Sensation-Seeking and College Students' Credit Card Debt
Huang, Yan, Weagley, Robert O., Consumer Interests Annual
Abstract: Using the Student Financial Management survey data, collected by the Personal Financial Planning Department of the University of Missouri (2004), we examined the relationship of sensation-seeking and college students' credit card debt. Sensation-seeking was found to be significantly related to college students' credit card debt exceeding $2000. Demographic variables such as age, gender, academic year and race are significant in predicting whether college students' credit card debt is above the basic average level or not.
From having no credit history to possessing several credit cards, college undergraduates are learning to manage their credit for the first time. In 2004, seventy-six percent of undergraduates owned at least one credit card in their first year of college, an increase by 40 percent compared to 1989 (Nellie Mae, 2005). This growth generates great concern that college students may face greater financial challenges due to greater indebtedness. A recent study by the Nellie Mae Corporation, a national student loan financing organization, reported that undergraduate student carried an average credit card debt of $2,169 in 2004 (Nellie Mae, 2005).
Previous studies found that demographic characteristics are strongly related with college students' credit card use. Our question is, what is the role of psychological factors (such as sensation-seeking) in predicting financial risk tolerance, while controlling for personal characteristics? The concept of the trait of sensation-seeking was introduced by Zuckerman (1979) as "the need for varied, novel, and complex sensations and experiences and the willingness to take physical and social risks for the sake of such experience". Horvath & Zuckerman (1992) found people who scored high in sensation-seeking tend to take more risky behaviors; including engaging in risky experiments, criminal activities, sexual behavior, smoking, drinking, illegal drug abuse, careless driving, and gambling, etc. Persons who have higher scores in sensation-seeking were also found to be more likely to choose flexible and risky jobs (Zuckerman, 1979). In a five-year longitudinal study from late adolescence to young adulthood, Newcomb and McGee (1991) found illegal drug use to be strongly related to sensation-seeking. Similar results were also found by Greene, Kremar, Waiters, Rubin and Hale (2000) in regard to drinking and delinquency.
The above studies suggest that there may be relationship between sensation-seeking and economic behaviors. Grable and Joo (2004) were the first to try to use sensation-seeking to predict financial risk-taking. Although they found there is no significant relationship between sensation-seeking and ownership of risky assets for young professionals, their study still suggest it may be a new field.
Based on the above, we posit that sensation-seeking may play a role in determining college students' credit card debt. Before we construct our model, we will specify our purposes and summarize a selected few previous studies on the traditionally selected independent variables such as gender, race, age and academic year. In this part, the literature on credit card debt and characteristics associated are examined, which are gender, race, academic year and age. The characteristics of sensation-seeking are not covered in an exhaustive review of the literature. No previous studies have examined its relationship with the credit card debt of college students.
Gender has been found to be a significant factor in determining credit card debt of college students. Armstrong and Craven (1993) were among the first to examine college students' credit usage and payment practices and found that women had more credit cards than men, but actually had lower balances on those credit cards, compared to men. A reason has been offered by other researchers. That is, women understand their credit cards better than their male counterparts, consistent with a study on students' knowledge about debt from financial aid (Hira and Brinkman, 1992). …