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Evaluation White Paper

Young Adults

College Students and Young Workers

The target group for this section is young adults ages 19-29 years old. It is a mixed one of young adults at various stages of education and a formative period for work and career decisions. Some of these young adults are attending a postsecondary institution or they completed their postsecondary education and have started their careers. Other young adults may not have pursued a postsecondary education, or did so only temporarily, but they have worked at different jobs since they graduated from high school.

Young adults, both those who work and those enrolled in postsecondary education, need financial literacy, as many are becoming financially independent and having to make major financial decisions. These young adults are receiving credit card applications to consider or may have to take out a student loan to finance their education. One problem is that these young adults in this transition stage often lack financial knowledge, are inexperienced in financial markets, and are at risk of making poor financial decisions that can have costly and lasting effects. Research studies have found that financial literacy is often low among this mixed group of young adults (e.g., Lusardi, Mitchell, & Curto, 2010; Shim et al., 2010).

3A. Key Programs and Resources

There are several ways for young adults to receive financial education. Young adults may have been exposed to financial lessons through their parents, their employers, or through a workshop or consultation at their bank or credit union. This education can be general in coverage, or specific to a household experience, the retirement plan of an employer, or the products offered at a bank or financial institution. There are few financial education programs especially designed for young adults before they begin working a job or commit to postsecondary education.

For those who continue their education beyond high school, college is another way for young adults to receive financial education. This education can come through a campus financial aid office or from enrollment in a specific course. As student loan debt and defaults become a growing policy concern (and factor into college ratings), schools are beginning to implement interventions that provide counseling for student loans. These sessions include creating a budget, selecting a major, calculating expected future salaries, and determining future loan amounts. These sessions can also advise students on potential avenues to increase scholarships and non-loan aid. (Note: Further discussion of financial education and student loans will be the focus of the seventh section of this document).

There are various financial institutions that offer programs or products related to financial education that can be used by college students or by instructors in college classrooms. For example, Wells Fargo offers its Hands on Banking program to a variety of audiences, including young adults as well as children, teens, military personnel, and seniors. Another program that college campuses can take advantage of is Financial Avenue provided by Inceptia. The program uses various modules to teach financial topics. The modules include: College and Money; Credit and Protecting your Money; Debt and Repayment; FAFSA; Foundations of Money; Future of your Money; Loan Guidance; Psychology of Money; and Spending and Borrowing.

Another high-quality college-based program, which has been adopted by over 1,000 colleges and universities, is CashCourse. It is a no-cost online financial education resource designed specifically for college and university students. It equips students with information that helps them make informed financial decisions, from orientation to graduation and beyond. The program, managed by the National Endowment for Financial Education, utilizes a whole-life approach to personal finance, including resources focused on budgeting, credit, debt, banking, savings, insurance, student loans, transportation, financial crises, and several other relatable topics. In addition, the program provides resources for college administrators and faculty who assist them in implementing campus-wide financial literacy programming.

3B. Major Topics and Literature Review

One topic of particular interest for young adults is using credit and managing debt. For the first time in their lives young adults may take out different types of loans for purchases involving such items as automobiles, appliances, and education. Young adults also assume responsibility for proper use of credit cards and for managing credit card debt. They frequently receive solicitations for credit card applications and therefore need to be educated about proper use of a credit card. Not understanding the degree to which high interest rates can increase debt burdens can be costly. For example, missed credit card payments can lower one’s credit scores, resulting in higher interest rates in the future.

Young adults are moving out of their parents’ houses and may be considering renting or purchasing a house in the near future. They need to be educated when choosing the right time to transition from renting to owning. A home may be one of the largest purchases an individual makes and not understanding the complex contract can be problematic.

Young adults face financial decisions that affect their future income. They apply for and work at jobs and start to make work decisions that shape their careers. Choices about marriage and family made at this stage of life change the compositions of households and household budgets and expenses. They also can be concerned with investing in further education and financial assets, and saving for retirement.

Given the heterogeneity across the young adult population and the different financial issues of concern, it’s difficult to design one-size-fits-all policies or programs for financial education for all young adults that unambiguously improve their welfare. Many of the financial issues that affect young adults also affect older adults. Accordingly, further discussion on decisions regarding homeownership, retirement, student loans, and financial investing can be found in other sections of this paper.

Most of the evaluation and research of financial education for young adults is concentrated at the college or university level probably because that segment of the young adult population is easy to access for such studies and relatively well-defined compared with a broader population of young adults. Lyons (2008) examined how a college financial education course at 10 midwest universities affected four risky credit card behaviors. Students who took a course were less likely than those who did not take a course to have credit card debt greater than $1,000, to be delinquent on payments, reach their credit card limit, and not paying their balance in full each month. Although many research studies of college students focus only on one university, this study included multiple universities and had a large sample (n=26,759).

Other studies estimated the effect of financial education on financial behaviors of college students. Using a national online survey of currently enrolled college students ages 18 and over, Gutter and Copur (2011) found that college students who took a personal finance course in high school were more likely to save and pay off their credit cards and less likely to max out credit cards, than those who took a financial education course in the community, but outside of school. Another study of financial education in high school, college, or both found that those who took a college personal finance course increased investment knowledge and therefore are more likely to increase savings (Peng et al. 2007). One benefit of this study is that investment knowledge and saving rates were measured years after the financial education was delivered rather than immediately after the intervention as many studies tend to do. Implications from this research suggest that investment topics may be more appropriate for an older college-age audience rather than high school students and therefore they were more likely to take the education seriously, which improves retention of knowledge and implementation of what they learned even years later.

Research on financial education in high school, college, or through an employer found that college financial education had mixed or no effects on short-term behaviors such as paying their bills, having a checking account, paying credit card in full, and not paying mortgage late (Wagner & Walstad, 2016). College financial education had stronger and positive effects on long-term behaviors, including having an emergency fund, having a savings account, having investments, figuring out how much to save for retirement, having non-employer retirement accounts, and obtaining a credit report. Financial education may be effective for behaviors that do not lend themselves to being learned through experience.

3C. Evaluation Practices, Strengths and Limitations

There are many limitations to evaluating the effects of financial education for young adults. First, many college financial education interventions typically focus on one institution because of convenience— researchers only have resources to evaluate financial education in small-scale settings—but this limits the generalizability of the study. Larger, more purposely selected samples with a specific research question in mind would improve the quality of research (Cude, Danes, & Kabaci, 2016). Financial education is unique with a lack of standard curriculum and instruction among courses and programs, and also among institutions. In practice it is good to customize financial education to the audience but it can make comparisons for research purposes difficult (Lyons et al., 2006).

Second, the decision to obtain financial education and the propensity to make financial mistakes are endogenously determined. Individuals who seek financial education may be the most motivated young adults who would have been less susceptible to financial mistakes anyway. Or, young adults already in financial distress may be more likely to seek financial education. The direction of the bias is not clear, making it difficult to determine the causal effects of financial education on financial behaviors.

Third, linking financial education to increased financial knowledge is merely a first step. It is equally important to determine if the education changes behavior. Many studies therefore lack a long-term connection between financial education and financial behaviors. Does financial education in college improve investment decisions twenty years later?

Fourth, evaluation can be an afterthought. Those in charge of planning financial education need to keep the evaluation component in the planning process rather than leaving it for after the education is completed and trying to make the data fit the evaluation method (Lyons et al., 2006). This suggests that researchers estimating the effectiveness of financial education need to plan their study to include the best way to collect the data and appropriate questions or measures of financial literacy or financial outcomes before the intervention to improve reliability and potential bias later.

3D. Public Communication

Young adults face major financial decisions about their postsecondary education, jobs, and careers. They also are starting to live independently and form their own households. These changes require careful management of income and expenses and financial planning. If young adults take on large amounts of debt, either through credit cards, student loans, or other avenues and cannot manage the payments, this debt can be problematic years into the future.

Financial mistakes can be mitigated through financial education. That financial education might begin during high school, but some continuation during postsecondary education or through employment can reinforce and extend what was previously learned. It also is the case that each financial decision related to such matters as accessing credit, managing debt, obtaining insurance, paying bills and taxes, or something else will require either formal or informal financial education to avoid costly financial mistakes.