More than 70% of the 5,488 college students who took a nine-question quiz designed to measure their current financial management knowledge failed the test, according to Higher One, a New Haven, Conn.-based financial services provider that sponsored the survey.
Less than 30% of the respondents answered six or more questions correctly, with more scores in the bottom levels than the previous year.
“We are surprised to see that college students still do not understand basics of financial management, such as how to avoid over-drafting or how and when one should prepare an emergency fund,” said Mary Johnson, Higher One’s financial literacy and consumer advocacy program manager.
Of the nine questions asked, the percentage of correct responses increased marginally for three questions that related to: 1) the cost of obtaining a FICO score, 2) the liabilities when a credit card is stolen and 3) what you should do if you have too many credit cards.
“The fact that students scored somewhat better on questions related to some of the more common areas of education around credit cards indicates our efforts are beginning to pay off,” Johnson said. “Now our focus must broaden to include other pertinent financial literacy topics such as saving and the importance of financial planning.”
More than half of the respondents reported that they are saving very little (less than 1% of income).
“Most financial planning experts recommend an amount equal to 3-6 months of your normal expenses, but, more recently, with unemployment lasting much longer than the norm, we are beginning to see recommendations for an even greater cushion, especially for older adults for whom it might take longer to find another job,” Johnson said.
In terms of who should be providing this financial education, nearly half of respondents reported that “there is a lot of room for improvement” in terms of the financial literacy programs their schools provide. Respondents do acknowledge, however, that the onus for teaching these topics also falls on parents. Last year, about 6% of respondents felt the responsibility to teach financial literacy belonged to their parents, but this year nearly 25% believed it to be their parents’ job.
To encourage schools to implement financial literacy programs on their campuses, Higher One launched a Financial Literacy Counts grant program earlier this year. Grants ranging from $2,000 to $5,000 are available to accredited U.S. non-profit colleges and universities and may be used to support student awareness campaigns, workshops, online financial literacy tools and other activities and resources that promote financial literacy.
The Higher One survey was conducted in April among students enrolled in four-year universities, community colleges or two-year vocational schools that use services provided by Higher One. Students who agreed to take part in the survey answered multiple items through a Web questionnaire.