Failing Financial Literacy?

Financial Literacy Month is a great time to take a look at how we are doing when it comes to making the grade with our financial knowledge. Millions of Americans are failing miserably and among them, are college students. With little financial finesse and the freedom to make their own decisions many are starting their financial lives in need of debt help.

Researchers from five American universities recently conducted a survey on credit card debt and financial literacy among college students and released the results in April just in time for Financial Literacy Month. The findings confirm that our youth are indeed struggling to understand basic financial concepts and are already making poor decisions when it comes to credit cards.

Would You Make the Grade?

The survey asked the below questions to the sampling of college students participating in the survey. How would you answer? Would you make the grade?

1. How many credit cards do you have?

2. How many times do you use a credit card in an average month?

3. What monthly payments do you make on your most used credit card?

  • Minimum amount
  • What I can afford that month
  • Paid in full every month

4. How much is your interest rate on your most used credit card?

  • I know for certain.
  • I have a general idea.
  • I have no idea.

5. How much is the late fee on your most used credit card?

  • I know for certain.
  • I have a general idea.
  • I have no idea.

6. How much is the over balance fee on your most used credit card?

  • I know for certain.
  • I have a general idea.
  • I have no idea.

Of course financial literacy involves much more than the cost of credit, but without the basic knowledge of how credit works many of us end up in over our heads in debt and in need of debt consolidation or having to file bankruptcy before we reach 30.

Results Are In

Here are some of the results from the survey. Unfortunately many of them are not surprising statistics typical of college age students when it comes to credit card use.

  • 70% of American college students have credit cards.
  • 1 in 5 that have a credit card, don’t know what the interest rate is.
  • 75% of students do not know their late payment charges.
  • 70% of them do not know what their over-balance-limit fees might be.
  • More than 90% of college students that hold credit cards are carrying monthly credit card debt.
  • More than one in three of the 70% that had a credit card admitted to having two or more cards.
  • About 50% claimed to use the cards only for emergencies.
  • 13% said they used the cards frequently.
  • Only 9.4% of credit-card-carrying college students paid off their debt in full each month

The reasons for their lack of knowledge could be a result of several factors; no one ever explained how credit cards work, the credit card company made the credit card seem appealing, or they are to busy to handle the responsibility necessary to manage credit cards.

Why Are So Many Struggling?

The short answer is that despite the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 and its intent to limit credit card distribution to college students, credit cards are still the norm for college students trying to get by financially.

Without the necessary education on the dangers of credit card use, things often spin out of control leaving students with both student loan debt and credit card debt after graduation.

Very few college age students lack the financial education to understand what their credit is costing them.

How Can We Educate Our Youth

When it comes to the “talk” many parents focus on topics such as sex and drugs and neglect to talk to their kids about the dangers of credit card misuse. It is important to instill good financial habits at an early age such as budgeting and saving. As your children near leaving the nest it is time to focus on topics such as credit cards and loans.

It doesn’t have to be difficult or complex and there are several sites you can use to help you:

Practical Money Skills

Jump $tart


Debt levels continue to rise across America and unfortunately debt sets in early, often during the “college years”. Those attending college know very little about how the misuse of credit cards will affect them and the sad truth is if they don’t understand, how will the less educated wrap their heads around it?

Financial Literacy often does not have a place at any educational level, but rather as a product of “hands on” experience, resulting in credit card debt and poor credit scores.

This month take just a few moments to educate yourself and your children about the dangers of credit card misuse.

Did you start out in debt shortly after graduating from high school or in college? What financial literacy grade would you give yourself today?

About Suzanne Cramer

6 Responses to “Failing Financial Literacy?”

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  1. Des says:

    This is a terrible way to assess whether college students are financially literate. I would say #3 above is the only one that really matters. What is the over-limit and late fee? “A lot” or “too much” are all you really need to know, don’t be late or go over your limit. Knowing the exact fee amount won’t save you any money if you’re late or overlimit. Interest rate only matters if you carry a balance. The answers these kids gave is much less disconcerting than the fact that more than 90% of them carry a balance. Even then, though, I think that has more to do with the social acceptance of credit card debt than it does with financial literacy.

    Here’s some better questions: Do you review your transactions every month for accuracy? Do you know how much you spend on food/clothes/entertainment each month? At what age should you begin saving for retirement? How much student loan debt is reasonable to graduate with?

  2. Petunia 100 says:

    I agree with Des. I’m 45, and I have no idea what a late payment would cost me. It’s irrelevant to me, as I never pay late. I’ll bet many of those who do know, gained that knowledge by paying late and seeing the charge on their statement! That’s not really indicative of financial literacy. A better question would have been “Are you aware that a late payment will hurt your credit score?” and/or “Are you aware that a late payment will trigger a penalty?”

  3. Suzanne Cramer says:

    @Des and @Petunia100 Thank you for commenting! I didn’t actually create this survey it was done by a collaborative group of universities and I think their goal was to show just how little college students knew about what they were getting into (commitment) wise when they signed up for the credit card.

    My goal with this post was to showcase the importance of teaching our youth about financial literacy and the impact of not knowing how credit cards work may affect them.

    I agree there were probably other/better questions they could have asked 🙂

  4. Petunia 100 says:

    Oh, I got that Suzanne, I know you didn’t write the survey questions. 🙂

    It is important to teach our kids. As adults, we forget that kids don’t just automatically know this stuff. I am reminded of the time a teen friend of my daughter’s was irate because his bank had deducted money from his account which he had not authorized. Upon probing a bit, I realized he was talking about an overdraft fee! I explained to him that yes, that is what happens. He was flabbergasted, he really had no idea. Oh, the innocence of youth.

    Enjoyed your blog post, as always.

  5. Jerry says:

    I got a credit card my freshman year in college and it was the worst decision. I had debt for years and it only leads to more debt. Educating children about finance is insurance they won’t get into trouble in the future.

  6. I got a free pizza when I signed up for my university credit card on campus. Crazy huh? I carried a balance on it for several years and even lived off it for a few months until I found my first job. Too bad there isn’t a waiting period on getting a credit card, like some state laws for waiting periods to buy a fire arm.

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