Financial literacy highlighted in ISU study

Frances Myers

ISU researchers and the financial aid office are working to increase financial literacy after a study found that 9 percent of ISU students are unaware of just how much financial debt they are in.

Gregory Forbes, research analyst for the student financial aid office; Darin Wohlgemuth, program manager for enrollment services; and Roberta Johnson, director of financial aid, teamed up for a research study with Cynthia Fletcher, professor of human development and family studies, and Jeanne Hogarth, visiting professor in the human sciences administration, when they partnered up with the Student Financial Aid Office last fall.

“13 percent did not know that they have debt, according to the survey, compared to the financial aid office data,” Forbes shared. “That was a bit higher than we expected. Then we had 43 percent of our students that underestimated the amount of debt that they owed. So the value that they reported to us was less than what the financial aid office’s records show.”

Forbes said both of those statistics were “unsettling.”

“We don’t like to hear that they’re not following their borrowing habits,” he explained.

The survey examined what kind of financial literacy training students received in high school and at home, and asked about students’ knowledge of their level of debt and their level of responsibility for those loans.

Wohlgemuth said the level of debt was set up in $10,000 increments on a rating scale on the survey. They found that many students were inaccurate about the amount of debt they owed, but the ranges were not as bad as what the statistics implied.

This is where the 43 percent came into effect. 43 percent of students were incorrect about the amount of debt they owed by a small amount, but the context implied that they were off by much larger amounts.

“That’s one thing that maybe just perceptionally makes it worse than what it potentially is,” Johnson said.

The place of concern, Wohlgemuth and Johnson stressed, is the 9 percent who were off by more than $10,000 as well as the people who did not believe they owed anything when, in reality, they do.

The study uncovered that the more financial responsibility a student had, the more likely they were to be aware of their debt.

“The study found that students who said ‘I am responsible with repaying my debt’ could answer that question more accurately that they did have debt,” Forbes said. “So that, in fact, did come out at least to some extent in the study.”

A big factor in students’ ability to handle debt was their level of responsibility as well as how much they had learned about financial management at home.

“We also asked questions about what [students] had received prior to coming to Iowa State in formal training, so high school courses, etc.,” Forbes elaborated. “We didn’t find the same results with that. That doesn’t mean it isn’t useful, but it means that you can’t necessarily replace that personal touch that a parent can give to a child. So it is important to pass on those financial basics and concerns from the parent to the child so they have an awareness of what it means to their life and how it impacts them.”

Forbes, Wohlgemuth and Johnson all strongly recommended students begin budgeting their finances.

“There’s lots of different areas that you can go out and get financial training: cash course, financial counseling clinic, and there’s a class, HDFS 183 and 283, personal finance classes,” Wohlgemuth said. “Probably the biggest thing is just to create a budget. … It’s just a plan, and you can start to think about it. If you don’t ever put it down on paper and pencil, or spreadsheet, you never really think about it. It’s not a difficult process to build a budget. If you don’t have any idea, track your expenses for a month. It’s just taking ownership.”

Johnson said knowing how to utilize money is crucial to surviving in society.

“People need to know how to read, and people need to know how to manage their money,” she said. “You cannot exist in our culture without understanding how to utilize your money. If you don’t, you’re going to get yourself in a lot of trouble, and you’ll be under a mountain that you can’t dig yourself out of.”