Financial literacy has become more important than ever as an increasing number of college students are relying on credit cards to finance their education. We examine whether college students are knowledgeable about finance, whether they improve upon that knowledge, and whether their demographic profile, financial backgrounds, and engagement/motivation level affect their financial knowledge and learning. Recruiting students who voluntarily participated in the pre- and post-tests of personal finance and managerial finance, and using multiple regression and the results of student course evaluations, we find that using finance courses positively affect the students' financial literacy. Moreover, we find that gender difference is found only in the pre-test of managerial finance, that female students significantly improved learning, and that students in the upper level of finance courses overall outperformed those in the lower level in both tests of personal finance and managerial finance. We also find that students' job experiences, financial background, attitude and behavior, and class participation and motivation determine the amount of their learning.
Keywords: Financial literacy, student learning, demographic profile, financial background, engagement/motivation
Financial literacy has become more important than ever as an increasing number of college students are relying on credit cards to finance their education. In contrast to the growth of credit card usage, students may have limited knowledge on the specifics of credit cards, i.e., the cash advance fee, the interest rate on their credit card, their credit card limit, and their current credit card balance (Jones, 2005; Joo, Grable, & Bagwell, 2001; Warwick & Mansfield, 2000). On the basis of a survey result in which participants correctly answered 53% of questions on personal finance, Chen and Volpe (1998) claim that college students are not knowledgeable about personal finance and they may not make sound financial decisions.
Lyons (2004) and Jones (2005) argue that college students overall seem to use credit cards responsibly and to manage their balances. However, there are financially at-risk college students who have excessive amounts of debt in today's consumer culture (Roberts & Jones, 2001). Recent statistics show that more than 50 percent of the students may carry four or more credit cards when they reach their senior year and the number of 18 to 24-year-olds declaring bankruptcy has increased 96% in 10 years (Young Americans: Center for Financial Education, 2009).
Hayhoe, Leach, and Turner (1999), Hayhoe et al. (2005), and Jones (2005) show that students with four or more credit cards are more likely to be older and female, to feel good with the use of credit cards, to apply for the cards at every opportunity, and are less likely to understand that interest is the cost of using credit. Studies identify demographic profile and characteristics of financially at-risk college students (Lyons, 2004; Lyons & Hunt, 2003). The at-risk students are more likely to be female, black, and/or Hispanic, older, to be financially independent, to receive need-based financial assistance, to hold $1,000 or more in other types of debt, and to have acquired their credit cards by mail, at a retail store, and/or at a campus table.
Student learning is highly associated with education quality, student engagement, motivational effects, self-beliefs, and achievement expectations (Clayson, Haley, & Smith, 2008; Cottrell & Jones, 2002; House, 2006; Kuh, 2005; Hamilton & Saunders, 2009). They find that the quality of the student experience has been improved through course assessments and changes in course designs, and through students being more deeply involved in their own learning, i.e., academic challenge, active and collaborative learning, student-faculty interaction, enriching educational experiences, and supportive campus environment. A recent study shows that teaching styles and teaching techniques affect student performance differently for higher GPA versus lower GPA students and for quantitative majors and qualitative majors (Fendler, Ruff, & Shrikhande, 2009). Lower GPA students primarily benefit from the use of the Personal teaching style. High GPA, qualitative majors primarily benefit from the use of the Authority and Delegator teaching styles while high GPA, quantitative majors primarily benefit from the use of the Authority teaching styles.
The purpose of this study is threefold. First, we examine the status of financial literacy by recruiting subjects for the study. They are students who took managerial finance or portfolio management courses at the State University of New York, Fredonia in Spring 2009 semester. Sixty-four and forty-nine students from two sections of managerial finance and one section of portfolio management voluntarily participated in pre- and post-tests on the second day and the second to last day of the semester. The students answered 38 multiple choice questions (30 personal finance and 8 managerial finance questions) and 18 questions about their demographic profile and financial characteristics. The questions on personal finance were developed by the Jump$tart Coalition for Personal Financial Literacy while seven questions of managerial finance were adopted from the test bank developed by Ross, Westerfield, and Jordan (2008) and one question was from the National Council on Economic Education (2005).
New York State has personal finance standards in high school, although the standards are not required to be implemented. So, we predict that the students have decent knowledge of personal finance. However, the students who have not taken managerial finance have limited knowledge of the subject at the beginning of the semester. We find that students from the three classes correctly answered 19.5 (65%) to 22.7 (76%) of 30 questions on personal finance, and 3.1 (38%) to 4.7% (59%) of 8 questions on managerial finance in the pre-test. These results indicate that the students, on average, received passing grades in personal finance in contrast to the results of the previous studies (Chen & Volpe, 1998; 2006 Jump$tart Questionnaire). Students in the managerial finance classes received failing grades in the pretest of managerial finance, which is not surprising because most of them had not taken the course yet. Students in the portfolio management class who previously took managerial finance barely passed the pre-test of managerial finance with a grade D, which implies that they need reinforcement.
Secondly, we investigate student learning over the semester, using the pre- and post-tests. We find that students in one section of the managerial finance class significantly improved the average score on the test of managerial finance from 3.1 (39%) to 4.4 (55%) of 8 questions while students in the other section and portfolio management improved marginally. We also find that the significant improvement results in part from an increase in the average score of female students from 2.4 (30%) to 4.5 (56%). On the other hand, we find that students in all classes marginally improved or did not improve the average score on personal finance portion of the tests. These findings may support Chen and Volpe's (1998) claim that female students have lower levels of knowledge in the pre-test. However, they did not examine whether students improve learning. In addition, students in the portfolio management class overall performed significantly better in both tests of personal finance and managerial finance than those in the managerial finance classes.
Finally, we examine additional factors that will influence student learning. To test a progress of student learning, we employ student demographic profile and financial characteristics, and student self-evaluations. The profile and characteristics are mainly based on a survey questionnaire developed by the Jump$tart coalition. Data of the self-evaluations are available as part of the course evaluations by students at the end of the spring semester. We find that students who work full time in the summer and part time during the college year, and students who expect to earn more, performed better in the pre-test of managerial finance. We also find that the student ownership of a checking account positively affects performance in the pre-test of managerial finance while the student ownership of a credit card negatively affects performance in its post-test, and that students who are spending-oriented outperformed those who are thrifty or neither thrifty nor spending-oriented in the pre-test of personal finance. Furthermore, we find that a significant improvement of student learning in one section of the managerial finance class results in part from higher student participation, more effort, and high achievement expectations.
Examining student learning over the semester, we set up the following hypotheses.
Hypothesis 1. Students who have not taken managerial finance will significantly improve knowledge in managerial finance at the end of the semester. This prediction is based on a continuous assessment of student performance at Fredonia.
Hypothesis 2. Students may not significantly improve knowledge in personal finance because they take managerial finance, not …