Financial Literacy Among International and Local University Students

Financial Literacy Among International and Local University Students

Introduction

Financial literacy is a vital skill that we require in our everyday life. Financial literacy has been described as the concept of understanding money and its daily use. Two essential elements in this concept are income and expenditure, and the understanding of how they can be managed. Other everyday concepts that are attached to financial literacy include credit, insurance, savings, and investment. Further, financial knowledge involves the understanding of financial concepts relating to investment and management of funds objectively to create wealth. Individuals need not only to understand how to earn and spend money but also how to benefit from credit features available and investment.  Such awareness will enable people to understand things such as financial statements, calculation of interests for borrowed money or saved money, return on capital, and profits from the invested money. Financial experts argue that high returns are associated with high risk as a result of the uncertainties associated with the market. Young investors should thus understand the market dynamics of deflation and inflation, changing demands, and regulations that could affect their small business or simply their flow of income. Decision making is another component of financial literacy that is integral to the entire system of knowledge. Not only investors need to make informed and beneficial decisions. Everyone has to make beneficial decisions related to their financial resources to avoid a crisis in the future. Money is a crucial resource that is seemingly the only medium to meet our daily needs. Financial literacy is, therefore, essential and has critical implications on the management of our financial affairs. According to Xiao & Porto (2017), financial literacy influences people’s capacity to develop and grow wealth, and hence it has impacts on their lifestyle choices. He attaches financial literacy to the functioning of financial institutions such as banks and insurance institutions. Since financial literacy affects people’s decisions on saving and investment, it influences the allocation of resources in the economy. In turn, economists have realized that financial literacy is useful in determining the prospected long-term rate of economic growth and development. Psychologists have also had a bite in the entire concept of financial literacy. According to Britt et al. (2015), financial matters are contributing factors to depression and other emotional disorders. Financial problems are critical to our lives since they influence our health and happiness. Without money, one is likely to be isolated, depressed, and suffer from low self-esteem. These have been common problems among university students. Although relationships have been associated with many of the issues, money has a role to play. It is, therefore, important to establish the levels of literacy among university students, both international and local students. Besides, Xiao & Porto (2017) posits that lack of financial literacy among university students, who are the future labor force, may make them experience high levels of financial constraints, which will not affect their present and future family but also the professional life.  Appropriate financial knowledge will help students to maneuver the financial challenges they face in school, making them successfully finish their studies and make excellent members of the future workforce. It can also be useful in their future investment efforts.

To this end, the purpose of this study is to establish the level of financial literacy of university students, both international and domestic students, and compare this to my personal experience.

Literature Review

For the first time, the concept was mentioned in a letter to the third president of the United States in response to the Declaration of Independence written by the president. In the letter, John Adams recognized a lack of financial literacy by stating that the challenge of America’s economy was not a problem of the constitution but was because of “ignorance of the nature of coin, credit, and circulation” (Lusardi et al., 2010). The nature of coin, credit, and circulation covers the entire idea of the financial market today. It is, therefore, an excellent representation of financial literacy in those years. Approximately 200 years later, a study by Sarigül (2014) on the Financial Literacy Among High school students defined the concept as using knowledge and skills by an individual to effectively manage their financial resources to ensure lifetime security. The President’s Advisory Council on Financial Literacy (PACFL, 2008) acknowledged this definition. They required that this should be the standard definition of the concept so that government programs would be understood from a standard description.

Other financial experts, such as Chen & Volpe (1998), developed an understanding of the concept based on available financial products. Examples of these financial products include loans and interest rates, savings, and health and life insurance policies. In this context, financial literacy would refer to how people can examine, compare, and choose from competing offers. It also has to do with the ability to plan for future needs (Britt et al., 2015).  Sarigül (2014) added that apart from the dynamics of choice, financial literacy has to do with the knowledge of general concepts in finance, such as the understanding of nominal and real values as well as dynamics of financial risks, which helps us to make informed decisions on saving and investment. Ansong & Gyensare (2012) linked financial literacy to financial behavior and the mutual relationship between the knowledge and the behavior. To this end, financial literacy is not only understanding the financial elements but also the involved behavior and attitudes that determine an individual’s financial decisions (Mandell & Klein, 2007).

Everyone inevitably needs a significant level of financial literacy that will help them make decisions regarding available products in the financial market, and to cope with the rapidly changing financial market. Besides, the current world has so many complexities around income and expenditure for students, such as student loans and credit cards (Sarigül, 2014). Students who have limited financial literacy are deemed to face tough times managing their resources at school. In his conclusion, Ansong & Gyensare (2012) recommends that university students should sharpen their literacy levels concerning financial management as they cross over to the job market to develop positive attitudes towards work.

Studies have also established gender prevalence in financial literacy. For instance, the survey carried by Xiao & Porto (2017), in which the researcher used a questionnaire evaluating student’s knowledge on credit cards, personal loans, insurance policies, record keeping and financial management skills at large, established that male students understood financial concepts better than their female counterparts. Additionally, the study discovered that married students understood financial concepts better compared to their unmarried counterparts. The study, however, concluded that students have a minimum understanding of financial concepts in general. The study conducted by Sarigül (2014) also examined the relationship between financial knowledge and student’s behavior. The study concluded that financial literacy influences a student’s decision making. Students studying business were better informed financially than those taking other courses. The less informed students held wrong opinions about financial concepts and were likely to make wrong decisions.

Other scholars have made moves on understanding the benefits of financial literacy. Financial literacy is a factor in critical thinking and problem solving (Mandell & Klein, 2007). It has been applicable in decision-making tasks such as budgeting. According to Mandell & Klein (2007), students who are financially less sophisticated have financial challenges that are likely to continue even into their life after school. This is explained by how much students have negative attitudes and opinions towards finances and the incorrect decision that comes as a result. To support this, Mandell & Klein (2007) added that financial education boosts financial attitudes and behavior, and hence it could be a tool to prepare the students to face the after-school life.

Methodology

The methodology of a study carries the methods used to acquire and analyze the data for the study. For the current study, the aim was to establish levels of financial literacy among university students, considering if they are local or international students. The data was acquired through interviews. There were four students to be interviewed, two local students, and two international students. The interview questions were of both closed and open-ended nature. The questions tested knowledge of basic financial concepts. They were, however, differentiated for the two categories.

1. Local Students Questions

The interview guide was divided into sections. The first section carried questions on basic financial concepts; saving and investment. Part B of this part was open-ended, and it gave the interviewee a chance to demonstrate the application of such concepts in real life. Section 2A of the guide carried questions on financial institutions and products available to students locally. These were questions to do with student loans and Federal Student Aid. Part B of this section carried questions on the current economic situation because such situations demand that we use our finances prudently.

1. International Students Questions

The first section carried questions about basic financial concepts; savings and investment. Part B of this section carried open-ended questions to prove the applicability of their knowledge. The second section Asked about financial institutions available for students both locally and from their countries. Finally, the last part tested their understanding of the economic situation in the country and how to cope with it financially.

To establish a sense of measurement and comparison, I scored the students on their answers.

Results

Both local and international students performed moderately on basic concepts of financial management, 51% on average for local students, and 57% on average for international students.

Regarding financial products and institutions available for students, the local students scored 47% on average, while international counterparts scored 49% on average. The local students seemed informed about local economic issues, but when given a chance to apply their knowledge, they indicated a high probability of making the wrong choices. This was the same case for international students.

Discussion

The discussion on financial literacy has become an everyday topic. That stands to be the main reason why the students seemed to have a general idea of basic financial concepts. However, they were unable to score higher in that section because they did not know how to apply the concepts. This agrees to Mandell & Klein’s (2007) argument that financial literacy is not only understanding the financial elements but also the involved behavior and attitudes that determine an individual’s financial decisions. The study carried out by Xiao & Porto (2017) established the difference in financial literacy levels between married and unmarried students as well as working and full-time students. Married students and working students portrayed high levels of financial literacy. This is an indication that external exposure determines the level of literacy. Such an observation is an excellent explanation for why international students scored higher than local students on basic knowledge of financial concepts. Being away from their homes makes them go the extra mile in managing their resources.

The performance on the questions regarding financial institutions and products available for students reminds us of the concept brought forth in the letter to the president, “ignorance of the nature of coin, credit, and circulation,” quoted by Lusardi et al. (2010). Students have neglected the availability of financial aid. Lack of knowledge regarding available financial resources is automatically lack of financial literacy. In trying to define financial literacy, Chen & Volpe (1998) looked at the concept based on available financial products. He gave examples of these financial products like loans and interest rates, savings, and health and life insurance policies. His effort defined financial literacy to include the way people can examine, compare, and choose from competing offers. The students could identify several available products but did not have full information. Therefore, they cannot effectively make any choices. The international students scored slightly higher because of the external influence outlined by Xiao & Porto (2017).

Both the local and international students seemed informed about local economic issues, but when given a chance to apply their knowledge, they indicated a high probability of making the wrong choices. Sarigül (2014) argued that financial literacy has to do with the understanding of general concepts in finance, such as the understanding of nominal and real values as well as dynamics of financial risks, which helps us to make informed decisions on saving and investment. Such knowledge should capture economic aspects of inflation, price elasticity of demand, and income. These are simple economic concepts that should be part of our lives. Ansong & Gyensare (2012) linked financial literacy to financial behavior and the mutual relationship between the knowledge and the behavior. The behavior here refers to the habit of making an individual decision as advised by your finances and the surrounding economic situations.

Conclusion

To this end, both local and international students lack adequate financial literacy. It is, however, essential to acknowledge that international students have a higher level of such literacy compared to their local counterparts. This could be attributed to the hardship of being in a new country that they are exposed to. The general low levels of financial literacy can be attributed to a lack of relevant education or awareness and ignorance. University students need to acquire adequate financial literacy since it is essential to them not only as students but also as they cross over to the job market. Therefore, appropriate measures should be put in place to ensure this is achieved.

Recommendation

This study suggests incorporation of financial literacy classes in the curriculum

References

Ansong, A., & Gyensare, M. A. (2012). Determinants of university working-students’ financial literacy at the University of Cape Coast, Ghana. International Journal of Business and Management, 7(9), 126.

Britt, S. L., Canale, A., Fernatt, F., Stutz, K., & Tibbetts, R. (2015). Financial Stress and Financial Counseling: Helping College Students. Journal of Financial Counseling and Planning, 26(2), 172-186.

Chen, H., & Volpe, R. P. (1998). An analysis of personal financial literacy among college students. Financial services review, 7(2), 107-128.

Lusardi, A., Mitchell, O. S., & Curto, V. (2010). Financial literacy among the young. Journal of consumer affairs, 44(2), 358-380.

Mandell, L., & Klein, L. S. (2007). Motivation and financial literacy. Financial services review, 16(2).

Sarigül, H. (2014). A Survey of Financial Literacy Among University Students. Journal of Accounting & Finance, (64).

Xiao, J. J., & Porto, N. (2017). Financial education and financial satisfaction: Financial literacy, behavior, and capability as mediators. International Journal of Bank Marketing, 35(5), 805-817.