The problem of the study was to determine college freshmen's financial knowledge. The entire freshman English 101, College Reading and Writing class at Texas A&M University--Commerce was surveyed. There were a total of 407 students enrolled in these classes. There were 20 multiple choice questions dealing with basic knowledge of financial issues, which should be understood in order to function in everyday life. Each question was valued at 5 points resulting in a total of 100 possible points for all 20 questions. The highest test score was 80 percent achieved only by one student and lowest was 0 achieved by six students. The average score was 34.8 percent for all students and the median score was 32.5 percent. The results on the test indeed validate the fact that recent high school graduates are not knowledgeable about everyday financial matters. It would seem that the appropriate place to resolve this issue would be at the high school level. Or perhaps since this subject matter is so important to a college graduate, perhaps universities should regard financial knowledge as being a component to their general education program and require a course in personal finance of all its students.
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The literature indicates that the high school seniors are unprepared to deal with finances when they graduate. The emphasis in the high school curriculum is on preparation for college or on acquiring skills necessary to obtain a job and to earn an income. Very little of the student's studies focus on how to effectively use the income in dealing with financial matters such as bank accounts, investments, mutual funds, mortgages, credit cards, loans, Social Security, insurance and taxes. Only if a student has taken a high school course in consumerism, finance or in economics would he or she be exposed somewhat to every day financial issues while in school.
In 1988 the Texas State Legislature passes a bill mandating that all public high schools implement the Texas Essential Knowledge and Skills for economics with emphasis on the free enterprise system and its benefits. Section 118.2 calls for student understanding in the economics section of market economic systems, supply, demand consumer economics including risks and rewards, and the impact of investing in the stock and bond markets (Texas Administrative Code, 1998, A2 & 3).
How effective have these mandates been? The Jumpstart Coalition for Personal Financial Literacy, an organization first convened in 1995 for improving financial literacy among the young, "...determined that the average student who graduates from high school lacks basic skills in the management of personal financial affairs. Many are unable to balance a checkbook and most have no insight into the basic survival principles involved with earning, spending, saving and investing." (Jump-start Coalition Homepage).
Having had a required course in free enterprise, are recent Texas high school graduates knowledgeable in financial matters? The purpose of this study is to determine how well recent Texas high school graduates understand basic consumer financial concepts.
HYPOTHESIS
It is hypothesized that recent Texas high school graduates who are enrolled in their first year of college will not have an effective understanding of basic financial concepts dealing with savings, investment and risk.
RELATED LITERATURE
The financial world that college students face is becoming more and more complex. A current newsletter from the National Business Education Association stresses the "...need for sound investing know-how for today's adults." They further state that the "...savings rates in the U.S. are dismal. Students face three long-term financial challenges: buying a home, funding their children's education and planning for retirement" (Stock Market Survey) 2003, pp. 1-2).
David Wilcox in "Remarks to the Federal Reserve Bank of Dallas in 2000" reported that there would be "roughly 1.2 million personal bankruptcies declared in the United States that year. Further, only two thirds of eligible workers choose to participate in the retirement savings plan sponsored by their employers, even when their employers turbo-charge the plan with a match on employee contributions"(Agency Group 01, 2000). Mr. Wilcox stresses that every graduating senior should understand the concept of limited resources and choices that have to be made concerning opportunity costs, compound interest, and risk.
Jerry Mason (2000) in Educating Consumers, states that consumers are "flunking personal finance" (p. 125). "Personal bankruptcies are at an all-time high. Financial problems are among the primary factors associated in divorce. More elderly people are living in poverty than any other group. And most college graduates are emerging from their ivory towers with debt loads (student loans, auto loans, and credit card debt) substantially greater than their starting salaries." (p. 125).
Neal Godfrey, (2002) ABA Banking Journal states, "Our kids simply don't learn the financial facts of life ... We live in the largest capitalist nation in the world, and our children graduate from high school without a clue about finance. As bankers, educators, and parents, we need to do something about financially illiterate children. Why are we in this situation in the first place? Because we never taught them" (p. 47).
Some authors question the financial sophisticating of Generation Y. Although Generation Y has "a relatively high level of disposable income", much of the research seems to "indicate that Generation Y consumers have a low degree of financial literacy" (Palmer, Pinto, and Parente, 2001, p. 105).
In Chen's study, "An Analysis of Personal Financial Literacy among College Students," it is concluded that college students are not knowledgeable about personal finance (Chen, 1998). The low level of knowledge will limit their ability to make informed decisions. Although the respondents were questioned about their knowledge of savings, borrowing, insurance and investments, by far, the weakest area is investments with about 40 percent of the questions answered correctly. Chen concludes, "When individuals cannot manage their finances, it becomes a problem for society. This challenging issue needs to be addressed" (p. 107).
In a 2002 article entitled "Gender Differences in Personal Financial Literacy Among College Students," Chen and Volpe (2002) used a large sample (924 usable responses) from multiple colleges and universities in the United States. The study sought to answer questions concerning financial literacy between men and women and their education and experience levels. "Further we find that participants' financial literacy is geared to education and experience factors. Business majors are likely to know more about personal finance than non-business majors. Participants with more years of college experience are more likely to know more about personal finance" (p. 305).
The study further found that most individuals learn about financial knowledge through informal channels with 70 percent learning finances from their parents. Only 60 percent learn from college; 30 percent from high school. "Children seek personal finance knowledge from their parents. Yet there is evidence that American adults are themselves not knowledgeable in this area" (p. 306).
Since 2001, Harris Interactive has produced the 360 Youth College Explorer, a biannual survey of America's college students conducted in conjunction with 360 Youth, the marketing and media arm of Alloy Inc. The 360 Youth College Explorer is the only study of college students conducted among all types of 18 to 30 year old college students, including full-and part-time students, as well as those working toward 2 or 4 year degrees. Following are findings from this study:
* Overall, college students' discretionary purchases total more than $53 billion per year.
* Two-thirds of all college students (65%) have their own credit card, and by their senior year, ownership is 79 percent.
Worries about money are a major theme for today's college students. Half of students worry they may not be able to find a job (52%). There are too many people living in poverty (51%) and the economy is weak (49%). Half depend upon a student loan and these students expect to owe over $25,000 upon graduation. (Exploring the College Experience, 2003)
