Students Engage in Riskier Behaviors to Manage Increasing Financial Difficulties
Just before the economic recession hit, researchers launched a project called Arizona Pathways to Life Success for University Students. APLUS is a longitudinal study looking at the financial attitudes and behaviors of college students. Researchers hope to link these behaviors to success and well-being (or lack thereof) later in students' lives.
Drawing from the freshman class of 2007 at the University of Arizona, the researchers surveyed 2,098 students, a full 32% of the first-year cohort. This led to the Wave 1 report, in which researchers found, among other things, that parental teachings and expectations have the strongest effect on students' financial behaviors. The researchers initially planned to collect their next round of data in 2011, their participants' senior year. Then the financial crisis 'erupted,' offering a rare opportunity to study how an economic recession changes students' financial attitudes' and behaviors.
In early 2009, researchers emailed out a follow-up survey to the 1,950 APLUS students still enrolled at the university. They got 748 responses, 36% of the original sample, which they dubbed the 'Impact Sample.'
The second survey, called Wave 1.5, assessed how the economic crisis impacted financial behavior, literacy, coping and well-being. They also sought to identify which demographic groups were affected most by the recession and evaluate students' levels of trust in financial institutions.
Figure 8 from Arizona Pathways to Life Success for University Students (APLUS) Wave 1.5.
Wave 1.5 measured the impact of the economic crisis on students in subjective and objective terms. For the objective measure, the survey identified changes in students' debt in three categories: credit cards, educational loans and 'other' debt, such as car loans. They found a 60% increase in students' average monthly credit card debt and an 86% increase in students' outstanding educational loans. They also found that the effects were stronger among minority students - credit card debt doubled for Hispanic students and tripled for African American students.
For the subjective measure, they asked students to report whether they and their families were feeling the impact of the recession. Ninety-five percent of students reported that the downturn had effected their family finances, and 90% indicated that it had affected their own finances. When given space to elaborate on how the crisis was affecting them, most students indicated concerns about university budget cuts leading to fewer classes and higher tuition. Many also noted that they were cutting out social activities and eating at sororities or fraternities to save money. The subjective measure also found differences between ethnicities - African American students felt the most overall impact - and gender - female students tended to feel more impact on their situation and behavior.
Figure 11 from Arizona Pathways to Life Success for University Students (APLUS) Wave 1.5.
The survey also looked at students' financial proficiency and understanding of money management. Using a set of true/false questions to measure factual knowledge, the survey found a slight increase in students' objective financial mastery. However, the survey also found a 19% drop in students' subjective financial knowledge, measured by their confidence in their understanding of money management, and a 12% drop in students' evaluation of their own knowledge as compared with their peers' ('comparative' in the graph above). These results seem to reflect how overwhelming and stressful the current economic situation is for many students.
The survey also explored changes in a number of financial behaviors. They found that budgeting and saving behaviors were down 3% and 6% respectively, although this seemed to be due primarily to a lack of resources. Among students who felt the strongest economic impact, budgeting was actually up 3% but saving was down 11%. The researchers also found changes in financial coping strategies. Typical strategies, such as cutting back on communication and entertainment expenses, showed a 10 to 30% increase. Unfortunately, risky coping strategies also increased. Dropping classes was up 169%, taking a leave of absence increased 106%, postponing healthcare jumped 78% and using one credit card to pay off another increased 26%.
Figure 18 from Arizona Pathways to Life Success for University Students (APLUS) Wave 1.5.
Once they'd established the effect of the crisis on students' finances, the researchers looked in turn at how this affected their wellbeing. Overall, students reported a 5% drop in psychological wellbeing due to stress and anxiety. The survey also broke wellbeing down into specific areas of life, finding an 8% drop in financial wellbeing, a 3% drop in physical health, a 6% decline in relationship satisfaction and a 3% drop in academic wellbeing. Although the survey didn't specifically measure academic aspirations, they found that students' open-ended responses indicated widespread concern that their academic careers would be ended early due to rising tuition costs, the need to work more hours and related effects of the financial crisis.
Finally, the Wave 1.5 survey touched on a subject that is currently very volatile in public discourse - trust in financial institutions. Overall, 19.1% reported they had a 'great deal' of confidence in financial institutions, 54.4% reported only 'some' confidence and 19.4% reported 'hardly any' confidence. When the research was broken down by type of institution, a general trust continuum was found:
Figure 21 from Arizona Pathways to Life Success for University Students (APLUS) Wave 1.5.
The APLUS researchers used the results of the study to develop a model of 'Financial Coping during Economic Crisis.' They found that in response to financial strain, students typically engage in three types of coping behaviors:
- Proactive: Saving resources (typically money) for future use.
- Preventive: Alleviating future financial demands by taking actions such as budgeting or paying off credit card debt.
- Reactive: Responding to immediate financial demands by cutting back on expenses using both the typical and high-risk strategies mentioned above.
In a better economic climate, students may naturally engage in proactive and preventive coping measures as they mature and learn to manage money. Unfortunately, the economic crisis has driven many into reactive measures as they struggle to stay afloat. Hopefully students will have the opportunity to learn more stable money management strategies as they grow into adulthood and financial independence.