Testing the Role of Parental Debt Attitudes, Student Income, Dependency Status, and Financial Knowledge Have in Shaping Financial Self-Efficacy among College Students

This study was designed to evaluate the determinants of personal finance knowledge among college students and to test how this knowledge affects students' perceived self-efficacy beliefs in dealing with personal financial issues. In this study, a test of parental attitudes towards debt, students' income level, and dependency status related to levels of personal finance knowledge was conducted. The relationship between personal finance knowledge and self-efficacy was then examined. A questionnaire measuring these variables was completed by 80 participants at a Midwestern U.S. university. A significant positive relationship between level of income and personal finance knowledge was found. It was also noted that financial knowledge was significantly positively associated with self-efficacy. Students who were more knowledgeable had higher levels of self-efficacy. Introduction During the economic downturn of 2007-2010, the United States lost 8.6 million jobs (Zuckerman, 2010). The economic malaise that resulted in these losses has generally been referred to as a credit crisis because of the massive contraction in lending at the household and corporate levels. Recent figures report that top U.S. and European financial companies wrote-off over one trillion dollars in toxic assets and credit losses during the period (Reuters, 2009). The resulting economic environment has raised concerns about the nation's addiction to debt. Particularly vulnerable to falling into financial indebtedness are young adults and college students (Henry, Weber, & Yarbrough, 2001; Joo, Grable, & Bagwell, 2003). Students' stage in the lifecycle generally puts them into the category of low-income earners. For students, this often makes credit feel like free money that can be used to supplement income. To make matters worse, many college students do not fully understand the costs of using credit. The impact of this knowledge gap can be disastrous (Henry et al., 2001). The misuse of credit can have negative impacts related to landing a job or pursuing a graduate school education. According to Mannix (1999), employers regularly check credit histories of potential employees. Furthermore, without a good credit history and a high credit score, it can be difficult to obtain low-cost financing for graduate school. Credit card debt can be the most harmful type of liability for college students due to high interest rates and the ease of use and access. In a study conducted by Nellie Mae (2005), it was reported that 56% of undergraduate students reported getting their first credit card as a freshman in college. Given the importance of personal finance knowledge and behavior, especially with regard to college students, there has been insufficient empirical research to clearly establish the determinants of personal finance knowledge among college-aged adults and how knowledge affects students' ability to cope with overall levels of debt. This study was concerned with answering questions that have not been adequately addressed in the literature. These include determining if there is relationship among parental attitudes towards debt, income level, and dependency status and students' level of personal finance and credit knowledge. This study was also concerned with determining if personal finance knowledge is related to self-efficacy in dealing with financial issues. To help answer these questions, it is important to examine previous research that has addressed these questions, beginning with the influence parents have in students' financial lives. The following discussion highlights some of this literature. Literature Review Parental Attitudes and Financial Knowledge It is a widely held assumption that parents play an important role in the socialization of their children (Moschis, 1987). This same thought applies in the topic domains of personal finance and credit knowledge. The American Savings Education Council (ASEC, 1999) reported that 94% of students surveyed said they use their parents as a source of personal finance knowledge. …