Knowledge Bank

More Americans than ever before are attending college. Meanwhile, the cost of college has risen at a rapid rate. As a result, the quantity of student loans has skyrocketed. As of January 2016, there is over $1.3 trillion in current student loan debt outstanding in America. The increased prevalence of these powerful financial instruments in Americans’ lives could lead to destruction if the borrowers of these funds don’t fully comprehend the finances behind their loans. Although many college students have limited financial experience beyond the use of their debit card, those with loans have committed a major financial transaction and should theoretically have the financial literacy to understand it. The aim of this research was to determine if there is indeed any correlation between student loan debt and financial literacy – does the average student with loans have a significantly higher financial literacy score than the average student without loans? Additionally, the research aimed to identify other correlations with financial literacy, such as with numeracy and personal finance training. Ohio State University students (N=399) completed a three-part survey comprised of a demographic section, a financial literacy test, and a numeracy test. There are several findings of note: First, there was no significant difference in students’ financial literacy scores based on whether they had student loans or not. Second, a significant correlation existed between students’ financial literacy and numeracy scores. This is as expected as it is presumably difficult for a student with poor numeracy to have strong financial literacy because finance is predominately driven by numbers. Third, students who have had some personal finance training had significantly greater financial literacy than those who have not. This result suggests that there may be real value in educating teenagers on the fundamentals of finance.