Financial (IL) Literacy of College Students

Document Type



Published in: Journal of American Academy of Business, Vol. 18, No. 1, 2012.


This study surveys 574 full-time undergraduate college students to evaluate financial literacy. We also examined personal and familial characteristics, and future family and career expectations as predictors of financial literacy. The overall mean percentage of correct answers is 46%. Students with a cumulative grade point average above a 2.0, business majors, males, and upper-class students outperformed their counterparts. Participants whose family income is high, have at least one charge card, and are Caucasian achieved higher scores. The results indicate that college students are financially illiterate. The manifestations of the costs of financial illiteracy are apparent from studying several social phenomena. For the most recent quarter ending March 2002, personal bankruptcy filings hit a new annual high of more than 1.5 million (ABI, 2002). Financial problems are one of the leading causes for divorce in the U.S. (AAML, 2002; Stanley & Markman, 1997) and one of the major reasons for the elderly living in poverty (Mason, 2000). The trend from defined benefit plans to defined contribution plans has resulted in America becoming a nation of investment managers. At the end of the year 2000, over 42 million Americans were managing deferred compensation plan accounts worth $1.8 trillion (Crawford, 2002). Yet, in 1998 over one-half of Americans reported they have not saved enough for retirement, and 53% reported that they often live paycheck to paycheck (Molinari, 2002). Many surveys have tested the financial literacy of adults. All have shown that the majority of adults are not financially literate (CFA/AMEX, 1991; EBRI, 1995; KPMG, 1995; Mastio,1999; Money Magazine/Vanguard, 1996; Opiela, 1999; PSRA, 1996, 1997; SEC, 1999; Simon, 1998). In February of 2002, the United States Senate held hearings on the state of financial literacy and education in America. SEC Chairman, Harvey L. Pitt, Secretary of the Treasury, Paul O'Neil, and Alan Greenspan of the Federal Reserve Board were three of nine experts who all presented evidence that Americans do not have adequate knowledge to make personal financial decisions (Sarbanes, 2002). Several studies have been conducted on younger populations and concluded that high school students also show a lack of financial literacy (ASEC, 2001; Jump$tart, 1997, 2000, 2002; NEFE, 1998). The purpose of this study is to update the state of financial literacy among full-time undergraduate college students and to identify familial and personal characteristics that may impact their knowledge of personal finance. The term financial literacy is used by many authors and organizations (ASEC, 2001, Chen & Volpe, 1998; ISFS, 2000; Jump$tart, 2002; Mastio, 1999; NEFE, 1998; Ophelia, 1999; U.S. Senate Committee on Banking, 2002). We define this term as having a working knowledge in the following four areas - investment management, retirement planning, general money management, and credit management. A foundation in investment management and retirement planning includes knowledge of portfolio diversification, asset allocation, risk, and the importance of time horizons.