Approaching 30 and loving it?

What began as an inquiry into how college students form financial behaviors has become a chronicle of the passage to adulthood for the first generation of young adults in the 21st century. For them, the pathway to adulthood has been met with unexpected and sometimes extraordinarily disruptive external change.

As young adults approach 30, it is an ideal time to what progress these pioneers are making in achieving stability.

Key Study Findings

Despite growing up in a time of instability and change, most of the young adults are doing well.  They’re well-educated and employed, living independently and forming relationships. They’re financially capable, confident and able to manage their finances. They’re making prudent financial choices in achieving life goals, often working more hours to make ends meet and saving before purchasing.

Debt is a downer. Although less than 1% of those with student loan debt were in default, the presence – or absence – of student loan debt was a key factor in quality of life: lower levels of psychological well-being, financial well-being, friendships, career satisfaction, and life satisfaction – compared to their debt-free counterparts. Those carrying debt were more likely to be from lower- and middle-SES and ethnic minority families and first-gen college students.

Higher Education pays off; maybe not equally. In this predominately college-educated sample, unemployment rates were very low, and earnings rose significantly over the three-years since the previous survey. However, men were earning significantly more than women. This earnings gap may also explain why more women were receiving financial help from their families, investing less, and feeling less confident about their finances than their male counterparts.

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Stability, Self-Sufficiency & Financial Capability in Early Adulthood

While some researchers and policy makers question the value of investing in financial education, findings from our study consistently demonstrate its positive benefits.

Financial education lays a foundation for greater financial self-awareness, personal agency, and more responsible financial behaviors during the college and plays a key role in differentiating young adults who thrive after college from those who struggle.

Key Study Findings

College financial behaviors indicate more successful adult outcomes. The more often young adults practice responsible financial behaviors during college the more likely they are to be self-sufficient after graduating from college, regardless of gender, ethnicity or family socioeconomic status.

By the time they leave college, most young adults are ready for the financial and social responsibilities that come with adult status. Although they have not yet attained financial stability, they are making significant progress towards becoming self-sufficient.

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From College to Career

During the college years, young adults have several opportunities to develop the knowledge and skills needed make better financial decisions. In addition to formal classes and seminars, they also practice several routine financial activities (e.g., paying bills, buying groceries).

These experiences build knowledge and prepare young adults for life after college, as they enter the world of full-time adult roles and responsibilities, including career, relationships, and self-sufficiency.

Key Study Findings

Financial Capability is a life-long process. Financial knowledge, financial self-beliefs, and financial behavior are part of a dynamic process. A change in any of these components triggers change in the others. Financial decision-making begins with knowledge about personal finance and improves with practice, experience and self-reflection.

Positive financial socialization contributes to positive change young adults’ thinking and behavior regarding finances.  Relationships with parents, financial classes, and information from multiple sources contribute to a positive financial attitude, a higher degree of control and efficacy, and, ultimately, more responsible financial decision-making.  

Early financial knowledge plays a small but lasting role in minimizing risky financial behaviors.  Financial knowledge of first year college students, both objective knowledge (e.g., financial content) and subjective knowledge (i.e., personal understanding and relevance of financial topics) reduce risky financial behaviors of fourth-year college students.

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WAVE 1.5

Changing Economic Conditions & Financial Behaviors

Changing financial conditions due to individual circumstances (e.g., a new job or tuition increase) or macro-level changes (e.g., recession, weak labor market) require that people modify their attitudes and behaviors.

Key Study Findings

Financial stress triggers hasty financial decisions with the potential for high future cost. A lack of financial experience coupled with an increase in financial demands leads to increased use of reactive behavior (e.g., cost cutting, borrowing) and decreased use of proactive behavior (e.g., saving, planning).

Practicing proactive financial behaviors have a protective effect. College students who practice proactive financial behaviors are better able to withstand unexpected demands and changing circumstances. The act of saving, rather than the amount saved, is a proactive life strategy for achieving present and future happiness and well-being.

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During the Transition to College

College marks the beginning of a developmental period characterized by several life-changing experiences.  Mounting academic demands, in an atmosphere of independence and flexibility, present a challenge to many first year students.  

It is a time for making new friendships and developing social connections through classes, student activities, and programs, which are essential components of a successful undergraduate experience. It is also a formative time for making independent financial decisions and establishing financial behaviors that will stay with them into their adult lives.

Key Study Findings

Early financial socialization strengthens college students’ financial behaviors.  Parents, work experience and formal financial education in high school increase college students’ financial knowledge. Direct teaching by parents has the most influence—more than work experience and high school financial education combined.

Parents’ expectations and students’ attitude minimize college students’ use of risky financial behaviors.  Students’ positive attitudes towards responsible financial behaviors are the most potent indicators of the behaviors they practice. Parental expectations play a role in reducing risky borrowing behavior.    

Parental involvement matters more than parental finances.  When it comes to college students’ financial behavior and well-being, parental communication and expectations matter more than parental finances.

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