Understanding Money: Study Examines the Effectiveness of Financial Literacy Education

Jul 21, 2010

Worried about growing student debt, many college campuses have started offering financial literacy classes, but few have explored whether or not they change student behavior. In her recent dissertation, Kimberly A. Brown examined the effects of money management training on health professions students and found that they had a moderate influence on students' financial decisions.

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Teaching College Students to Manage Money

College is a major source of debt in the U.S. - a recent study suggests that one-third of Americans have borrowed money for their education. And the economic downturn has just made the problem worse. Researchers have shown that, since the recession hit, students are taking out bigger educational loans and increased levels of consumer debt such as credit cards and auto loans. Furthermore, many individuals report that steep student loan payments have prevented them from taking other major life steps, from marriage to buying a house. It's clear that student debt is out of control.

In response, many colleges and universities have started offering financial literacy courses. Financial counseling clinics are also popping up on campuses across the country, and schools such as Emory University have student-run investment groups that give students a hands-on opportunity to apply their financial know-how.

But in spite of all this enthusiasm, some people say that financial literacy courses just don't 'stick.' In 2008, the Jump$tart Coalition, an advocacy nonprofit for financial education, released a survey showing that financial literacy classes have no impact on a college student's financial literacy score. And some professors report that the concepts are teachable, but they rarely take hold without personal experience. In an interview with Business Week, Professor Lewis Mandell at the University of Washington (UW) Business School noted that in his personal finance courses, 'The undergrads were yawning, the MBAs had some interest, but the Executive MBAs - the ones with families, mortgages and car payments - they hung onto every word.'


Clearly, teaching financial literacy to college-age individuals is crucial. But are the current efforts working? Kimberly A. Brown, director of finance for Midwestern University, decided to find out. For her doctoral dissertation at Capella, she explored whether financial literacy programs affected students' behavior at three medical professions programs: The New Jersey Dental School, the Illinois College of Optometry and the University of Medicine and Dentistry of New Jersey's School of Osteopathic Medicine.

'Examining the Influence of Financial Literacy Education on Financial Decision-Making Among Graduate Level Health Professions Students' drew on data from both focus groups and a written survey, allowing Ms. Brown to combine quantitative and qualitative data. Responses to the written survey suggested that money management training had some affect on student behavior. The more training sessions students attended, the more positive financial decisions they made with respect to general financial decision-making, as well as reviewing credit reports and scores. Furthermore, the training programs had an effect on students' lifestyle decisions, such as where to live or whether to eat out or cook at home.

However, results from the survey suggest that the training sessions did not have an effect on several other key areas of financial decision making. These include basic budgeting and spending habits, taking out student loans, paying loan interest while still enrolled and using credit cards.

Focus group interviews did indicate that, while short-term student behavior may not have changed in these areas, the training sessions had some effect on their outlook. Students reported deciding to limit their borrowing after taking the financial literacy courses, and many reported understanding the importance of paying interest, although they simply couldn't afford to. Some participants also reported struggling with paying off credit cards, although many said they were now making better credit choices because of the training. And some students even indicated that they had learned to budget their money after taking the courses.

Student Spending Habits

Focus group participants reported that, in general, the training sessions had reinforced prior knowledge. And Ms. Brown noted that, 'It's good to hear that (the training sessions) do make some sort of impact. The more they're hearing about it, the more it seems to make an impact.' But she cautioned that her results translate best to in-person financial literacy courses offered to other health professions students. Not enough research has been done in the area to generalize to other types of courses or other types of student.

However, Ms. Brown did note that her research points to ways that other institutions can measure the effectiveness of their own programs. She suggested that administrators conduct focus groups to analyze how effectively information is being conveyed and track any changes in student behavior resulting from taking the courses. By pursuing this information, schools may be able to tweak their money management programs to better suit their student body and make a longer-lasting impression.

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