Some college students are unfamiliar with basic financial concepts, which could pose a problem for those expecting to borrow substantial loans to pay for their education.
In a survey with 18,795 student respondents at 51 public and private universities and colleges, the Study on Collegiate Financial Wellness asked five questions about interest calculations, inflation, college loan repayment, take-home pay, and credit score components to determine what students knew about consumer finance.
Only 11% were able to answer all five correctly. About 29% got four questions right and another 29% got three, but 7% couldn’t provide a single accurate answer. Some questions apparently stumped students more than others, according to a report in The Conversation. Almost 21% picked the wrong answer on the interest question, but 41% didn’t get the one on inflation.
“Students who answered the interest rate question incorrectly don’t understand that interest is earned not only on money deposited in a savings account, but also on previously earned interest—a feature known as compounding—while students who answered the inflation question incorrectly don’t understand that rising inflation reduces the buying power of money,” wrote researchers Catherine Montalto and Anne McDaniel.
Not surprisingly, older students and students who had taken some type of financial coursework performed better on the five questions. Students attending four-year private schools fared worse on the quiz than those at two-year or four-year public institutions.