1) Understanding of key financial concepts (Q115-117)

To assess students’ financial knowledge, Trellis relied on a version of the standard Lusardi Financial Knowledge Scale (Q115-117), where the focus narrows to three pivotal questions regarding the concepts of interest and inflation. Given the long-term nature of the returns on the investment in higher education, and its reliance on student loans with 10- and 25-year repayment options, understanding these concepts is critical.

3-question Lusardi Financial Knowledge Scale
Imagine that the interest rate on your savings account is 1% per year and inflation is 2% per year. After 1 year, would you be able to buy more than today, exactly the same as today, or less than today with the money in this account?

Suppose you have $100 in a savings account and the interest rate was 2% per year. After 5 years, how much would you have in the account if you left the money to grow?

Suppose you borrowed $5,000 to help cover college expenses for the coming year. You can choose to repay this loan over 10 years, 20 years, or 30 years. Which of these repayment options will cost you the least amount of money over the length of the repayment period?

Roughly 20 percent of students missed all three questions about how interest works , and a comparable proportion answered all three of these financial knowledge questions correctly. Most students correctly answered one or two of the three questions. (Q115-117)

• About 20 percent of students were unable to correctly answer a single financial knowledge question.
• Students attending four-year institutions answered all three questions correctly more often (27 percent) than students at two-year institutions (20 percent).
• First-generation students correctly answered all three financial knowledge questions at a lower rate than their classmates—19 percent and 24 percent, respectively.
• Students who had borrowed to support their education were slightly more likely to answer all three questions accurately than students who did not borrow.

2) Confidence in managing finances

Confidence in making financial decisions reflects access to adequate resources and/or an acquired—or perceived—competency in making such decisions. It is an aspired state of mind that college administrators promote in students. Lack of confidence may suggest cognitive paralysis in the face of financial decisions that might be too complex or daunting given the scarcity of financial resources.

To capture this financial decision-making factor, Trellis created a scale comprised of four questions:

• Q56: I have the ability to manage my finances well. (confident=agree or strongly agree)
• Q57: I worry about being able to pay my current monthly expenses. (confident=disagree or strongly disagree)
• Q58: I worry about having enough money to pay for school. (confident=disagree or strongly disagree)
• Q59: I know how I will pay for college next semester. (confident=agree or strongly agree)

Question 56 addresses the students’ self-perceived abilities to manage finances, reflecting their capacity (“Can I afford this?”) or competency (“I understand how to do this”). The other questions reflect the students’ confidence in meeting three important financial goals. The most immediate of those goals is meeting current monthly expenses, while the other two focus on education costs—one current and the other imminent. A totally confident student will meet the confidence threshold for each of the four questions and a mostly confident student will meet the threshold for three of the four questions. Likewise, a totally unconfident student is one who disagrees or strongly disagrees on Q56 and Q59 but agrees or strongly agrees on Q57 and Q58. A mostly unconfident will miss this threshold on three of the four questions.

Few students are either totally confident or totally lack confidence when making financial decisions. Most students have mid-level confidence in making financial decisions. (Q56-59)

• A small percentage of students—eight percent for four-year students and seven percent for students at two-year institutions—are totally confident in their financial decision making. Twenty percent of students enrolled at four-year institutions and 18 percent at two-year institutions were mostly confident or totally confident.
• Few students were totally unconfident—18 percent at four-year institutions and 20 percent at two-year institutions—while many more were mostly unconfident (34 of students at both four-year and two-year institutions). (Q56-59)
• Men were more likely than women to report confidence in all four questions—11 percent at four-year institutions compared to seven percent for women, and nine percent at two-year institutions versus five percent for women. (Q56-59)

3) Openness to seeking help with financial decisions

The Personal Finance Ecosystem identifies financial coaching and expert advice as important behavioral influencers of financial actions and outcomes. Given the complexity of higher education finance, the willingness of students to seek help from experts with financial decisions is critical. But financial issues in the U.S. can be a taboo subject. Some students may be reluctant to request advice or guidance on financial issues despite their need for expert insight. Consequently, student willingness to seek financial advice—or comfort in talking with others about financial issues—may indicate a mindset conducive to better financial decision-making. Of course, having the proper frame of mind, while important, is insufficient if students’ daily responsibilities to work, school, and family make seeking help impractical.

Students were asked a hypothetical question about whether they would use financial support services like financial coaching if offered by their institution (Q6). Answering affirmatively has no real cost in terms of time or investment in social engagement, but it reflects a disposition to seek help if provided.

Most students say they would seek financial support services like financial coaching if offered by their institution. Among those most willing to use these services were first-generation students and Black and Hispanic students. (Q6)

• Students at two-year institutions were slightly more open to seeking financial support services; 66 percent either agreed or strongly agreed compared to 63 percent of students at four-year institutions. Very few students disagreed or strongly disagreed with the statement—10 percent at two-year institutions and 13 percent at four-year institutions.
• First-generations students were more likely to agree or strongly agree that they would use financial support services—70 percent versus 63 percent for their classmates.
• Black and Hispanic students were more likely to say they would use financial support services than their White classmates. At four-year institutions, Black (68 percent) and Hispanic (67 percent) students agreed or strongly agreed they would use financial support services, while only 57 percent of White students agreed or strongly agreed they would. The difference between Black and Hispanic students in their willingness to seek financial support services was more notable at two-year institutions—74 percent and 70 percent, respectively. White students at two-year institutions were less likely to agree or strongly agree with the statement (60 percent).

Students were asked (Q13-18) if they had spoken with anyone at their institution about their financial struggles. Students were presented with a list of five offices or categories of officials—Financial Aid Advisor, Financial Coach, Student Affairs Staff, Academic Advisor, and Faculty Member—but could also indicate if they had not spoken with any of these individuals. The act of speaking with someone at the institution about their financial struggles indicates both a disposition and a perceived need to seek help.

While a considerable percentage of students had not spoken with anyone at their institution about their financial struggles, when they did, they were most likely to speak with financial aid advisors. However, a substantial percentage of students sought advice from officials who were not experts in financial aid programs. (Q13-18)

• A sizeable percentage of students had not spoken with anyone at the institution about their financial struggles—40 percent at four-year institutions and 38 percent at two-year institutions. It is unclear if the students had no financial struggles to talk about, saw their financial struggles outside the scope of their college experience, or if they were reticent to speak with an official about their finances.
• Students were most likely to speak with a financial aid advisor about their financial struggles—45 percent among those at two-year institutions and 43 percent at four-year institutions. Few students—just three percent—reported talking with a financial coach.
• Black students at four-year institutions spoke with financial aid advisors about their financial struggles (53 percent) more frequently than did Hispanic (45 percent) and White (38 percent) students. For students attending two-year institutions, there was no difference between Black and Hispanic students (48 percent) in their frequency in talking with financial aid advisors, while 44 percent of White students reported talking with one.
• First-generation students were more likely to talk with a financial advisor about their financial struggles (50 percent) than their classmates (42 percent)
• A significant percentage of students talked about their financial struggles with college employees whose job descriptions were unlikely to include financial guidance, but who had gained enough trust among the students to have been engaged on this topic. Academic advisors were identified by 41 percent of students at two-year institutions and 35 percent at four-year institutions as having had conversations about the students’ financial struggles. To a lesser extent, students turned to faculty when discussing financial struggles—23 percent of students at four-year institutions and 20 percent at two-year institutions.

Talking about financial issues can be stressful, and students reported different levels of comfort in talking about these issues with a variety of people in their lives. Students were given a list of key people—parents, other family members, friends, school staff, faculty, and other students—and were asked whether they were comfortable talking about their financial situations with these people (Q19-24).

Students widely feel comfortable talking with their parents about finances, but less so for all others in their lives.

• Students most frequently expressed comfort in talking to parents about their financial situations—82 percent for students attending four-year institutions and 74 percent at two-year institutions. Not all students felt comfortable talking with parents about their financial situation. This lack of comfort was more pronounced among students at two-year institutions (14 percent), where students are on average older, compared with those at four-year institutions (nine percent).
• Students who were parenting children while enrolled in college were less comfortable talking about their financial situations with their own parents—64 percent among students attending four-year institutions and 61 percent at two-year institutions.
• Many students felt comfortable talking with friends about their financial situations. Among students attending four-year institutions, 55 percent reported comfort in talking with their friends about their financial situations. Students at two-year institutions were slightly less likely (49 percent) to report comfort in talking with their friends about their financial situations.

4) Feeling understood and supported by their college

The SFWS has three statements that address the fourth financial decision-making factor and asks the student if they strongly agree, agree, are neutral, disagree, or strongly disagree with these statements:

• Q3: My school is aware of the financial challenges I face.
• Q4: The faculty at my school understands my financial situation.
• Q5: My school actively works to reduce the financial challenges I face.

These questions try to capture the extent to which students consider their institution empathetic to their financial situations, a key factor in developing a trusting relationship. Students who reported either “agree” or “strongly agree” with all three statements would seem to view the institution as “in their corner” on financial issues. Students disagreeing or strongly disagreeing with all three statements may view institutions in a guarded or even adversarial way on issues of finances, and they may be skeptical of institutional outreach regarding finances. The most common category includes students who report mixed emotions, agreeing with some statements while disagreeing, or even providing a neutral response, on others. These students might change their dispositions with the proper institutional intervention, perhaps laying the foundation of trust that might make students more willing to turn to the institution for help in later financial decisions.

Most students reported a mixture of agreement and disagreement regarding how empathetic and understanding their institutions feel about their financial situation. Students at two-year institutions were more likely to say that their institutions were empathetic to their financial circumstances. (Q3-Q5)

• Students at two-year institutions feel more empathy and understanding from their institutions regarding finances (26 percent) than do students at four-year institutions (17 percent).
• Students at four-year institutions are more likely to disagree with all three empathetic questions (19 percent) than students at two-year institutions (14 percent).
• Most students—60 percent at two-year institutions and 64 percent at four-year institutions—reported a mixture of agreement and disagreement regarding how their institutions understand their financial situations. These students reported an ambivalence on this important attribute. With the proper communication or intervention, these students may feel a stronger bond with the institution.

Together, financial knowledge, confidence in making financial decisions, openness to seeking help from financial experts, and the level of trust students have in their college regarding financial issues can influence students’ financial behavior. The next section examines three important financial behaviors—use of bank accounts, paying one’s bills, and following a budget.