After the Financial Crisis: Changing Financial Attitudes and Behaviors Among Young Adults

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After the Financial Crisis Changing Financial
Attitudes and Behaviors Among Young Adults

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After the Financial Crisis Changing Financial
Attitudes and Behaviors Among Young Adults

• Joyce Serido,
• Webinar
• February 18, 2010

This study has been funded by the National
Endowment for Financial Education (NEFE) in
partnership with the Take Charge America
Institute/University of Arizona
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Todays Agenda
Todays Agenda

• Economic uncertainty A historical perspective
• Synopsis of the Arizona Pathways to Life success
  for University Students (APLUS) project
• Findings from the APLUS Economic Impact Study
• Implications and Recommendations

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Economic uncertainty A historical perspective

• The Great Recession

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After-Effects of the Depression
Adapting to Uncertainty

• Government spending contributed to economic
  stability - but not rapid recovery.
• Most needy people benefited from welfare and
  public works policies
• Among middle and professional class increased
  fears and dashed hopes for the future.

Lynd Lynd, 1937
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Managing Lifes Ups and Downs
Adapting to Uncertainty
Changes in Thinking
Financial Recession
Change in Resources
Changes in Doing
Changes in Feeling
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APLUS Synopsis

• Arizona Pathways to Life success for University
  Students

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APLUS Synopsis
Research Goals

• Short term - To understand how young adults form
  financial behaviors
• Longer Term - How these financial behaviors
  affect their life success

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APLUS Synopsis
Wave 1 Data Collection February - April, 2008

• Focused on how family background, parental roles
  and financial socialization (both growing up and
  in the first-year at college) affected financial
  literacy and well-being.

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APLUS Synopsis
Method

• Email invitations sent to all first year students
  (6000)
• 2,098 students completed an online or
  paper/pencil, 15-minute survey
• Roughly 85 completed the survey online

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Key Findings
APLUS Synopsis
How students are affected
Pre-college experiences
First-year of college
How students think about finances
Parental teaching and student attitudes Work
Experience High school financial education
Better relationships with parents Higher academic
Achievement Better physical and mental health
Continued parental role Modeling More
financial knowledge
More perceived financial control More
positive financial attitudes
Contribute to
Affect
Drive
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APLUS Synopsis
Financial Socialization Processes

• Parents, work, and high school financial
  education
• an important role in explaining young adults
  financial learning, attitude and behavior
• The role played by parents
• substantially greater than that played by work
  experience and high school financial education
  combined.
• Parental financial behavior
• Parental direct/intentional teaching
• Parental communication and financial relationships

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APLUS Economic Impact Study

• What a difference a year makes

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Adaptation
Wave 1.5 Data Collection February - April, 2009

• Assess how the economic crisis affected financial
  literacy, behavior, coping and well-being
• Identify factors that increased students
  vulnerability after the economic crisis
• Assess students trust in public and private
  institutions

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Adaptation
Objective Change In Resources

• Loss or threatened loss of tangible resources
• Increased credit card debt
• Increased educational loan balances

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Changes in Credit Card Debt
Doubled
Tripled
55
-24
60
64
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Changes in Educational Loans
More than tripled
Doubled
More than doubled
Tripled
86
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Recession Harder on Men Than Women, Study
Says Wednesday, March 11, 2009
The Recession Hits College Campuses It could be a
turning point in how much it costs to attend
college By Kim Clark Posted January 27, 2009
March 4, 2009 Economic Scene Job Losses Show
Breadth of Recession By DAVID LEONHARDT
chicagotribune.com First jobs are hard to find
for many college grads Last year's graduates were
dreading U.S. job market, 2009 may be twice as
bad. By Marcia Heroux Pounds and Scott
Travis South Florida Sun-Sentinel
April 9, 2009 Recession Anxiety Seeps Into
Everyday Lives By PAM BELLUCK
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Adaptation
Subjective Change in Resources

• Assessment of intangible losses and threats
• Self-confidence regarding personal finances
  declined an average of 19.

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Gender Differences in Financial Self-Confidence
High
Moderate
Low
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Adaptation
Resource Differences by Ethnicity

• Native American - dropped 25 (3.19 to 2.58)
• Hispanic students - dropped 23 (3.16 to 2.43)
• African American dropped 19 (2.71 to 2.19)
• lowest self-assessments in both waves

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Adaptation
Self-Assessed Impact

• on family finances (95)
• on personal finances (93)
• on ways you manage money (95)

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Adaptation
Perceived Impact

• Women - more impact on their financial
  situation, the way they manage money
• African American - most impact overall
• Lower-SES - more impact than higher-SES in all
  areas
• Middle-SES - more impact on their financial
  situations than higher-SES

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Declines In Well-Being
Very good
-5
-3
-6
Good
-3
-8
Fair
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Adaptation
Changes In Coping

• Adaptive Coping Typical cost-cutting behaviors,
  increased an average 16
• Risky Coping Extreme behaviors with the
  potential for higher future consequences,
  increased an average of 78

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------Typical --------
-------- Extreme --------
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Economic Impact, Student Financial Well-being,
and Coping Strategies
What We Learned
G L O B A L F I N A N C I A L C R I S I S
Greater Perceived Economic Impact
More Preventive Coping
More Negative Reactive Coping
Negative Financial Well-being
Greater Debt
Negative Well-being (Overall, Physical,
Relational, Academic )
Less Proactive Coping
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Trust in Institutions
Trust

• Declining Social Capital

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Trust and Confidence
Trust
Regarding the people running these institutions,
would you say you have 1) a great deal of
confidence, 2) only some confidence, or 3)
hardly any confidence at all in them?
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Trust and Confidence in Institutions
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Relative Trust and Confidence
A great deal of trust
Hardly any trust
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Summary

• College students
• Not immune to the effects of the Great Recession.
• Well-Being
• Declined in every domain
• A greater immediate impact
• More women, more minority students, students with
  lower academic achievement and those from lower
  and middle SES families

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Summary

• Financial self-confidence
• Declined substantially, especially for women and
  minority students
• An expected increase in the use of cost-cutting
  strategies
• Overshadowed by a dramatic increase in extreme
  financial coping strategies.
• Students trust and confidence
• Nearly 20 indicated hardly any confidence at all
  in public and private institutions.

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Implications and recommendations

• What does it mean?

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Implications
Implications

• Class differences
• Eroding social trust
• Changed life trajectory

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Middle Class Split?
Implications

• Diminished hopes and increased fears for the
  future.
• Reluctance to spend
• Hijacked American Dream

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Back to Basics Financial Literacy
Recommendations

• Emphasize cyclical nature of economy
• Go beyond financial knowledge to financial
  competence
• Use current economic situation as a teaching tool

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Trust and Trustworthiness?
Implications

• Reciprocal nature of trust
• Restoring trust takes time and effort

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Agreeing to Disagree
Recommendations

• Educate young people about assessing the security
  and safety of banking and financial products
• Promote opportunities for team activities and
  mixed group interactions
• Model distinguishing between knowledge and
  values

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Lost Generation?
Implications

• Fewer job opportunities
• Lower wages
• Reduced job satisfaction
• Changed life trajectory for an entire generation

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Invest in Young Adults
Recommendations

• Initiate opportunities to dialogue with young
  adults about the challenges they face
• Encourage them to explore career options and
  alternatives
• Help them distinguish between short-term
  options and dead ends

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Take Home Message

• Concluding Remarks

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Take Home Message

• Adolescents and Young Adults
• Financial knowledge matters
• Enhance your financial knowledge to boost
  self-confidence
• Understand dos and donts about money management
  101
• Avoid costly mistakes
• College administrators
• Consider formal and informal financial education
  as part of the college curriculum and orientation
  experience
• Pay particular attention to ethnic minority
  students and students from lower AND Middle SES
  families

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Take Home Message

• Financial Educators
• Include alternative solutions for coping with
  common financial problems young adults encounter
• Teach students how to balance the cost/benefits
  of their financial decisions today vs. future
  financial well-being
• Parents, Administrators, Educators
• Maintain an open and ongoing dialogue with young
  adults to help them navigate the financial
  challenges of the next few years.

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Whats Next?
Future Plans for the APLUS Study

• Fall 2010 (APLUS students' senior year) - Study
  changes in financial attitudes and behaviors as
  they prepare to leave college.
• http//aplus.arizona.edu

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The APLUS Team

• Soyeon Shim, Principal Investigator (PI)
• Joyce Serido, Co-PI/ Project Manager
• Co-Investigators Bonnie L. Barber, Murdoch
  University
• Noel Card, University of Arizona
• Jing Xiao, University of Rhode Island
• Michael Staten, TCAI
• Graduate Research Associates Chuanyi Tang,
  Chiraag Mittal, Sunyoung Ahn

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NEFE encourages innovative, practical research
projects on providing meaningful, relevant
financial education to the public.   If you have
expertise with researching successful outreach
and education interventions for young adults ages
18-35, we invite you to submit a Concept Inquiry
Form for our next funding cycle (June 1, 2010
deadline).   Learn more at www.nefe.org/Grantmakin
g.
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• NEFEs Great, Free, Noncommercial Materials
• NEFEs High School Financial Planning Program
  (HSFPP) http//hsfpp.nefe.org
• CashCourse Web-based financial education for
  college students. www.CashCourse.org
• SmartAboutMoney One-stop shop for consumers
• www.SmartAboutMoney.org
• Spendster Confess what you shouldnt have
  bought. www.Spendster.org

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Open Forum

• Questions and Answers