Testing the Role of Parental Debt Attitudes, Student Income, Dependency Status, and Financial Knowledge Have in Shaping Financial Self-Efficacy Among College Students

Summary

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This study was designed to evaluate the determinants of personal finance knowledge among college students and to test how this knowledge affects students' perceived self-efficacy beliefs in dealing with personal financial issues. In this study, a test of parental attitudes towards debt, students' income level, and dependency status related to levels of personal finance knowledge was conducted. The relationship between personal finance knowledge and self-efficacy was then examined. A questionnaire measuring these variables was completed by 80 participants at a Midwestern U.S. university. A significant positive relationship between level of income and personal finance knowledge was found. It was also noted that financial knowledge was significantly positively associated with self-efficacy. Students who were more knowledgeable had higher levels of self-efficacy.

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Testing the Role of Parental Debt Attitudes, Student Income, Dependency Status, and Financial Knowledge Have in Shaping Financial Self-Efficacy Among College Students

Introduction

During the economic downturn of 2007-2010, the United States lost 8.6 million jobs (Zuckerman, 2010). The economic malaise that resulted in these losses has generally been referred to as a credit crisis because of the massive contraction in lending at the household and corporate levels. Recent figures report that top U.S. and European financial companies wrote-off over one trillion dollars in toxic assets and credit losses during the period (Reuters, 2009). The resulting economic environment has raised concerns about the nation's addiction to debt. Particularly vulnerable to falling into financial indebtedness are young adults and college students (Henry, Weber, & Yarbrough, 2001; Joo, Grable, & Bagwell, 2003). Students' stage in the lifecycle generally puts them into the category of low-income earners. For students, this often makes credit feel like free money that can be used to supplement income.

To make matters worse, many college students do not fully understand the costs of using credit. The impact of this knowledge gap can be disastrous (Henry et al., 2001). The misuse of credit can have negative impacts related to landing a job or pursuing a graduate school education. According to Mannix (1999), employers regularly check credit histories of potential employees. Furthermore, without a good credit history and a high credit score, it can be difficult to obtain low-cost financing for graduate school.

Credit card debt can be the most harmful type of liability for college students due to high interest rates and the ease of use and access . In a study conducted by Nellie Mae (2005), it was reported that 56% of undergraduate students reported getting their first credit card as a freshman in college. Gi...

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