High school graduates may be well versed in math, science, English and humanities, but a new study points out one glaring omission in their educations—financial literacy.
A survey of 65,000 college freshman showed a general lack of knowledge about credit cards, interest rates, student loans and savings. Students were asked six questions to assess their financial knowledge and got an average of 2 questions correct.
Credit card knowledge sorely lacking
Twelve percent of respondents correctly identified 6 to 12 months as the general range of how much emergency savings to keep on hand. Seventy-six percent wrongly believed that financial planners recommended 1 to 6 months.
When asked what to do if they have too many credit cards, 50% believed that closing as many accounts as possible was the best course of action. In fact, people need to be cautious about closing credit accounts as it can have an adverse effect on credit scores. Only 12% of students answered that question correctly.
In the event of a late payment notice being sent to a collections agency, 54% of respondents believed the negative information would remain on their credit report for three years or less. Only 16% correctly answered that this information would continue to affect their credit score for six to seven years.
Student loan and interest rate understanding slightly better
In the realm of interest rates and student loans, young people did slightly better. Just over a third were able to reconcile the impact of interest rates and inflation. And about a third also knew that their parents did not have to sign a promissory note before they got a student loan.
Some students do have to take a class on financial literacy in order to graduate high school. States that mandate financial literacy classes are: Alabama, Arizona, Florida, Georgia, Idaho, Louisiana, Mississippi, Missouri, New Hampshire, New Jersey, North Carolina, North Dakota, Oklahoma, Tennessee, Texas, Virginia and West Virginia.
The Money Matters on Campus survey is in its second year and is sponsored by Higher One, a firm specializing in helping colleges lower costs and improve graduation rates.
Wells Fargo offers Get College Ready website for parents and students
Families concerned about sending their kids off to college without sufficient financial know-how can use Well Fargo’s new website, Get College Ready, which offers calculators, quizzes, videos and articles to help students prepare for dealing with money once they’re out of the nest.
The site provides information on budgeting, ways to cut costs on books, meal plans, and off-campus entertainment, as well as products and services like insurance, credit cards and bank accounts.