Financial Literacy in College Students: Re-visited

college high school financial literacy education

Last year I wrote about a project my honors thesis student completed on the topic of financial literacy in business students. The hypothesis for the thesis was that business majors are more financially literate than non-business majors. On the surface, it seemed like it should be a simple answer. Business students are trained in the ways of accounting, finance, marketing, and management. Financial literacy should be a result of their education. Over 400 university students responded to a survey that included sixteen financial literacy questions from the JumpStart Coalition’s test. On average, students answered half of the questions correctly. Business students, however, did not do any better than the non-business students. As a finance professor, this was not a pleasant discovery. It turned out that only age and measures of financial experience resulted in higher financial literacy scores.

 

This year I had another student working on an honors thesis related to financial literacy. She, however, wanted to focus on high school education. Some states either require a high school course in personal finance or at least are exploring the idea. Given the poor results from last year’s study, we decided to take a different approach to measuring financial literacy. Financial education is not required in Mississippi high schools, but those that offer courses predominantly utilize the Ever-Fi financial education curriculum. So, we designed our financial literacy metrics from this curriculum. The Ever-Fi curriculum focuses on basic, personal finance applications that young adults are most likely to encounter within five years of high school graduation.

 

The good news is that according to these metrics, college students have a higher level of financial literacy than expected. Over 90% of students were able to answer most of the questions correctly. At least half of students were getting the correct answers to the most challenging questions. So, perhaps college business majors are more financially literate than the previous study indicated and the measure of financial literacy should be carefully considered.

 

Financial experience and finance education both resulted in higher financial literacy. Educating high school and college students about personal finance is extremely important to the economic health of our country. Curriculum, however, should focus on what students are most likely to encounter after graduation and incorporate applied learning opportunities.
new year's resolution financial check-u

New Year’s Resolution Checkup

new year's resolution financial check-u

 

Did you make a New Year’s resolution for your finances? Now is a good time to check up on how you are doing with those resolutions. If you are still on track, congratulations! If you are struggling to keep your resolution, don’t give up. Evaluate where you are going wrong and resolve to get back on track.

 

According to a study by Fidelity Investments, saving money is the top financial resolution. Everyone has the best of intentions when it comes to saving money. Unfortunately, you need more than a resolution. You need a plan. The Internet is full of creative ways to save money from collecting all your change or five-dollar bills to saving an increasing amount of money each month through the year. These are all a great way to save a little extra, but they all have the same flaw. It’s easy to find a reason each month not to save that money. So, setting up an automatic deposit from your paycheck into a savings account is a much better plan.

 

If you are trying to save money, you need to spend less. Chances are that if you take a good look at where your money goes during the week, you’ll find some easy places to spend less. Keep track of every penny for the next 7-10 days. Then go back and look if your actions match your goals and intentions. Think about all the money you could save if you made your own coffee instead of buying it every day for a year. How much are you spending on meals you are not making at home? Try bringing a lunch to work and finding easy meal solutions for weeknights. You don’t have to be extreme, but utilize coupons, savings apps, and store rewards cards. Do you have a gym membership or fees for other monthly services that you are not using? Can you cut your phone or cable services? Making little changes to your spending habits can add up to big savings over the course of a year.

 

Paying down credit cards and other debt is the second most popular financial resolution. Gather information about the amount owed, payment, and interest rate on all of your debts and make a plan of attack. Credit cards should be your first priority. Rank them based on interest rate or total balance and set out to pay them off one by one. Only after you have done that should you look at other debts. Car loans and other consumer debts should fall into a second tier. If you have no other debt and are already saving and investing, focus on student loans and mortgage debt. Both of these sources of debt usually have very low interest rates, and the interest you pay is a tax deduction.

 

Only about 10% of study participants cited budgeting as a resolution. Yet, making a budget and sticking to it is necessary to finding success with any other financial goal. Make an honest assessment of your income and monthly expenses. Create categories of expenses and set a monthly spending limit for each category. There are some great computer programs and phone apps that will help you record your expenses in different categories so that you can have a real-time picture of how well you are doing sticking to your budget. It really is so much easier to stick to your budget and attain your financial goals when diligently track your progress every month.
housing affordability and minimum wage

Minimum Wage and the Housing Affordability Crisis

housing affordability and minimum wage

Recently a few articles such as this and this provided some shocking insight into minimum wage and its relation to apartment affordability. The report by the National Low-Income Housing Coalition that is cited shows the number of hours of work required at minimum wage in each state to be able to afford the 2015 Fair Rent of $806. Minimum wage workers would need to clock between 49 and 125 hours to be able to afford the 2015 Fair Rent of $806. Note that 125 hours is more than the 120 hours a worker might expect to clock in an entire month. It is a shocking insight into housing affordability and a tool to incite the national debate for raising the minimum wage across the United States. The study, however, doesn’t tell the whole story.

 

I recalculated those hours based off of each state’s minimum wage and average rent for a one-bedroom apartment. Using those values, the number of hours worked rises to between 80 and 245 hours. Here are the ten states with the most affordable rent for minimum wage workers.

 

Screen Shot 2016-01-27 at 4.48.56 PM

 

These are the ten states with the least affordable rent for minimum wage workers.

 

Screen Shot 2016-01-27 at 4.49.23 PM

 

Yet, I’m not saying we should rush out and raise the minimum wage because of these results. Actually, if you delve into the data there are two other conclusions that one could make. First, you notice there is a positive correlation between rent and minimum wage. It’s hard to say which came first, but it is evidence to support the argument that increasing wages does little to increase affordability because prices simply adjust accordingly. The economic theory suggests that if employers have to increase wages, they will simply pass on that increase to their customers in the form of higher prices. In the end, the increased minimum wage does nothing to change the purchasing power of those wages. I’m not making the argument that you should draw that conclusion from this data, but this data could signal that relationship.

 

Another point that is often overlooked or neglected for the purpose of political correctness is that minimum wage workers are not living in apartments at this average rental rate. At least, they are not living there alone. Either you have a household working to afford the rent, or more likely, minimum wage workers are living in cheaper apartments. Minimum wage is not the average worker’s salary. It is the absolute left side or minimum of the salary distribution. While average apartment rents get reported, you don’t see the full distribution of rents. In all likelihood, minimum wage workers are living in apartments that cost far less than the average rent. When you make the minimum wage, you don’t get to live in an “average” apartment. When you make an average salary, you don’t get to live in the nicest and most expensive apartment. It’s just a fundamental fact of economics and does not have to be political. If you want to have a nicer apartment, don’t settle for minimum wage employment. Get some extra training and education, get to work on time, do a great job, and soon you will find yourself in a good position for a raise and promotion. Strive to do more than the minimum and be more than the minimum. Also, take some time to look at the data being reported and its interpretation.