How Financially Literate are Today's Youth? Their Current Practices and What We Need to Know as Educators
May 2005, Vol. 10, No. 1
ISSN 1540 5273
Laura Royer, Joy Jordan, Ph.D., Mary Harrison
The spending behavior of youth combined with their limited understanding of money management promotes habits that may lead to costly financial mistakes today and in the future. While youth's financial literacy is low, their spending power is increasing. To increase financial literacy and better money management practices, educators need to understand the financial behaviors and attitudes of the current generation of youth.
This study surveyed 809 youths ranging from elementary to college age from rural and metro areas in Florida. Four parallel questionnaires were developed to address age appropriateness. Money management behaviors among the youth were assessed to target successful prevention and intervention programs. Critical findings that influence current changes in curriculum are (1) the extensive use of credit beginning among middle-school-age youth, (2) the lack of responsibility associated with money management at all ages, especially credit, and (3) youth's limited access to educational information other than that offered by parents, whose own practices may limit the dependability as the primary information source.
The spending behavior of youth combined with their limited understanding of money management promotes habits that may lead to costly financial mistakes today and in the future. Like no other generation, today's youth are growing up in a culture of debt facilitated by expensive lifestyles and easy credit (Dugas 2001). Three trends posing a threat to youth's ability to manage their money are adult behaviors as role models for youth; youths as a major consumer market and media focus; and limited education for youth financial literacy.
First, adults appear unable to manage their own finances. The consumer bankruptcy rate is at its highest and the national savings rate is low with many American families living paycheck to paycheck (ABI 2003, BEA 2004). Parents, while discrediting their own financial behavior, see themselves as good role models. One study found that 81 percent of the parents who reported a fair or poor job with their own finances still feel effective in providing their children financial guidance (ASEC 2001). The same study found that 94 percent of youths cite their parents as the primary role model for their own financial management.
Second, teen spending reached $175 billion in 2003 through parental allowances and youth's personal job earnings (Teenage Research Unlimited 2003). With access to this amount of wealth, youth are the target of marketing campaigns and credit companies. According to Synovate (2005) the 2004 credit card mailings increased 5.2 billion, superceding the 2001 record. Specifically, credit card companies are bombarding college campuses. College students are enticed with pre-approved credit to avoid using their limited cash supply (Grable and Joo 1999, Morse 2001, Bruce 2001). The typical college student has three credit cards, with the average debt ranging from $1,700 to $2,700 (Grable and Joo 1999, Bruce 2001, Max 2002). It is no surprise that youth ages 18 to 24 make up 10.3 percent of consumer credit counseling clientele (NFCC 2002)
The third trend is the lack of financial education. Currently only four states (New York, Kentucky, Illinois, and Idaho) require high school seniors to complete a course in money management. This number is down from seven states in 2000. Additionally, 17 states have incorporated elements of money management into existing courses (NCEE 2003). Three studies show fewer than 21 percent of graduating seniors had taken a personal finance course (ASEC 1999; Jumpstart 2002). An ongoing study by Jumpstart Coalition reports the financial literacy of high school seniors is low though the latest study indicates a slight increase in scores.
As these risks threaten the self sufficiency of today's youth, further investigation is needed. A search of the literature revealed five critical financial behaviors specific to youth: earning and accessing money, budgeting and spending, saving, banking, and using credit. No comprehensive studies of these five financial behaviors across the age span of school-age youth were found. Studies exist with a specific age range and one or more behaviors. The American Savings Education Council (1999) conducted a study of youth ages 16 to 22 addressing their access to money, behaviors associated with saving, budgeting practices, and their management of credit. Furnham (1999) researched the spending, borrowing, saving, and banking habits of youth, ages 11 to16. Two other studies (Grable and Joo 1999, Overbey and Taylor 1999) focused on credit habits of college students. Overbey and Taylor (1999) did a comparison study of college students and non-college students that focused on financial practices in budgeting, debt, and income expectations.
A study addressing where financial habits develop among the youth would give Extension educators a better idea of how financial habits change over the youth life cycle.Additionally, it would provide a guide for educators and parents in determining which financial practices to address more appropriately within the age groups.
In 2002, a pilot study asked Florida youth (ranging from elementary to college) about their current money management practices and attitudes regarding personal finance. The purpose of this study was to determine current behaviors among youth (earning and accessing money, budgeting and spending, saving, banking, and using credit) in order to develop more targeted educational curricula in money management. The research study addressed the following questions:
- What are the overall financial habits of youth?
- At what point (elementary through college age) are youth being exposed to regular income, spending, banking, savings, and credit?
- What are the significant differences among the age groups relative to their financial practices to determine appropriate benchmarks or thresholds for optimal educational programming?
The participants consisted of youth ranging from elementary to college age. Due to the nature of this study, a convenience sample of youth from Florida Cooperative Extension 4-H programs was used. There were 809 youth from both metro and urban areas. Four separate age-appropriate questionnaires were developed to address source and regularity of income, spending behaviors, saving practices, exposure to banking options, and borrowing and credit management. The questionnaire took approximately 15 minutes to complete. Data were analyzed using descriptive statistics and chi-square analyses to determine significant differences among age groups.
Categorized by age groups, there were 372 elementary youth, 173 middle school youth, 156 high school youth, and 110 college-age youth respondents. Participants were evenly represented between males and females, except for college-age youth, where the majority of respondents were female. The mean ages of the participants by groups studied were elementary, age 10; middle school, age13; high school, age 16; and college, age 22.
Earning and accessing money
The first behavior investigated was earning and accessing money. Sixty-one percent of elementary-age youth received money on a regular basis from their parents (Table 1). A higher percent of middle school students (71 percent) received money with 95 percent receiving money from sources other than an allowance. Though fewer high school students (54 percent) indicated receiving an allowance, a high percentage (71 percent) reported income from other sources. Although 69 percent of college students receive money from many sources, they still receive (69 percent) money from parents.
Table 1. Access to and amount of income
|Receive money regularly
from parents (allowance)
|$5 or less||61%||16%||6%||NA**|
|$6 to $10||39%*||27% *||31%|
|$11 to $15||NA||15%*||15% *|
|$16 or more||NA||42%*||48% *|
|Receive money from other sources||66%||95%||71%||69%|
|Responsibility to earn money = Yes||85%
* Above national average
** The amount per week was considerably higher and not compatible with other income amounts.
Amount of money.The amount of money that Florida participants received as allowance exceeds that of the national average (Woodward 1998). According to Woodward, the national average for weekly allowances for ages 6 to 8 is $2 a week, about $4 for ages 9 to 11, $5.82 for ages 12 to 13, $9.68 for ages 14 to 15, and $10.60 for ages 16 to 17. However, a large number of participants surveyed in this study (39 percent of elementary, 84 percent of middle school, and 63 percent high school) received amounts above the national average (see Table 1). More than two-thirds of each age group receives additional monies from other sources. High school (31 percent) and college students (98 percent) with jobs reported more than $200 per paycheck.
Responsibilities for earning and managing money. The study specifically addressed the participants' responsibility attached to allowance money from parents. Were the youth required to earn it? The study revealed that as the youth got older, they were less likely to be required to earn their allowance (85 percent of elementary earned their income versus 61 percent of high school students). Regarding funds from other sources, four out of ten teens ages 13 to 18 work, and seven out of ten ages 19 to 24 work.
Major spending purchases. To get a better idea of how youth were spending their money, participants were asked to rank a list of items they were most likely to buy. The elementary age was more likely to spend their money on food, music/games, and then clothes. The middle- school-age youth were more likely to buy music or electronic games, clothes, and then food. High-school-age youth were more likely to spend their money on doing things with friends, clothes, music, and electronic games. More options were added for college students as they have different expenses. College students were more likely to spend money on food, then school, and lastly, doing activities with friends.
Who influences youth spending? Youth respondents cited themselves as having the most influence on how they spend their money. According to them, only a small percentage of youth (23 percent of middle school and 19 percent of high school students) decide with their parents how they spend their money.
Budgeting and planned spending
Table 2 shows the percentages of youth (middle school to college age) who plan or budget their money before they spend it. Planned spending (either sometimes or always) significantly (p< 0.01) increases with age, but the consistency or the frequency of planning declines. Middle-school-age youth (43 percent) were more likely to always plan how they spend their money than high school (39 percent) and college (24 percent) youth. The regularity of planned spending changes as youth age (results not shown). Sixty-four percent of college students reported having set up a budget, of those, 58 percent were on a current budget. Of those on a current budget, 51 percent always stick to it, 30 percent sometimes stick to it and 19 percent never stick to it. The downward spiral of habits that begin at an earlier age becomes harder to maintain as demands for resources increase.
Table 2. Youth planned spending or budgeting practices by age
|Spending||Middle school||High school||College|
|Budget or planned spending||N||165||154||104|
|No, not at all||19%||8%||6%|
youth track their spending
|No, not at all||57%||54%||15%|
Responsibilities for management of spending. Table 2 shows the frequency with which these participants record their spending. Recording their spending (always or sometimes) increases with age, showing a significant (p< 0.01) difference at the college age (85 percent recorded spending). Of middle-school-age participants, 43 percent (always or sometimes) began showing the habit of recording their spending along with 46 percent (always or sometimes) of high-school-age participants.
There is a significant difference (p<0.01) in saving practices across all ages. Table 3 shows the breakdown of how many participants save money and how often. Most of the participants (87 percent of elementary, 88 percent of middle school, 95 percent of high school, and 73 percent of college students) reported saving their money. Though 100 percent of high-school-age participants indicated that they save money, only 31 percent save weekly and 15 percent save monthly. Saving habits declined among college students as indicated by 61 percent finding it difficult to save money due to lack of extra funds. In general, the participants among all ages were more likely to save as needed (51 percent of middle school, 51 percent of high school, and 42 percent of college students).
Table 3. Youth saving practices by age
|Do youth save money?||Elementary||Middle school||High school||College|
* Data was not asked on the elementary survey.
Responsibility for saving. According to this study, youths indicated that they are more likely to save on their own (76 percent of middle school and 93 percent of high school students) as opposed to being required by their parents to save (48 percent of middle school and 41 percent of high school students). Overall, participant savings increased from middle school to high school, but declined with the college-age students.
Middle school (32 percent) and high school (76 percent) students are being introduced to banking through a savings account. Additionally, 34 percent of high school students have a checking account. As they enter college, students demonstrate increased banking practices with 97 percent of college students having checking accounts. However, fewer college students (43 percent) have savings accounts. Banking practices differ significantly (p<0.01) between age groups relative to checking accounts, but no significant differences were found between age groups in their use of savings accounts (see Table 4).
Table 4. Banking practices of youth by age
|Practices||Elementary||Middle school||High school||College|
Responsibility in managing accounts. Youth are showing indicators of improper management of their banking accounts. Of those who had a checking account, 20 percent of high school and 61 percent of college students had overdrawn money from their account at least once (see Table 4).
Exposure to credit
Youth are showing an early exposure and experience with borrowing money and using credit. Eighty percent of elementary-age youth have borrowed money from friends or family. The use of credit cards begins at an early age with 29 percent of middle-school-age youth reporting using a card belonging to a parent. Credit exposure increases with high-school-age youth as 40 percent use parental credit cards, 11 percent have their own personal credit cards, and 5 percent have taken out a loan. The use of credit increased substantially with college students. Eighty-eight percent have a credit card of their own and 43 percent have taken out a loan. However, the use of parental credit cards declines with only 28 percent of college students using credit cards belonging to their parents.
Table 5. Youth exposure to borrowing or credit by age
|Exposure||Elementary||Middle school||High school||College|
Responsibility for borrowing money and repayment. Youth are reporting little responsibility for borrowing or the use of parental credit cards (see Table 5). Only forty-two percent of elementary-age youth reported paying back borrowed money. The middle-school-age youth (63 percent) were more likely to be responsible for repaying their parents for expenditures made on credit cards, repaying either always or sometimes. However, responsibility for repayment declines with age, with only 39 percent of high school and 34 percent of college students paying off their expenditures either always or sometimes. There appears to be a negative impact on youth's knowledge of credit use due to lack of responsibility. Of the middle-school-age youth who did not pay off their expenditures charged, only 50 percent know the difference between using a credit card and cash. In contrast, for those responsible for paying their debts, 70 percent knew the difference between using cash or credit.
High-school-age youth lack responsibility in paying for charged expenditures with parental credit cards (61 percent) and personal credit cards (73 percent). Of the 29 percent of college students who use parental credit cards, two out of every three students are not responsible for paying for their expenditures and for those with their own cards, one out of three either does not pay for his or her own expenditures at all or depends on parental assistance to meet credit debt.
Accumulated debt. Ten of the fifteen high school students who have a personal credit card could report their current debt. Nine of these ten have a current debt load up to $500 with one student exceeding $500. Among these students, one out of three did not expect to be able to pay for his or her expenditures within the next six months to one year.
Most of the college students (75 percent) had a current balance on their credit card, with 29 percent owing from $1,000 to more than $3,000. Of those college students who have accumulated debt, either through loans or credit cards, 33 percent were not on a budget. When asked why they would use a credit card, 63 percent of college students indicated they would use one for emergencies, 52 percent would use one for convenience because they are not carrying cash, and 8 percent would use one for any purchase whether they had cash or not.
Youth's sources of financial management information
Consistent with past research, 76 percent of middle school, 78 percent of high school, and 83 percent of college-age youth indicated that parents were their number one source for learning about money management. Other sources used for learning about money management included learning on their own and in school.
Implications and recommendations
All of these findings have potential implications to youth educators and curriculum developers. Educational curriculum for money management practices should address the specific behaviors that each age group is exhibiting.
In summary, the study revealed some specific findings among the age groups that affect curriculum development and changes that Florida Extension 4-H programs are currently addressing.
- Responsibilities attached to earning allowances decline significantly as youth get older.
- Parental influence on youth spending decisions is very limited.
- Planned spending significantly increases with age, but the frequency of planning declines.
- As youth get older, their tracking of spending increases, with a significant difference at college age.
- Saving practices differ significantly across all ages. Saving increases from middle school to high school and declines with college age.
- Youth are being exposed to the use of credit at an early age, but do not learn responsibility for repayment, which is done for them by their parents.
Elementary-age youth can begin to learn how to make spending choices and how to save money to cover those spending choices. This study revealed that elementary-age youth are borrowing money from friends or relatives and not learning responsibilities attached to this behavior. Elementary curriculum should address the responsibilities of repaying monies borrowed.
Middle-school-age youth are exposed to a great amount of money, combining parental allowances and money from other sources. This group is attempting to plan their spending and keep track of their money. Therefore, curriculum should focus on setting goals for spending and developing a budget to encourage the frequency and consistency of these two habits. Though middle school students are saving money, frequency of saving needs to be emphasized. They are more likely to save when they need to (indicating saving for specific purchases) than on a regular basis. Due to the exposure of credit with middle-school-age youth, curriculum at this level should address the responsibilities and promote the understanding of credit. Middle school students need to understand the difference between using credit cards versus using cash for purchases. Additionally, middle school students need to start learning about banking options, which will serve to reinforce other financial components such as saving and tracking expenditures.
The findings indicate that high school students are increasingly exposed to credit and show a strong need for understanding credit. Because parents are paying their children's debts, high-school-age youth are even less responsible than when younger, which continues to erode the responsibility attached to using credit. This instills bad financial habits in older youth as they become adults. Curriculum should focus on how to use credit cards and loans properly and how to manage debt. High-school-age youth need to learn about banking options, as well as proper management of bank accounts as some have already overdrawn money.
Based on findings from this research and other research, college students are facing overwhelming debt with poor money management skills. Because very few college students have had a financial management course, curriculum for this group should start with the basics including setting goals and costs associated with them. Budgeting should be emphasized with college students because 36 percent had never established a budget and half of those using a budget were unable to maintain it. Furthermore, a relationship between budgeting and debt appears to exist. Thirty-three percent of the students who accumulated debt had not established a budget. College students are accumulating debt with little understanding of actual costs or how long it will take them to pay the debt. College students definitely need a clearer understanding of proper use of credit, cost of using credit, and its impact on their future. Due to their accrued debt and limited income, college students find it hard to save money. College curricula should emphasize saving in general and ways to save. College students also need to learn about banking options and proper management of accounts. Additionally, college students should be exposed to types of investments to ensure their financial future. They should be exposed to a financial curriculum at an earlier age. However, if they are not, classes should be offered on college campuses to address these concerns. Possibilities could be seminars, club meetings, or a financial course requirement.
Educators also need to focus on teaching money management practices to parents and offering them effective strategies to improve youth habits. Specific areas to be addressed include youth's responsibilities dealing with money and its value along with earning and planned spending relationships. The early use of credit cards or borrowing money with lack of understanding for repayment is eroding the understanding of money management.
Additionally, since parents are cited as the primary source for youth's understanding of how to manage their money, parents need help in understanding their role as teachers and role models. However, parents may need to learn better money management practices for themselves in order to be better role models. Programs are needed to address adult knowledge and practices of money management.
Perhaps one way to affect parental influence is to focus on today's youth. If youth are to become self-sufficient adults with good financial habits, youth program curricula need to focus on adopting financial risk reducing practices. If we can influence this generation of youth, they can in turn become better parental educators and role models for their children.
As a result of this study in 2002, the University of Florida 4-H program has begun to revise curricula, especially regarding credit use. A new series of funding initiatives has been under way to implement experientially based day camps and special interest programs for all youth. With additional funding, program emphasis will include parenting youth on managing money.
Overall, balance is needed between what youths need to learn and what they want to learn. Money management programs should be geared towards the concepts and habits that are formed at various ages. Increasing emphasis from just knowledge and experience to include choices, consequences, and taking personal responsibility for actions will better prepare youths for a sound financial future.
Family and Consumer Sciences Agent
Marion County Extension, IFAS, University of Florida
2232 NE Jacksonville Road
Ocala, FL 34470
Joy Jordan, Ph.D.
Associate Professor, Youth Development
Department of Family, Youth and Community Sciences, IFAS, University of Florida
3014 McCarty Hall
Gainesville, FL 32601
PH: 352-846-1000 ext. 259
Professor, Consumer Education
Department of Family, Youth and Community Sciences, IFAS, University of Florida
3025 McCarty Hall
Gainesville, FL 32601
PH: 352-392-1868 ext. 243
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