Financial Parenting and College Student Debt Default ... · • Financial management, financial stress, human capital investment, and financial parenting all affected default intention.

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)