In January, we traveled to a few local college campuses to survey current student loan borrowers. Over the course of a few days of surveying we found that our nation’s college students know almost nothing about student debt. The results of the survey were equal parts surprising and disturbing.
This month, we returned to those same Bay Area college campuses to ask a few more questions. This time, we asked current college students a series of basic questions related to consumer credit, building credit, and credit scores.
Building credit is incredibly important for young adults. Good credit provides financial opportunities, options, and is a necessary tool for most Americans. However, in the 2016 annual report published by the Council of Economic Education (CEE), it was reported that only 17 states require high school students to take a course in personal finance. And, in the State of California (the location of our survey), there are no requirements for personal finance education.
We surveyed 668 current college students at both 2-year and 4-year, public and private institutions. Both males and females were surveyed. Both undergraduate and graduate students were included in our survey. Our survey wasn’t limited only to individuals with student debt. Unfortunately, we found that the majority of current college students know very little about building and maintaining consumer credit. Our results are once again startling, disturbing, and showcase the appalling level of financial illiteracy among our country’s brightest minds.
Here we go again:
Can you describe a credit score?
59.3 percent of students surveyed could not produce a broad definition of a credit score, or answered no.
Would you rather have a high or a low credit score?
19.6 percent of students surveyed reported that they would rather have a low credit score.
Do you know the range of possible FICO credit scores? (within 50 points on the high/low)
95.5 percent of students surveyed did not know the range of possible FICO credit scores.
Are student loans an included factor in your credit report and score?
42.5 percent of students surveyed did not believe that student loan debt is an included factor in a credit report or score.
Do you currently have a credit card in your own name?
65.1 percent of students surveyed reported that they did not have a credit card in their own name.
If the respondent answered “yes” to having a credit card, we asked: Do you know your credit score?
72.1 percent of students with a credit card reported that they did not know their credit score.
What factors are the basic factors used to determine credit score? Can you name one?
45.5 percent of students surveyed could not correctly identify at least one factor used in determining a credit score.
Do you believe any of these factors are used in determining creditworthiness: gender, race, nationality, or marital status
47.2 percent of students surveyed reported that they believed that one of the above factors is used to determine creditworthiness. This is a myth.
Can you tell us one way to improve your credit score?
42.4 percent of students surveyed could not tell us at least one way to improve a credit score.
Can you tell us one action that would negatively impact your credit score?
43.9 percent of students surveyed could not tell us at least one action that would negatively impact a credit score.
What is a credit inquiry, or credit pull?
69.8 percent of students surveyed could not produce a broad definition of a credit inquiry, or answered no.
Do you know the difference between a hard credit inquiry, and a soft credit inquiry?
86.4 percent of students surveyed could not produce a broad definition of the difference between a hard credit inquiry and a soft credit inquiry, or answered no.
Consumer credit is an incredibly powerful tool when used responsibly. Unfortunately, it looks like the majority of current college students are uninterested in their credit report, building credit, and the risks negative consumer credit.
Seven out of ten college graduates are now leaving campus with an average of $28,400 in student debt.
Yet, an astounding 42.5 percent of current students don’t even consider student debt to be an important factor in determining creditworthiness.
In January, we learned that our nation’s current college students know almost nothing about student debt.
In March, we learned that our nation’s current college students know very little about creditworthiness and consumer credit.
What happens when you combine large amounts of student debt and little knowledge of personal finance?
We aren’t sure. But we do know that there is $1.4 trillion in outstanding student debt.
It all starts with education. At LendEDU, we work to create digestible resources, guides, and tools to make financial literacy obtainable. But we can’t do it alone. According to Champlain College’s Center for Financial Literacy 2015 report, 26 states received grades of C, D, or F. Our nation’s high schools need to do a better job preparing graduates for their financial future. STEM is great and all, but how can we expect young adults to succeed without a basic understanding of personal finance?