Financial Parenting andCollege Student Debt Default Intentions
Catherine P. Montalto, The Ohio State University,Jonathan J. Fox, Iowa State University
Suzanne Bartholomae, Iowa State UniversityJodi C. Letkiewicz, York University
Presentation for the National Summit on Financial Wellness: Building Financial CapacityJuly 28-29, 2014, The Ohio State University
Overviewo Why college student debt matterso Conceptual approacheso Ohio Student Financial Wellness Surveyo Modeling college students’ intention to
default on accumulated debt obligationso Summary of findingso Research to practice:
How does this help us help college students and their families?
o Future opportunities
Why college student debt matters• Student loan debt – 2nd leading cause of stress
• 35% describe financial situation as “traumatic” or “difficult to handle”College Health Association, Spring 2011 National College Health Assessment Survey
• Student financial stress• 70% stressed about personal finances in general• 59% worry about having enough money to pay for school• 53% worry about ability to pay monthly expenses
2010 Ohio Student Financial Wellness Survey
Why college student debt mattersRising education costs and a
competitive job market for college age students add to the
challenge of financing an education with confidence
Despite the challenges, students are choosing a financed
education now more than ever
2010 Ohio Student Financial Wellness Survey
Why college student debt matters• Outstanding student loan debt approaching $1.2 trillion
Chopra 2013
• Exceeds what all Americans owe on credit cardsFederal Reserve Bank of New York 2011
• Average total student loan debt: $29,400 Reed and Cochrane 2013
Why college student debt matters
Prevalence: 37% of households headed by an adult < age 40
• More likely to have outstanding loans on automobiles
• Have greater credit card debt (higher revolving balances)
• More difficulty making debt payments on time Fry 2014
Why college student debt matters
• Risk of default on debt repayment
• Consequences of default for• College and university administrators
• Federal government
• College students and their families
Conceptual Approaches
• Human capitalBecker, 1964; Freeman, 1976
• Ability to payCabrera, Nora and Castaneda, 1992; Cabrera, Stampen, and Hansen 1990
• Organizational/structuralHall, 1991
• Student-institution fitPascarella & Terenzini, 1991
Financial SocializationStudent-institution fit model extension to multiple contexts of potential socialization
Ecological model……IndividualFamilySchoolWorkMarkets
Neiderer et al., 2009
Gudmunson & Danes, 2011 Family Financial Socialization: Theory and Critical Review
Ohio Student Financial Wellness Survey
• Web-based survey of undergraduate college students from 19 Ohio colleges and universities in 2010
• 5,729 respondents• 17% response rate• Institution Type
• 5 two-year public institutions• 6 four-year public institutions• 8 four-year private institutions
Modeling college students’ intention to default on accumulated debt
obligations• Model of debt default extended to include socialization
processes
• Students’ self-reported own predicted default intention
• Variables related to the individual, family, school, work, and market contexts
• Enables analysis of a wider context of influence in individual financial decision making, specifically debt default intention
Dependent Variable
“After graduation, I will be able to pay off any debt acquired while I was a student.”
Strongly Agree-----Agree-----Disagree-----Strongly Disagree
75.4% set to “0” 24.6% set to “1”
“Non-defaulters” “Defaulters”
Explanatory VariablesIndividual
GPA Class Rank Financial Management
Graduation Plan Gender Financial Stress
Advanced Degree Race/Ethnicity Knowledge of Debt
Grants/Scholarships
FamilyAllowance
Worked in High School
Financial Parenting
Parental Encouragement of Financial Practices
Parents’ Assisted with Obtaining Credit Card
Work EnvironmentEmployment Status
Market EnvironmentSpending Habits
Automobile Loan
Credit Card Revolver
First Credit Card Prior to College
School EnvironmentInstitution Type Financial Counseling
Enrollment HS Course - Personal Finance
Residence College Course - Personal Finance
Student Employment Human Capital Investment
Explanatory VariablesIndividual
GPA Class Rank Financial Management
Graduation Plan Gender Financial Stress
Advanced Degree Race/Ethnicity Knowledge of Debt
Grants/Scholarships
FamilyAllowance
Worked in High School
Financial Parenting
Parental Encouragement of Financial Practices
Parents’ Assisted with Obtaining Credit Card
Work EnvironmentEmployment Status
Market EnvironmentSpending Habits
Automobile Loan
Credit Card Revolver
First Credit Card Prior to College
School EnvironmentInstitution Type Financial Counseling
Enrollment HS Course - Personal Finance
Residence College Course - Personal Finance
Student Employment Human Capital Investment
Variable MeasurementFinancial Management Factor• I have a weekly or monthly budget that I follow.• I have a financial plan that will serve my needs until I graduate.• I manage my money well.• I can manage my personal finances without assistance.• I track all debit card transactions/checks to balance my account.• I know where my money goes.
1=strongly disagree, 2=disagree, 3=agree, 4=strongly agree
Variable MeasurementFinancial Stress Factor • I feel stressed about my personal finances in general.• I worry about being able to pay monthly expenses.• I worry about having enough money to pay for school.
1=strongly disagree, 2=disagree, 3=agree, 4=strongly agree
Variable MeasurementHuman Capital Investment• I think that the cost of tuition is a good investment for
my financial future.1=strongly disagree, 2=disagree, 3=agree, 4=strongly agree
Agree Disagree
Variable MeasurementFinancial Parenting Factor• While you were growing up, how often did your parents or
guardians discuss money management with you?1=never, 2=rarely, 3=sometimes, 4=often
• My parents or guardians were comfortable talking about money with me.
• My parents or guardians told me what I needed to know about money management.
• My parents or guardians were excellent role models of sound financial management.1=strongly disagree, 2=disagree, 3=agree, 4=strongly agree
Logistic Regression• Assess the contribution of context variables on the
odds of student Intention to Default• Sets of variables added sequentially
• Individual• Family• School• Work• Loan Market
Logistic Results• Support for integrated model
• Individual, family, and school variables all added to explanatory power of the model
• Financial management, financial stress, human capital investment, and financial parenting all affected default intention
Interpretation of Results• Financial guidance from parents … 15% less likely
• Financial management … 30% less likely
• Financial stress … nearly 40% more likely
• College is a good investment …62% less likely
Lower odds of default intention• Financial guidance from parents
• Financial management
• Less reported financial stress
• College is a good investment
Students who believe that their investment in collegewill pay off are 62% less likely to intend to default!
Research to Practice How does this help us help college students and their families?
What can we do with this?Value of family financial socialization
• Discuss money, financial decisions
• Routine discussions become “comfortable”
• Role model sound financial behavior
What can we do with this?
Value of financial management behavior
• Budgeting, planning, and tracking finances provide good return on investment
What can we do with this?Importance of …
• Self-reported default intention
• Financial stress
• Knowledge of the educational investment
Future Opportunities
go.osu.edu/nsfws
Thank you!• E‐mail: [email protected]• Office Address:
Campbell Hall, Room 115F1787 Neil Avenue, Columbus, OH 43210
Empirical StudiesIndividual Context:
Factor Study
GPA Flint (1997), Woo (2002), Steiner & Teszler(2003), Volkwein et al. (1998), Thein & Herr
(2001), Christman (2000)Academic Preparation (e.g.
(SAT)Christman (2000), Podgursky et al. (2002),
Steiner & Teszler (2003), Woo (2002)Higher Class Rank/More
Credit HoursSteiner & Teszler (2003)
Debt Level Woo (2002), Steiner & Teszler (2003), Volkweinet al. (1998), Lochner & Monge‐Naranjo (2004),
Choy & Li (2006)Low Earning Degree Volkwein & Szelest (1995),Dillon & Smiles (2010)
Attended 2 or fewer semesters
Christman (2000)
Empirical StudiesIndividual Context (cont’d):
Factor Study
GED Christman (2000)
Grants/Scholarships(mostly need based)
Greene (1989), Dillon & Smiles (2010)
Males Woo (2002), Volkwein et al. (1998), Knapp &Seaks (1992), Woo (2002)
Age, older students Podgursky et al. (2002), Steiner & Teszler (2005), Herr & Burt (2005)
Non‐Whites (excludingAsian Americans)
Volkwein et al. (1998), Harrast (2004), Herr & Burt (2005), Dillon & Smiles (2010)
Don’t know they have to repay
Volkwein et al. (1998)
Empirical Studies
Family Context:
Factor Study
Parents Income Knapp & Seaks (1992), , Woo (2002), Hurr & Burt (2005)
Parent Education Choy & Li (2006), Volkwein & Szelest (1995),Steiner & Teszler (2003, 2005)
Divorced, Separated,Widowed
Volkwein & Szelest (1995)
Single Parents Volkwein et al. (1998), Knapp & Seaks (1992)
Number of Dependents Dynarski (1994), Volkwein & Szelest (1995), Woo (2002)
Empirical StudiesSchool/Institution Context:
Factor Study
Graduation Woo (2002), Steiner & Teszler (2003), Volkwein et al. (1998), Knapp and Seaks (1992), Thein & Herr (2001),
Dillon & Smiles (2010)
Continuous Enrollment Podgursky et al. (2002), Woo (2002), Steiner & Teszler(2003)
Student Employment Volkwein et al. (1998)
Counseling Steiner & Teszler (2003), Podgursky et al. (2002), Seifert & Worden (2004), Dillon & Smiles (2010)
Living on Campus Steiner & Teszler (2003)
Failed Classes Steiner & Teszler (2003), Christman (2000)
2+ Major Changes Steiner & Teszler (2003)
Community Colleges, HBCUs Volkwein et. al. (1998), Dillon & Smiles (2010)
Dissatisfaction with Institution
Christman (2000)
Empirical Studies
Work Context:
Factor Study
Income Woo (2002), Volkwein et al. (1998), Flint (1997)
Unemployment Woo (2002), Volkwein et al. (1998), Dynarski(1994), Monteverede (2000)
Empirical Studies
Market Context:
Factor Study
Defer or forbear payments Woo (2002)
Previous delinquency Woo (2002)
Multiple lenders Flint (1997), Woo (2002)
CC Debt Pinto & Mansfield (2006)