The financial knowledge of college freshmen

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

Needless to say the performance of the students on this test dealing with their knowledge of financial matters was poor. Only 30 or about 7.5% would have received a passing score based on a passing score of 60.

It was found that gender and having a high school course in economics or financial planning had very little impact on overall test scores. The mean test score for males was slightly higher than that for the females, i.e. 36.3% vs. 33.4%. Also there was very little difference in score between the students having and not having a high school course in economics and financial planning. Those having either course averaged 35.0 vs. those not having such a course who averaged 34.6%. Table 4 reflects the performance of males and females on each test question.

In comparing performances on the test between males and females it should be emphasized that both groups performed poorly. The males scored higher than the females on all but four of the questions. The differences were slight for the most part; however, there were three questions in which the differences were relatively large--#6, 17 and 20. A higher percentage of males knew the advantage of a money market account compared to a savings account (#6). In question #17, one of the four questions where the females scored higher than the males, 18.6% of the females know the purpose of term insurance compared to 10.7% of the males. A higher percentage of males--32%--knew what a blue chip stock is compared to 18.1% of the females in responding to question #20.

Don't Know Responses

The students were afforded the opportunity to answer "don't know" if they wished on all questions. "Don't know" was the fourth response available on all 20 questions. This would reduce the need to guess if a student did not know the answer to the question. The researchers felt it was important to offer the students the opportunity to indicate that they did not know, rather than forcing them to guess and select an answer. It is interesting to note the numbers and percentages of students who indicated that they did not know the answers to the questions. These results are presented in Table 5.

The number of don't know responses range from a low of 16 or 3.9% for question #1, i.e. not knowing the main reason for financial planning; to a high of 281 or 69% for question #19, i.e. not knowing the difference between a Roth and a traditional IRA. Over 30% of the students reported not knowing the answers to 12 of the questions and over 40% indicated that they did not know the answer to 6 of these questions.

More than 40% of the students indicated that they did not know the answer to questions 5, 6, 13, 18, 19, and 20. Question #5 dealt with the reason to take the standard deduction in income tax. Question #6 was looking for the advantage of a money market account over a bank savings account. More than 40% of the students indicated that they did not know the major purpose of buying mutual funds as opposed to individual stocks in their response to question # 13. Question #18 dealt with the definition of a bond. Question #19 asked for the difference between a Roth IRA and a traditional IRA. Question #20 looked for the definition of a blue chip stock.