the h ighes t s co res th roughou t the fou r sec t ions . Af r i can -Amer icanpar t i c ipan t s ea rn the lowes t s co res th roughou t the va r ious sec t ions . Fore ign s tuden t s a l soea rn lower sco res than the i r Amer ican coun te rpa r t s .


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F i n a n c i a l L i t e r a cy 11 5

TA B L E 3M ean Percentage of Correc t Responses to Each Sect ion by

Charac ter is tics of Sam ple and Resul ts of A N O V A

General Savings For theKnowledge Borrowing Insurance Inves tments Sample

A E d u c a t io n

1 . A c a d e m i c D i s c i p l i n e sa ) B u s i n e s s M a j o r s 7 2 . 8 5 6 1 . 2 3 6 6 . 4 7 4 8 . 3 6 6 0 . 7 2b ) N o n - B u s i n e s s M a j o r s 5 9 . 9 8 5 3 . 4 7 5 7 . 9 7 3 5 . 7 3 4 9 . 9 4F S t a t i s t i c ( 8 7 . 3 4 ) * * ( 3 0 . 11 ) * * ( 2 9 . 9 5 ) * * ( 9 4 . 4 9 ) * * ( 1 0 3 . 6 6 ) * *

2 . C l a s s R a n ka ) F r e s h m a n 5 6 . 4 8 5 0 . 5 0 5 4 . 0 6 3 1 . 2 5 4 6 . 1 7b ) S o p h o m o r e 6 3 . 6 9 5 1 . 6 6 5 9 . 0 2 3 6 . 7 8 5 0 . 9 3c ) J u n i o r 6 7 . 2 2 5 8 . 6 8 6 3 . 7 5 4 1 . 9 8 5 6 . 0 9d ) S e n i o r 6 3 . 0 2 5 3 . 0 0 5 8 . 6 4 4 2 . 2 0 5 2 . 8 5e) Grad ua te 75 .37 66 .25 67 .71 55 .35 65 .12F S ta t i s ti c (12 .48)** (10 .58)** (6 .34)** (27 .84)** (20 .60)**

B Demographic haracteristics1 . G e n d e r

a ) M a l e 6 7 . 6 8 5 9 . 1 3 6 3 . 1 6 4 5 .5 1 5 7 . 4 0b ) F e m a l e 6 2 . 0 4 5 2 .0 1 5 7 . 8 8 3 7 . 8 5 5 0 . 7 7F S ta t i s ti c (13 .96)** (21 .48)** (10 .68)** (33 .93)** (31 .01)**

2 . Racea ) W h i t e 6 4 . 8 9 5 5 . 6 0 6 1 . 2 5 4 1 . 7 3 5 4 . 2 4b ) A f r i c a n - A m e r i c a n 5 6 . 6 9 4 4 . 8 2 4 6 .6 1 3 1 . 7 8 4 3 .7 4c ) A s i a n 6 1 . 9 4 5 6 . 7 3 5 6 . 3 8 4 2 . 3 8 5 3 . 1 9

d ) H i s p a n i c 7 3 . 81 6 3 . 4 9 5 7 . 1 4 4 0 . 4 8 5 7 . 3 4e ) N a t i v e A m e r i c a n 6 0 . 7 4 4 6 . 6 7 6 0 . 0 0 3 6 . 6 7 4 9 . 0 7F S ta t i s ti c (2 .64)** (4 .05)** (5 .40)** (3 .64)** (5 .05)**

3 . Na t iona l i tya ) U S A 6 7 . 5 4 5 8 .7 1 6 3 . 6 7 4 3 . 0 5 5 6 . 5 2b ) F o r e i g n ( n o t U S A ) 5 9 . 6 2 4 8 . 7 2 5 0 . 3 2 3 8 . 6 2 4 8 . 3 4F S ta t i s ti c (7 .26)** ( I 1 .92)** (17 .77)** (2 .53) (13 .22)**

C . E x p e r i e n c e1 . Ye a r s o f W o r k E x p e r i e n c e

a ) N o n e 5 7 . 9 7 4 2 . 01 4 5 . 8 3 2 9 . 6 9 4 2 . 5 3b ) L e s s t h a n t w o y e a r s 5 7 . 5 5 5 1 . 1 4 5 2 . 9 9 3 6 . 6 5 4 8 . 2 2c ) Tw o t o l e s s t h a n f o u r y e a r s 5 8 .2 1 5 1 . 8 2 5 5 . 9 7 3 4 . 3 6 4 8 . 4 2d ) F o u r t o l e s s t h a n s i x y e a r s 6 5 . 1 2 5 4 . 3 0 6 1 . 2 5 3 9 . 1 8 5 3 . 1 2e ) S i x y e a r s o r m o r e 7 3 . 0 9 6 3 . 7 2 6 8 . 6 6 4 8 . 7 8 6 1 .9 1F S ta t i s t ic (22 .32)** (20 .79)** (19 .42)** (24 .09)** (37 .78)**

2 . Ye a r s o f A g ea) 18 to 22 60 .28 52 .32 56 .79 36 .37 49 .74b ) 2 3 t o 2 9 6 8 . 7 8 5 9 . 6 3 6 3 . 6 8 4 4 . 9 0 5 7 . 6 3c ) 3 0 t o 3 9 6 1 . 0 7 4 9 . 0 8 5 5 . 7 4 3 9 . 9 6 5 0 . 1 5d ) 4 0 a n d o v e r 7 4 . 0 7 6 2 . 3 2 7 1 . 7 4 5 i . 4 5 6 3 . 2 0F S ta t i s t ic (13 .70)** (11 .57)** (11 .43)** (17 .98)** (20 .16)**

D I n c o m e

1 . L a s t Ye a r ' s I n c o m e

a ) U n d e r 1 0 , 0 0 0 6 2 . 4 4 5 1 . 3 9 6 0 . 7 8 3 9 . 1 3 5 1 . 6 3b ) 1 0 , 0 0 0 t o 2 9 , 9 9 9 6 7 .9 1 5 8 . 5 8 6 2 . 2 0 4 1 . 4 8 5 5 . 8 2c ) 3 0 , 0 0 0 t o 4 9 , 9 9 9 6 5 . 4 5 5 8 . 6 2 6 1 .11 4 2 . 9 7 5 5 . 5 3d ) 5 0 , 0 0 0 o r m o r e 6 8 . 4 6 5 9 . 5 0 6 3 . 7 1 4 4 . 4 0 5 7 .4 1F S ta t i s ti c (3 .56)* (6 .58)** (0 .74) (2 .77)* (4 .69)**

Notes: *significant at the 0.05 level; **sig nificant at the 0.0 1 level or greater.


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116 FINAN CIAL SERVICES REV IEW 7(2) 199 8

I n t e r m s o f p a r t i c ip a n t s ' w o r k e x p e r i e n c e a n d a g e s , p a r ti c ip a n t s w i t h m o r e y e a r s o fwork exper ience a re more knowledgeab le than those wi th l e s s exper ience . Pa r t i c ipan t s inthe age subgrou ps o f 23 to 29 and 40 o r o lde r exh ib i t g rea te r know ledge than the o the r agegroups . F ina l ly, i t s eems tha t pa r t i c ipan t s wi th h igher pe r sona l income answered more

q u e s t io n s c o r r e c t l y t h a n th o s e w i t h l o w e r in c o m e . T h e s u r v e y h a s an a g e c a t e g o r y o f 6 0o r o l d e r a n d a n i n c o m e c a te g o r y o f N o i n c o m e . H o w e v e r, t h e n u m b e r o f p a r ti c ip a n t s i nthese ca tegor ies a re ve ry smal l . Th ey a re r egrou ped in to the ad jacen t g roups o f 40 ando v e r a n d U n d e r $ 1 0 , 0 0 0 .

Resu l t s o f the log i st i c r eg ress ion a re show n in Tab le 4 . As su gges ted by the h igh Ch i -s q u a r e v a lu e s , th e m o d e l s h a v e h i g h e x p l a n a t o r y p o w e r. A n o t h e r w i d e l y u s e d m e a s u r e o fthe overa l l f i t o f the m ode l i s to exa m ine i t s ab i l ity to cor rec t ly c lass i fy obse rva t ions . Fo rthe en t i r e sample , 71 .47% of the obse rva t ions a re cor rec t ly c lass i f i ed as compared wi th50 .03% chance c lass i fi ca t ion . S imi la r pa t t e rns can be fo und in the ind iv idua l sec t ions .

In add i t ion to the overa l l f i t o f the mode l , the coeff i c i en t o f M A JO R for the en t i r e sam-p le i s nega t ive and s ign i f ican t a t the 0 .01 l eve l . Con s i s t en t wi th f ind ings o f AN OV A, theresu l t sugges t s tha t non-bus iness majors a re more l ike ly to be l e s s knowledgeab le abou tpersona l f inance than bus iness majors . The s ign i f i can t nega t ive coeff i c i en t s fo r CLASS-R A N K var iab les ind ica te tha t pa rt i c ipan t s f ro m low er c lass r anks a re m ore l ike ly to be l es sk n o w l e d g e a b l e t h a n t h o s e f r o m g r a d u a t e c la s s e s . Wo m e n p a r ti c ip a n t s a r e m o r e l i k e l y to b el es s k n o w l e d g e a b l e t h a n m e n . P a r t i c ip a n t s w i t h l e s s w o r k e x p e r i e n c e h a v e h i g h p r o b a b i l i t yo f b e i n g l e ss k n o w l e d g e a b l e t h a n t h o s e w i t h m o r e e x p e r i e n c e . T h e d i f f e r e n c es b e t w e e nthose wi th s ix o r m ore yea r s o f exper ience and those w i th no exper ience and those wi th l e s sthan two years o f exper ience a re s ign i f i can t a t the 0 .07 and 0 .06 l eve l s r e spec t ive ly. Pa r t ic -i p a n ts u n d e r a g e 3 0 a r e m o r e l i k e ly t o b e l e ss k n o w l e d g e a b l e a s c o m p a r e d w i t h t h o se 4 0 o ro lde r. Al though the coeff i c i en t o f AGE3 s t i l l exh ib i t s a nega t ive s ign , the d i ffe rencebetween those who are in thei r th i r t ies and for t ies or o lder i s s ta t i s t ica l ly ins ignif icant .W h i le R A C E , N A T I O N A L I T Y, a n d I N C O M E v a r ia b l es a ff e c t l ev e l o f k n o w l ed g e i n o n e -w a y A N O V A , t h e y n o l o n g e r h a v e a n y s i g n if i ca n t i m p a c t i n t he l o g i st ic r e g r e s s io n w h e r ea l l the va r i ab les a re used s imu l taneous ly to exp la in the l eve l o f know ledge .

Wi th few excep t ions , the resu l t s f rom log i s t i c r eg ress ions fo r the ind iv idua l sec t ionsa re cons i s t en t wi th tha t o f the en t i r e sample . For example , the bus iness majors pe r fo rmcons i s t en t ly be t t e r than the non-bus iness ma jors in every sec t ion o f the su rvey. S imi la r ly,

m a n y c o e f f ic i en t s fo r C L A S S R A N K , G E N D E R , a n d A G E v a r ia b l es in t he i n di vi d ua l s e c -t ions ca r ry the same s igns and a re s ign i f i can t a s shown fo r the en t i r e sample . Few coeff i -c i e n ts o f R A C E , N A T I O N A L I T Y , a n d I N C O M E a r e s ig n i f ic a n t i n t h e i n d iv i d u a l se c ti o n s.

Th e resu l t tha t bus iness m ajors a re mo re know ledge ab le i s cons i s t en t wi th f ind ings o fp rev iou s resea rch . Th e f ind ing is no t su rp r i s ing becaus e cur r i cu lum req u i rem ents o f bus i -ness majors g ive them more oppor tun i ty to t ake f inance and re la ted courses . Pa r t i c ipan t swh o a re mor e sen io r in c l ass r ank have ea rned h igh er scores in the su rvey. One exp lana t ioni s tha t by s t ay ing in un ive r s i t ie s longer, s tuden ts wi l l na tu ra l ly p ick up m ore ab ou t pe r sona lf in a n c e . O u r a rg u m e n t i s th a t s t u de n ts d o n o t g a in m o r e k n o w l e d g e o f p er s o n a l f i n a n ce b yjus t spend ing m ore t ime in co l l ege lea rn ing o the r unre la ted sub jec t s . Th ey l ea rn the sub jec tth rough a bus iness course , sem inars , o r the i r ow n m is takes . Our v iew i s cons i s t en t wi th thef i nd i n g o f th i s s t u d y t h at b u s i n e ss m a j o r s a r e m o r e k n o w l e d g e a b l e t h a n n o n - b u s i n e s smajors . A s imi la r l ine o f r eason ing would app ly to why the pa r t i c ipan t s who a re o lde r o rh a v e m o r e w o r k e x p e r i e n c e e a r n e d h i g h s c o r e s in t h e s u r v e y. T h e y m u s t h a v e p r i o r e x p o -sure to pe r sona l f inance . Th ey a re no t m ore l i t e rate jus t be cause they a re o lde r.


11/22

TABLE 4

L

scRe

o

An

y

so

th

Imp

o

P

cp

E

o

E

en

Demo

cCh

e

sc

a

In

meo

T

rFn

aL

e

MAJOR

CLAS

ANK1

CLAS

ANK2

CLAS

ANK3

CLAS

ANK4

GENDER

RACEI

RACE2

RACE3

RACE4

NATIONALITY

EXP

RIENCE 1

EXP

RIENCE2

E

P

IE

CE

EXP

RIENCE4

AGEI

AGE2

AGE3

INCOMEI

INCOME2

INCOME3

E

maeCo

cesa

hL

o

Sg

c

o

V

o

S

o

a

hE

rS

mpe

Ge

a

S

n

Foh

Knwle

B

owin

Inua

In

mes

Smpe

-09

-03

-05

-11

-08

-10

**

-11

**

-07

-23

*

-18

**

-09

-13

**

-05

-20

**

-16

*

-06

-12

*

-05

-15

*

-11

*

-04

-07

-04

-09

-06

01

04

-00

06

06

*

08

-02

09

04

04

05

-11

01

-02

-01

19

11

09

01

07

09

-05

16

07

13

-00

-12

**

-07

-06

-07

-03

-08

-12

-09

-10

-05

-02

-02

01

-06

-08

-06

*

-03

-05

-09

-01

-05

-02

-04

-06

-09

-10

*

-15

-13

*

-14

-04

-07

-10

-12

-11

-02

-04

-06

-07

-06

-03

-02

03

03

-00

-02

03

-01

00

-01

-02

01

-00

-00

-01

Co

a

09

22

03

21

24

-2o

Lk

h

8

8

9

7

8

4

8

3

8

9

Ov

Ch

S

(1

4

*

(1

0

*

(9

6

*

(2

4

*

(2

6

*

Adu

e

R2

02

02

01

03

03

Co

Cla

c

o

7

2%

6

8%

7

5%

7

6%

7

4%

Ch

Cla

c

o

5

7%

5

0%

5

7%

5

0%

5

0%

Noe

*g

ca

h00

e

*

g

c

a

h00

e

og

e

-


12/22


13/22

C.

2

Numb

a

p

na

o

p

cp

wh

ch

oa

o

h

rspn

n

Co

y

In

y

T

a

Su

swihM

oeP

o

3

4

4

Fn

Kn

wle

8

0

1

0

1

Su

swihL

P

o

3

1

5

Fn

Kn

wle

6

3

3

7

1

C

S

e=5

2

sg

c

a

h

00

e

Inu

1

Numb

a

p

na

o

p

cp

wh

vew h

manan

n

a

q

enu

c

s

Ve

Smew

Smew

V

Imp

a

Imp

a

N

S

Unmp

a

Unmp

a

Su

swihMoeP

o

1

8

2

4

2

Fn

Kn

wle

5

1

3

6

I10

15

08

Su

swihL

P

o

3

1

6

2

7

Fn

Kn

wle

5

2

3

1

I01

34

11

C

S

e

28

sg

c

a

h

05

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2

Numb

a

p

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p

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ch

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swihMoeP

o

6

1

2

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Knwle

2

7

7

3

1

Su

swihL

P

o

1

5

6

Fn

Knwle

1

5

8

5

1

C

S

e=80

sg

c

a

h

00

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T

a2 1

6 1

c

n


14/22

TABLE 5

c

D

In

me

1

Numb

a

p

a

o

p

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wh

vew pa

n

a

mpeme

n

ar

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m

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m

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Su

swihMoeP

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2

1

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1

4

Fn

Knwle

6

5

2

9

67

28

11

Su

swihL

P

o

2

1

1

2

1

Fn

Knwle

4

8

3

4

2

1

40

26

C

S

e=5

1

sg

c

a

h

00

e

2

Numb

a

p

a

o

p

cp

wh

c

oa

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r

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me

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Su

swihMoeP

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2

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Kn

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2

1

Su

swihL

P

o

2

2

5

Fn

Kn

wle

5

6

4

4

1

C

S

e=7

7

sg

c

a

h

00

e

Ta

3 1

5 1

t t~ < < ,o o


15/22

Fina nc ia l L i te racy 2

Th e f ind ing tha t w om en sco re lowe r than men i s cons i s t en t w i th the ex i s t ing l i t e ra tu re(Genasc i , 1995 ; Go ldsmi th & Goldsmi th , 1997 ; HSR, 1993 ; Lewin , 1995 ; Mar t inez , 1994 ;Volpe , Chen , & Pav l i cko , 1996 ; ) . Spa ce l imi t a t ions do no t a l low a com preh ens iv e ana lys i so f w h y w o m e n a r e l e ss k n o w l e d g e a b l e t h a n m e n . Ye t g i v e n t h e f a c t t h at m o r e a n d m o r e

w o m e n a r e j o i n i n g t h e w o r k f o r c e a n d t h e y a r e e x p e c t e d t o l iv e l o n g e r th a n m e n , d e f i c ie n c yin the i r kno wle dge abou t pe r sona l f inance needs to be addressed .

C Consequencesof H aving Inadequate Knowledge

T h i s s e c t io n e x a m i n e s h o w a s t u d e n t ' s k n o w l e d g e a f f e c ts h is / h e r o p i n i o n s a n d d e c i -s ions abou t some pe r sona l f inance i s sues . The sample i s pa r t i t i oned in to two g roups byeach sec t ion ' s med ian sco re . S tuden t s wi th sec t ion sco res h ighe r than the med ian a re c l a s -s i f i ed a s those w i th r e la t ive ly more kn owled ge . S tuden t s w i th sco res equa l t o o r be low the

me d ian a re c la s s i f i ed as those wi th r e la t ive ly l e s s know ledge . S ince m any s tuden t s ' s co resa r e e q u a l t o th e m e d i a n s c o r e s, t h e c la s s i fi c a ti o n s c h e m e c h a n g e s t h e n u m b e r o f o b s e r v a -t ions in the two g roup s f rom sec t ion to sec tion . In add i t ion , m is s ing obse rva t ions cause theto ta l s am ple s i ze to va ry f rom 903 to 924 .

Pa r t i c ipan t s ' r e sponses to the impor tance o f keep ing f inanc ia l r eco rds a re r epor t ed inPar t 1 o f Sec t ion A o f Tab le 5 and w ha t they ac tua l ly dec ide to do in eve ryd ay l i f e in Pa r t2 . A b o u t 9 5 o f t h e p a r t ic i p a n ts f r o m t h e m o r e k n o w l e d g e a b l e g r o u p r a n k k e e p i n g re c o r d sa s v e r y i m p o r t a n t o r s o m e w h a t i m p o r t a n t , a n d t h e r e st o f t h e m b e l i e v e o t h e rw i s e . F o r t hel e ss k n o w l e d g e a b l e g ro u p , a b o u t 9 2 v i e w k e e p i n g r e c o r d s a s i m p o r t a n t. T h e d i f f e re n c ein op in ions i s s ign i f i can t a t t he 0 .098 l eve l . W hen asked w ha t they wou ld ac tua l ly do , abou t4 5 . 6 o f s t u de n t s w i t h m o r e k n o w l e d g e k e e p d e t a il e d f i na n c i al r e c o r d s a n d o n l y 2 9 o ft h e l es s k n o w l e d g e a b l e g r o u p a r e w i l li n g t o k e e p s u c h re c o r d s. A b o u t 2 5 o f t h e l e ss k n o w l -e d g e a b l e g r o u p k e e p n o r ec o r d s a t a ll , w h i l e th e n u m b e r is 5 .4 f o r t h e m o r e k n o w l e d g e a b l eg roup . Th ere i s a s t a ti s t ica l ly s ign i f i can t d i f f e rence in beh av io r be tween the tw o g roups .

Ana lys i s has a l so been conduc ted us ing an a l t e rna t ive c l a s s i f i ca t ion scheme . S tuden t swi th sec t ion sco res equa l t o o r h ighe r than the med ian a re c l a s s i f i ed a s those wi th morekno wled ge , and those wi th sco res be low the med ian a s those wi th le s s know ledge . Th i s c la s -s i fi c at io n s c h e m e m a k e s t h e s a m p l e s i ze i n t he m o r e k n o w l e d g e a b l e g r o u p l a rg e r th a n t h a to f t h e l es s k n o w l e d g e a b l e g r o u p . T h e r e s u lt s a r e s i m i l a r to w h a t h a v e b e e n r e p o r t e d a b o v e .

Th e d i ff e rence in op in ion s r ega rd ing r eco rd k eep ing i s s ta t i s ti ca l ly s ign i f i can t a t t he 0 .039leve l. The d i ff e rence in the i r dec i s ions i s s ign i f i can t a t the 0 .001 l eve l. The r e su l t s fo r sav ingsand bor ro wing , i n su rance , and inve s tm en t a re s imi l a r t o f ind ings to be r epor t ed be low.

T h e m o r e k n o w l e d g e a b l e p a r t ic i p a n ts ( 9 6 . 1 ) r a n k s p e n d i n g le s s t h a n t h e ir i n c o m em o r e i m p o r t a n t t h a n t h e l e ss k n o w l e d g e a b l e g r o u p ( 81 . 3 ) . W h e n p r o v i d e d w i t h a h y p o -the t ica l s i tua tion o f a spend ing dec i s ion , 89 o f the m ore kno wled geab le pa r t i c ipan t ss e l e c t t h e c o r r e c t c h o i c e, c o m p a r e d t o 6 8 . 3 o f t h e l e ss k n o w l e d g e a b l e g r o u p . T h e C h i -squa re t e s t s sugges t t ha t t he d i ff e rences in op in ions and dec i s ions a re h igh ly s ign i f ican t .

I n t e r m s o f i n s u ra n c e , m o r e t h a n 8 0 o f t h e p a r ti c ip a n t s f r o m b o t h g r o u p s r a n k m a i n -

t a in ing adequa te in su ran ce co ve ra ges a s impor t an t . The d i ff e rence in op in ions i s no t sign i f -i ca n t. H o w e v e r, m o r e p a r t i ci p a n ts f r o m t h e m o r e k n o w l e d g e a b l e g r o u p a c t c o r r e c t ly t h anthe pa r t i c ipan t s f rom the l e s s knowledgeab le g roup . The d i ff e rence in the i r dec i s ions canbe seen f rom the s ign i f i can t t e s t r e su l t s and the f ac t t ha t a h ighe r p ropor t ion o f the morekno wle dgea b le pa r t i c ipan t s ac t accord ing to the ir op in ions and a h ighe r p ropor t ion o f thel e s s kno wle dge ab le pa r t i c ipan t s do no t .


16/22

122 FINA NC IAL SERVICES REVIEW 7(2) 19 98

S e c t i o n D s h o w s t ha t a b o u t 8 9 .4 o f t h e m o r e k n o w l e d g e a b l e g ro u p v i e w p l a n n i n ga n d i m p l e m e n t i n g a r e g u l a r i n v e s t m e n t p r o g r a m a s i m p o r t a n t , b u t t h e n u m b e r i s a b o u t72 .2 fo r the l e s s kno wle dgea b le g roup . No t su rp r i s ing ly, wh en o ffe red an inves tm en t s i t-ua t ion , 80 o f the kno wled geab le pa r t i c ipan t s choo se the co r rec t ac t ion , and on ly 51 o f

the o the r g roup . Bo th the d i ff e rences in the op in ions and dec i s ions a re h igh ly s ign i fi can t.Th e ab ove ana lys i s sugges t s tha t the l eve l o f f inance know ledge t ends to in f luence

pe op le ' s op in ions and a ffec t the i r dec i s ions . In the case o f in su rance , a s t at i s ti ca l d i f fe rencecann o t be de tec ted in the i r op in ions . H ow ever, m ore pa r t i c ipan t s f rom the l e s s know ledge-a b l e g r o u p m a k e t h e w r o n g c h o i c e s .

V. S U M M A R Y A N D C O N C L U S I O N

This s tudy su rveys 924 s tuden t s f rom mul t ip l e un ive r s i t i e s ac ross the coun t ry to examineco l l ege s tud en t s ' kn ow ledge o f pe r sona l f inance ; the r e la t ionsh ip be tw een the f inanc ia l l it -e racy and pa r t i c ipan t s ' cha rac te r is t i c s such a s academ ic d i sc ip l ine , gender, and expe r i ence ;a n d t h e c o n s e q u e n c e s o f h a v i n g i n a d eq u a t e k n o w l e d g e .

Resu l t s sugg es t tha t co l l ege s tuden t s need to impr ove the i r kno wle dge o f pe r sona lf inance . A l though the ques t ions inc luded in the su rve y a re f a ir ly bas i c , the ove ra l l mean o fc o r r e c t a n s w e r s f o r th e s u r v e y i s a b o u t 5 3 . N o n e o f t h e m e a n s c o r e s f o r e a c h a r e a o f g e n -e ra l know ledge , s av ings and bor row ing , i n su rance , and inves tm en t s a re abo ve 65 . By fa rthe we akes t a rea i s i nves tmen t , wh ere on ave rage the pa r t i c ipan t s answ ered abou t 40 o fthe ques tions co r rec t ly. Low er l eve l s o f f inanc ia l l it e r acy a re found am on g subgrou ps .T h e y i n c l ud e t h o s e w h o a r e n o n - b u s i n e s s m a j o r s , in t h e l o w e r c la s s r an k s , w o m e n , u n d e rage 30 , and h ave l i t tl e work e xpe r i ence . I t i s al so found tha t pa r t i c ipan t s wi th l e s s know l -edge t end to ho ld wro ng op in ions and m ake incor rec t dec i s ions in the a reas o f gene ra lknow ledge , s av ings and bo r row ing and inves tmen t s . W hi l e the re i s l it tl e d i f f e rence in the i rop in ions r ega rd ing insu rance , t he l e s s knowledgeab le pa r t i c ipan t s a re more l ike ly to ac tincor rec t ly. The p red ic t ive ab i li t y o f pe r sona l finance kno wled ge show s tha t imp rov in gc o l l e g e s t u d e n t s ' k n o w l e d g e i s i m p o r t a n t . Wi t h o u t a d e q u a t e k n o w l e d g e , t h e y a r e m o r el ike ly to m ake m is t akes in the r ea l wor ld .

Ou r conc lus ion i s t ha t co l l ege s tuden t s a re no t kno wle dgea b le abou t pe r sona l f inance .

The incompe tency wi l l l imi t t he i r ab i l i t y to make in fo rmed f inanc ia l dec i s ions . Toge the rwi th ev iden ce p rov ide d by the r e sea rch conduc ted in the pas t t h ree decades , t he find ings o fth is s tudy sugges t t ha t t he re i s a sys t em a t i c lack o f pe r sona l f inance educa t ion in ou r edu-ca t ion sys t em . The l ack o f educa t ion has r e su l t ed in se r ious f inanc ia l i l li t e r acy found in theAmer ican pub l i c . The i l l i t e r acy and i t s cos t ly consequences have made ind iv idua l s wor ryabou t the i r f inances to the ex ten t t ha t t he i r p roduc t iv i ty in workp la ces i s a ffec t ed (CH RG I ,1995) . Whe n ind iv idua l s can no t m ana ge the i r f inances , it bec om es a p ro b lem fo r the soc i -e ty. Th i s cha l l eng ing i s sue need s to be addressed .

A c k n o w l e d g m e n t s : T h e a u th o r s ar e g r a te f u l t o K a r e n E il er s L a h e y ( E d i to r ) f o r h e r s u g -g e s t i o n s . T h e a u t h o r s a l s o a p p r e c i a t e c o m m e n t s f r o m t h r e e a n o n y m o u s r e v i e w e r s , a n dd i scussan t and pa r t ic ipan t s a t t he 1997 A cad em y o f F inanc ia l Se rv ices Mee t ing w here anea r ly ve r s ion o f the pape r was p resen ted . The au thor s a re r e spons ib le fo r a l l r ema in inge r ro r s . F inanc ia l suppor t s were p rov ided by g ran t s f rom the Unive r s i ty Resea rch Counc i la t Yo u n g s t o w n S t a te U n i v e r s i ty.


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inancial Literacy 123

P P E N D I X

S u r v e y o f P e r s o n a l F i n a n c i a l L i te r a c y

Thank you for participating in our survey. This survey is intended to measure c olleg e stu-dents' knowledge of personal finance. The results will be used to help students improvetheir knowledge and colleges improve curriculums.DIR EC TI ONS : Please use a '2 lead pencil to mark your responses on the enclosed answersheet. Please select only ONE most appropriate answer for each question. Please makemarks that fill the circle. After completing the survey, please make sure that question num-bers and answers c orrespond directly with those on the answer sheet.

I. GENERAL PERSONAL FINANCE K N O W

LEDGE1 . P e r s o n a l f i n a n c e l i te r a c y c a n h e l p y o uA. avoid being victimized by financial

s c a l n s

B. buy the fight kind of insurance to protectyou from .catastrophic risk.

C. learn the fight approach to invest foryour future needs.

D. lead a financially secure life throughforming healthy spending habits.

E. do all of the above.

2. Personal financial planning i n v o l v e sA. establishing an adequate financial

record keeping system.B. developing a sound yearly budget of

expenses and income.C. minimizing taxes and insurance

expenses.D. preparing plans for future financial

needs and goals.E. examining your investment portfolios

to maximize returns.3. The most liquid asset is

A. money in a certificate of depositaccount.

B. money in a checking account.C. a car.D. a computer.E. a house.

4. Your net worth isA. the difference between your expendi-

tures and income.

B. the difference between your liabilitiesand assets.

C. the difference between your cashinflow and outflow.

D. the difference between your bank bor-rowings and savings.

E. none of the above.

5. Assume you have dependent children, is a$500 tax credit per child or a $500 taxdeduction per child more valuable to y o u ?A. A $500 tax credit.B. A $500 tax deduction.C. They are the same.D. Depends on your tax bracket.E. Depends on the number of children

you have.6. You are not overspending i f

A. you write checks for more than whatyou have in your checking account.

B. your monthly wages are $500 andcredit charges $1,000.

C. you frequently receive calls from col-lection agencies.

D. your monthly debt payment is 30% ofyour take-home pay.

E. you meet your minimum monthlycredit card payments.

7. i s not a cost of leasing an apartment .A. Security depositB. Monthly rental paymentC. Expenses incurred for non-compliance

of lease termsD. Medical expenses of your friend who

fell and broke his arm on the icy pave-ment

E. Security deposit retained by the land-lord for damages to property beyondnormal wear and tear

8. If you signed a twelve month lease for $300/month b u t n e v e r o c c u p i e d the apartment,y o u l e g a l l y o w ethe landlordA. your security deposit.B. your fwst month's rent of $300.C. your twelve month' s rent of $3,600.


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1 24 F I N A N C I A L S E RV I C E S R E V I E W 7 (2 ) 1 99 8

D . n o t h i n g .E . w h a t e v e r t h e l a n d l o r d r e q u i r e s .

9 . C h e c k i n g a c c o u n t r e c o n c i l i a t i o n i n v o l v e sA . b a l a n c i n g b a n k s t a te m e n t w i t h y o u r

c h e c k b o o k r e c o r d s t o d e t e r m i n e i fthe re a re e r ro r s .B . r e c o n c i l i n g c u r r e n t b a n k s t a t e m e n t

w i t h t h e p re v i o u s m o n t h ' s s t a t e m e n t t od e t e r m i n e i f t h e r e a r e e r r o r s .

C . s u b t r a c t in g o u t s t a n d i n g c h e c k s t o y o u rc h e c k b o o k b a l a n c e t o d e t e r m i n e i fy o u r c h e c k s h a v e b e e n p r o p e r l y p r o -c e s s e d .

D . a d d i n g o u t s ta n d i n g c h e c k s t o y o u rc h e c k b o o k b a l a n c e t o i m p r o v e y o u rc r e d i t s t a n d i n g .

E . n o n e o f t h e a b o v e .

II. Y O U R S AV I N G S A N D B O R R O W I N G1 0 . Yo u r s a v i n g s a c c o u n t s i n a f e d e r a l l y

i n s u r e d c o m m e r c ia l b a n ka r e i n s u r e db yA . S I P C to t he m a x i m u m a m o u n t o f

1 0 , 0 0 0 p e r a c c o u n t .B . F D I C t o t h e m a x i m u m a m o u n t o f

1 0 0 , 0 0 0 .

C . F D I C t o t h e m a x i m u m a m o u n t o f5 0 , 0 0 0 p e r a c c o u n t .

D . S L I C to t h e m a x i m u m a m o u n t o f1 0 0 , 0 0 0 .

E . F N M A t o t he m a x i m u m a m o u n t o f1 0 0 , 0 0 0 p e r a c c o u n t .

11 . I f y o u in v e s t 1 , 0 0 0 t o d a y a t 4 % f o r a y e a r,y o u r b a l a n c e i n a y e a r w i l lb eA . h i g h e r i f t h e i n t e re s t i s c o m p o u n d e d

d a i l y r a t h e r th a n m o n t h l y.B . h i g h e r i f t h e i n t e re s t i s c o m p o u n d e d

q u a r t e r l y r a t h e r t h a n w e e k l y.C . h i g h e r i f t h e i n t e re s t i s c o m p o u n d e d

y e a r l y r a t h e r t h a n q u a r t e r l y.D . 1 , 0 4 0 n o m a t t e r h o w t h e i n t e r e s t i s

c o m p u t e d .E . 1 , 0 0 0 n o m a t t e r h o w t h e i n t e r e s t i s

c o m p u t e d .12. W h i c h o f t h e fo l l o w i n g i n v e s t m e n t s

r e q u i r e s t h a t y o u k e e p y o u r m o n e yi n v e s t e d f o r a s p e c i f i e d p e r i o d o rf a c e a n

e a r l y w i t h d r a w a l p e n a l t y ?A . C e r t i f i c a t e o f d e p o s i t .B . C h e c k i n g a c c o u n t t h a t p a y s i n t e re s t .C . G o v e r n m e n t s a v i n g s b o n d .D . M o n e y m a r k e t m u t u a l f u nd .E . P a s s b o o k s a v i n g s a c c o u n t.

1 3 . W h i c ho f t h e f o ll o w i n g s t a t e m e n t s i s T R U Ea b o u t t h e a n n u a l p e r c e n t a g e r a t e ( A P R ) ?A . A P R i s t h e a c t u a l r a t e o f i n t e r e s t p a i d

o v e r t h e l i f e o f t h e l o a n .

B . A P R i s e x p r e s s e d a s a p e r c e n t a g e o na n a n n u a l b a s is .C . A P R i s a g o o d m e a s u r e o f c o m p a r i n g

l o a n c o s t s .D . A P R t a k e s i n t o a c c o u n t a l l l o a n f e e s ,E . A l l o f t h e a b o v e .

14. Yo u c a n r e c e i v e y o u rc r e d i t r e p o r tf r o mA. a c red i t un ion .B . a c o m m e r c i a l b a n k .C . t h e B e t t e r B u s i n e s s B u r e a u .D . a c red i t bu rea u ,E . a p ro fes s o r.

1 5 . W h i c h i sFA L S E c o n c e r n i n gc r e d i t c a r d s ?A . Yo u c a n u s e y o u r c r e d i t c a r d t o

r e c e i v e a c a s h a d v a n c e .B . I f y o u r c r e d i t c a r d b a l a n c e i s 1 , 0 0 0

a n d y o u p a y 3 0 0 , in t e r e s t i s c h a rg e do n th e u n p a i d b a la l n c e o f 7 0 0 .

C . T h e r a te o f i n t e r e s t o n y o u r c r e d i t c a r di s n o r m a l l y h i g h e r t h a n y o u c a n e a r no n a c e r t i f i c a te o f d e p o s i t .

D . A c re d i t c a r d c o m p a n y w i l l n o t c h a r g ey o u i n t e r e s t i f y o u p a y o f f t h e e n t i r eb a l a n c e b y t h e d u e d a t e .

E . Yo u c a n n o t s p e n d m o r e t h a n y o u r l i n eo f c red i t .

1 6 . A n o v e r d r a f tA . o c c u r s w h e n y o u w r i t e a 1 , 0 0 0 d o l l a r

c h e c k w h e n y o u h a v e 5 0 0 in y o u ra c c o u n t .

B . i s a s t o p - p a y m e n t o r d e r w r i t t e n b y t h ep a y e e .

C . w i l l r e su l t i n f ines .D . A l l o f t h e a b o v e .E . B o t h A a n d C .

17 . Yo u wi l li m p r o v e y o u rc r e d i t w o r t h i n e s s b yA . v i s i ti n g y o u r l o c al c o m m e r c i a l b a n k .B . s h o w i n g n o r e c o r d o f p e r s o n a l b a n k -

r u p t c i e s i n r e c e n t y e a r s .C . p a y i n g c a s h f o r a l l g o o d s a n d s e r v i c e s .D . b o r r o w i n g la r g e a m o u n t s o f m o n e y

f r o m y o u r f r i e n d s .

E . d o n a t i n g m o n e y t o c h a r i t y.1 8 . I f y o u co- s ign a l o a n f o r a f r i e n d t h e n

A . y o u b e c o m e r e s p o n s i b l e f o r t h e l o a np a y m e n t s i f y o u r f r ie n d d e f a u l t s .

B . i t m e a n s t h a t y o u r f ri e n d c a n n o tr e c e i v e t h e l o a n b y h i m s e l f .


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inan cial Literacy 125

C . y o u a r e e n t i t l e d t o r e c e i v e p a r t o f t h eloan .

D . B o t h A a n d B .E . B o t h A a n d C .

I II . Y O U R I N S U R A N C E1 9 . A u t o i n s u r a n c e c o m p a n i e s d e te r m i n e y o u r

p r e m i u m b a s e do nA . a g e o f i n s u r e d .B . r e c o r d o f a c c i d e n ts .C . t y p e a n d a g e o f v e h i c l e .D . c o m p l e t i o n o f a d r iv e r e d u c a t i o n

c o u r s e .E . a l l o f t h e a b o v e .

2 0 . T h e m a i n r ea s o n to p u r c h a s e i n s u r a n c e is t oA . p r o t e c t y o u f r o m a l o s s r e c e n t l y

i n c u r r e d .B . p r o v i d e y o u w i t h e x c e l l e n t i n v e s t m e n t

r e t u r n s .C . p r o t e c t y o u f r o m s u s t a i n i n g a c a t a -

s t r o p h i c l o s s .D . p r o t e c t y o u f r o m s m a l l i n c id e n t a l

l o s se s .E . i m p r o v e y o u r s t a n d a r d o f l i v i n g b y f il -

i n g f r a u d u l e n t c l a i m s .

2 1 . T h e m a i n r e a s o n to p u r c h a s e i n s u r a n c e i s t oA . A f t e r b u y i n g h e a l t h i n s u r a n c e , y o u a r e

n o r m a l l y c o v e r e d f o r p r e - e x is t i n g c o n -d i t i ons .

B . Yo u h a v e a b e t t e r c h a n c e to c h o o s ed o c t o r s w i t h a h e a l th m a i n t e n a n c eo rg a n i z a t i o n r a t h e r t h a n w i t h a t r a d i -t i o n a l h e a l t h c a r e i n s u r a n c e c o m p a n y.

C . M o s t p o l i c ie s c o n t a i n d e d u c t i b l e a n dc o i n s u r a n c e c l a us e s .

D . A p o li c y p u r c h a s e d b y t h e i n d i v i d u a li s c h e a p e r t h a n o n e p u r c h a s e d t h r o u g ha g roup .

E . N o n e o f t h e a b o v e .2 2 . w o u l d n o t o r d i n a r i ly b e c o v e r e d

u n d e r a h o m e o w n e r spol icy.A . Wa rB . E a r t h q u a k eC . F l o o dD . Yo u r b e i n g s u e d b y s o m e o n e f o r s l a n d e rE . A l l o f t h e a b o v e

2 3 . W h i c h o f t h e f o ll o w i n g s t a t e m e n t si sFA L S E ?A. Te rm in su rance i s an exce l l en t i nves t -

me n t veh i c l e .B . You r ece ive no bene f i t s whe n you r t e rm-

insurance pol icy expi res .

2 4 .

C. A t e rm in su rance po l i cy i s t he l e a s texpens ive fo rm o f l i f e in su rance .

D . A dec rea s ing - t e rm po l i cy r educes cove r-age ove r t ime .

E. A leve l - te rm pol icy guara ntees a f ixed-p rem ium ove r t he l i f e o f t he con t rac t .

Yo u h a v e a b e t t e r c h a n c e o f r e s o lv i n g ac o m p l a i n t a g a i n s t a n i n s u r a n c e c o m p a n yb y b r i n g i n g t h e i s s u e t o a g o v e r n m e n ta g e n c y a t th eA. federa l leve l .B. s ta te leve l .C. coun ty leve l .D. tow nship leve l .E . No ne o f t he above .

I V: Y O U R I N V E S T M E N T S

25. I f i n t e r e s t r a t e s r i s e t h e p r i c e o f a T r e a s u r yb o n d wil lA. increase .B. decrease .C . r ema in t he s ame .D . t r ade a t a p r emium .E. be imp oss ib le to predic t .

2 6 . A d o l l a r - c o s t - a v e r a g i n g a p p r o a c h t oi n v e s t i n g i n v o l v e s

A. buy ing l ow and s e l l ing h igh .B . com plex ca l cu l a t ions o f r i sk and r e turn .C . s e l l i ng s ecu r it i e s t o min im ize cap i t a l

2 9 . A h i g h - r i s k a n d h i g h - r e t u r n i n v e s t m e n ts t r a t e g y w o u l d b e m o s t s u it a b l e fo rA. an e lder ly re t i red coup le l iv ing on a f ixed

income .B . a midd l e - aged coup le need ing funds fo r

the i r ch i l d r en s educa t i on i n two yea rs .C . a young mar r i ed coup le w i thou t ch i l -

dren.D . a l l o f t he above because t hey a l l need

h igh r e tu rn .E . none o f t he above because t hey a r e

equal ly r i sk averse .3 0 . W h i c h o ft h e f o l l o w i n g i sFA L S E ?

A. As sha reho lde r s o f a mu tua l fund , youhave a r i gh t t o t e l l f und manage r s wha tsecur i t ies to buy.

B. A mu tua l fund i s a d ivers i f ied co l lec t iono f s ecu r i t ie s u sed a s an i n ve s tmen t veh i c l e .

C . A mu tua l f und i s an i nves tm en t co rpo ra -t i on t ha t r ai s e s funds f rom inves to r s andpurchases secur i t ies .

D . Your own er sh ip i n a mu tua l fund i s p ro -po r t i ona l t o t he number o f sha re s youow n in t he fund .

E . None o f t he above .


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126 FINAN CIAL SERVICES REVIE W 7(2) 1998

31. The returns from a balanced mutual f u n dincludeA. interest earned on cash in the fund.B. dividends from comm on stock in the

fund.C. interest earned on bonds in the fund.D. capital gains from stocks and bonds in

the fund.E. all of the above.

32. No-load mutua l funds are r e c o m m e n d e do v e r l o a d f u n d s b e c a u s e i n v e s to r sA. do not pay for 12b-I fees.B. can reduce their tax liability.C. are not charged with sales commissions.D. can avoid the funds' administrative

expenses.E. believe that the funds have no manage-ment charges.

36. If othe r factors remain the same, U.S. dol-lar value of a Ja pan fund will b eA. higher if the doll ar's value rises against

that of the Japanese Yen.B. lower if the doll ar's value rises against

that of the Japanese Yen.C. unchanged if the Japanese Yen 's value

rises against that o f dollar.

D. lower if the Japanese Yen 's value risesagainst that of dollar.

E. impossible to determine if exchange ratechanges between Yen and dollar.

V: YOUR PERSONAL FINANCE OPINIONS.DECISIONS. AND EDUCATION

3 7 . A s s u m e y o u ' r e i n y o u rearly twenties a n dyou would like to build u p you r nest egg f o ra secure retirement in 30 years. W h i c h o fthe following a p p r o a c h e s w o u l d b e s tmeety o u r n e e d s ?A. Start to build up your savings account at

a federally insured bank.B. Save money in certificate of deposit

a ~ 2 o u n t s

C. Put monthly savings in a diversi fiedgrowth mutual fund.

D. Invest in long-term Treasury bonds.E. Accumulate money in a safe-box rented

from a local bank.38. A s s u m i n g y o u a r e i nyour early twenties

without a n y d e p e n d e n t s , w h i c h o fthe fol.lowing would y o u d o regarding your lifei n s u r a n c e ?A. You would buy a life insurance policy

from an insurance agent.B. You would buy a term insurance policy.

C. You probably do not need to buy any lifeinsurance policy.

D. You would buy flight insurance eachtime you travel by air.

E. You would buy a cash value insurancepolicy.

3 9 . Yo u h a v e j u s t g r a d u a t e d f r o m c o l le g e a n df o u n d a j o b e a r n i n g 2 8 , 0 0 0 p e r y e a r . Yo uwill pay 600 pe r m o n t h f o r f iv e y e a r s f o rs t u d e n t l oa n s . Yo u h a v e a m o n t h l ybalanceo n e a c h o f your three credit cards. Whats h o u l d y o u d o t o i m p r o v e y o u rfinancialhealth?A. Cut expenses and use your savings to

pay down debt.

B. Keep the same spending pattern as in thepast.

C. Apply for a consumer loan for a new car.D. Eliminate debt by filing personal bank-

ruptcy.E. Use your credit card to pay for a vacation

in the Bahamas.40. D o y o u maintain financial records?

A. Maintain very detailed records.B. Maintain minimal records.C. Maintain no records.

Using the scale g i v e n b e l o w please rank theimport ance of items numb ered f rom 41 to 44.

A B C D EVery Somewhat Not Somewhat Very

Important Important Sure Unimportant

41. Maint ainin g adequ ate financial r e c o r d s .4 2 . S p e n d i n g l e ss t h a n y o u r in c o m e .4 3 . M a i n t a i n i n g a d e q u a t e i n s u r a n c e c o v e r a g e .44. Planning and i m p l e m e n t i n g a regular

investment program.

VI. ABOUT YOURSELF45. Wha t is your class rank ?

A. Freshman D. SeniorB. Sophomore E. GraduateC. Junior

46. What is your age?A. 18-22 D. 40-59B. 23-29 E. 60 or olderC. 30-39

47. What is your sex?A. Male B. Female

48. What is your race or ethnic background?A. White C. HispanicB. African- D. American Indian

American E. Asian


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Financ ial Literacy 127

4 9 .

5 0 .

W h i c h b e s t d e s c r i b e s y o u r o r y o u r f a m -i ly s p e r s o n a l i n c o m e l a s t y e a r ?A. No incom e D. 30,000- 49,999.B. Un der 10,000 E. 50,000 or more .C. 10,00 0 - 29,999.H o w m a n y y e a r s o f w o r k i n g e x p e r ie n c e d oy o u h a v e ? I n c l u d e f u ll - o r p a r t - t i m e e x p e -r i en c e , i n t e r n sh i p , c o - o p , s u m m e r j o b s ,etc .A . N o n eB. Less than 2 yearsC. Tw o to less than 4 yearsD. Fou r to less than 6 yearsE. Six years or mo re

5 1 . W h a t i s y o u r m a j o r f i e ld o f s t u d y ?A . BusinessB. Educat ionC. Liberal ArtsD. Sciences or Engineer ingE. Others

5 2 . A r e y o u a f o r e i g n s u t d e n t ?A. YesB . N oC. Tw o to less than 4 yearsD. Fou r to less than 6 yearsE. Six years or more

V II. I N F O R M E D C O N S E N T F O R MAs we expla ined in the cov er le tter, the purpose o f th is survey is to help you impro ve personal f inance l i t-eracy. Anony m ity wi l l be kept throughout the survey. Ho wev er, to com ply wi th Youngstown Sta te Univer-s i ty ' s p ol icy of human subject research, w e w ould l ike to ask you to s ign or in i tia l below to ver i fy that yourparticipation is voluntary.

My participation is voluntary.

I f you would l ike to receive a copy of your personal f inance in te l l igence repor t and summary of th isresearch project , p lease wri te down your address .

Street address

City, State, and Zip

T H A N K Y O U F O R Y O U R PA R T I C IPAT I O N .

R E F E R E N C E S

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an analysis of personal financial lit among college students

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