Money, money, money: an exploratory study on the financial literacy of Black college students

College Student Journal, Sept, 2005 by Angela J. Murphy

This exploratory research examined 277 survey responses to assess the influence of race, gender, age, major and parental educational level on the financial knowledge of undergraduate students attending a predominantly Black institution. The overall level of financial literacy was only about 3 correct questions out of 10. Analysis of variance results showed valuable differences in the mean financial literacy scores for all variables, except race. The logistic regression had somewhat different results; race, major, and parental educational level were important factors in explaining whether students would have higher or lower levels of financial acumen. Age and major did not have noteworthy results in the logistic regression. Overall, the findings suggest that majority Black universities have an opportunity to more intentionally expose their students to a broad range of financial literacy topics so they are better prepared to meet the financial challenges of living as completely independent adult professionals.

Introduction

Money, money, money, what do college students know about saving, investing or managing it? Apparently, they do not know as much as they should. College students are in danger of beginning a downward financial spiral of debt that they will not easily repay while in college or after they have gained fulltime entrance into the workplace (Henry, Weber & Yarbrough, 2001; Joo, Grable & Bagwell, 2003). Henry et al (2001) revealed that 68% of college students rarely budgeted or did not budget at all. In a follow up study by Joo et al (2003), only half of the students paid their credit card bills in full each month and 40% did not know the annual percentage rate of their credit cards. Both articles provided worthwhile information. However, neither article surveyed a broad range of financial literacy topics; they focused on a single topic of budgeting or credit. Additionally, neither included a sizable number of Black or minority participants in their sample.

Financial Literacy and Race

Research that examines the influence of race on financial literacy has generally found that racial minority college students had lower rates of financial literacy knowledge and practices than Whites (Chen& Volpe, 1998; Joo et al, 2003). Chen and Volpe (1998) discovered racial differences in the analysis of variance (ANOVA), but not in the logistic regression. Consistent with their earlier regression, Chen and Volpe's (2002) follow up research did not show any significant racial impact with Asians, Blacks, Latinos, and Whites. Their (1998, 2002) research had a total of 802 college students; only 59 were Black, 76 were Asian, Latino or Native American, the remaining were White. Out of 242 participants in Joo et al's article on credit, 5 were Black college students, 27 were Latinos or Others, and the rest were White. While Chen & Volpe (1998, 2002) used a variety of financial literacy subjects, Joo did not. Neither involved a considerable number of Black or minority participants.

Financial Literacy, Gender and Age

As it relates to gender, past research has commonly showed that male college students had higher levels of financial literacy knowledge and practices than their female counterparts (Chen& Volpe, 1998, 2002; Henry et al, 2001; Markovich & DeVaney, 1997). These gender differences do not appear to lessen as they age. In a comparison of male and female adult households, Hogarth and Hilgert (2002) found a disproportionate number of women in the less financially knowledgeable category. At the same time, Joo et al (2003) did not find gender differences in attitudes towards having credit. Some of these gender and financial literacy authors examined a spectrum of financial literacy matters, though none had a substantial amount of Black or minority college participants.

Financial literacy generally improves as people age (Chen & Volpe, 1998, 2002; Henry et al, 2001). Henry et al's (2001) research found that students 36-40 were more likely to budget than students under 20. Chen and Volpe (1998, 2002) also discovered that age had a positive impact; those students 40 and over were more knowledge than those students under 30. At the same time, Joo et al (2003) did not have age as a significant result in their research on credit attitudes. An analysis of adult households by Hogarth and Hilgert (2002) revealed that the most financially knowledgeable age group included people between the ages of 45-54; one of the least knowledgeable were those in the 18-24 age group. Taken together, these results suggest that people 18-24 wait 30 years before they accumulate experiences that make them the most financially competent. Colleges have a special opportunity to reduce this 30 year gap by exposing the 18-24 cohort to information and activities that enhance their financial acumen. Two of these age and financial literacy authors surveyed wide-ranging areas of financial literacy, but they did not incorporate a considerable number of Black or minority college students.