The financial knowledge of college freshmen

College Student Journal, June, 2005 by Stephen Avard, Edgar Manton, Donald English, Janet Walker

Of the 407 students, 335 or 82.3% reported having a course in tree enterprise while in high school and 70 did not have one. It is speculated that the 70 students without the course were out of state transfers or were international students. Two students did not answer the question.

Student Test Performance

The highest test score was 80% achieved by only one student and the lowest score of 0 was achieved by six students. The average score was 34.8% for all students and the median score was 32.5%. As expected, the students performed poorly on the test as a whole. Table 2, presents a frequency distribution for the student test scores.

Slightly more than 92% of the students scored below 60% thus failing the test based on a passing score of 60 or above. Almost 46% of the students scored 30% or below. Most of the students' (211 or 52%) scores were between 30% and 50% (inclusive). A total of 290 or about 71% achieved scores between 20% to 50%.

Student Performance on Questions

Table 3 presents each of the 20 questions and the number and percentage of students who answered the questions correctly. There were only four questions which over 50% of the students answered correctly and on seven of the questions fewer than 25% answered them correctly.

On the four questions that the students achieved over 50% (#2,9,10 and 14), the highest percentage of 74.9%--answered question #2 correctly by indicating that education level attained is the most important determinant of income level. The second highest correct response percentage was obtained on question #9-61.7% who responded correctly that a CD is issued by a bank.

Almost 60% (58.5%) correctly identified the 401k plan as being the retiree's plan where employers match employee contributions for employee retirement in question #14. Then 57.2% correctly identified the purpose of disability income insurance in question #10.

The students did very poorly on questions #4, 11, 13, 17 and 19, all of which were answered correctly by fewer than 20% of the students. A large majority of the students were not aware of how annual interest is compounded, i.e. at the end of the calendar year (#4), they do not know where stocks are initially traded when issued in the primary market (#11), and they were not aware of the primary advantage of owning a mutual fund vs. stocks, i.e. liquidity (#13).

In addition, the majority of the students were not aware that the highest coverage per dollar of life insurance would be term insurance (#17) and did not know the major difference between the Roth IRA and a traditional IRA (#19).

Only 21.9% answered #8 correctly by indicating the two advantages of a home equity loan over most consumer loans. Only about 25% of the students correctly responded to questions #15, 16 and 20. Number 15 asked to identify a financial advisor who deals in financial advice, i.e. the Certified Financial Planner. Number 16 requested the students to identify the sources and uses of Social Security Funds. Question #20 asked the students to define a blue chip stock.