CHAPTER 2: LITERATURE REVIEW

2.1 Review of Literature

2.1.1 Past Financial Well-being among College Students in Developed and

Developing Countries

A Basic financial knowledge and skills are a necessary, for sure it also sufficient
condition for individuals to survive in this competitive economic environment
(Jacob et al., 2000). Financial literacy involves the ability to understand financial
terms and concepts and to translate knowledge and skills into behavior (Jacob et
al., 2000). Certainly, to a majority of the students, attending private colleges mark
the beginning of their financial independence (Borden et al., 2007). College
students are at a pivotal time in their lives as they will have to learn to be
independent in making responsible decisions and managing their own personal
finances (Cunningham 2000; Nellie Mae 2000). Therefore, the lack of experience
may make them particularly vulnerable to both the aggressive marketing tactics of
financial institutions and the psychological costs associated with high debt
(Borden et al., 2007).

Upon graduation, college students face the terrible task of repaying educational
loans in order to paying down credit debt (Micomonaco, J.P., 2003). Increased
educational loans and credit debt has made it more difficult for college graduates
to appropriately handle their debts after graduation (Micomonaco, J.P., 2003). In
estimating post-graduate budgets, no more than 8% of monthly incomes should be
earmarked for loan repayments (King & Bannon, 2002). If the loan repayments
account for more than 8% of the monthly income, then the level of debt is
considered unmanageable. By these standards, almost 40% of today’s college
students in developed countries graduate with unmanageable levels of debt (King
& Bannon, 2002).

Another study conducted by Chen, H., & Volpe, R. P. (1998) surveyed

924 college students in developed country in United States, to
examining their personal financial literacy and the relationship
between the literacy and students’ characteristics as well as the
impact of literacy on students’ opinions and decisions. Their
findings indicated a low level of financial knowledge since
 participants in the survey answered about 53% of questions
correctly (Chen, H., & Volpe, R. P., 1998). Non-business majors,
women, students in the lower class ranks, under age 30, and
with little work experience had lower levels of financial
knowledge. In addition, the study indicated that less
knowledgeable students tended to hold wrong opinions and
made inappropriate decisions (Chen, H., & Volpe, R. P., 1998).
As the result, large amounts of debt haunt students in their post-college years. The
immediate impact of this significant debt may not be apparent, but the effects can
be long term. Many college students with large student debt struggle to save
money after they graduate (Bodfish S. & Cheyfitz C., 1989). Based on the review
cases of past financial well-being among college students in developed and
developing countries, this study suggests that in this day and age, most of the
college students do not have a basic financial knowledge and skills to ensure
long-term stability for themselves. Hence, college students need more information
about factors which affecting their financial well-being and need to use that
knowledges to improve their financial management practices; otherwise, their
financial future may be in trouble (Micomonaco, J.P., 2003).

2.2 Factors that Affect Students’ Financial well-being

Financial literacy is an important tool for making financial decisions, it can only
provide limited descriptions of how capable individuals are and of the ways
individuals make financial decisions (Lusardi A., 2010). Somehow, college
students are increasingly in charge of their financial well-being after graduated or
during their working lives (Lusardi A., 2010). Younger generations, in particular,
will have to rely mostly on self-directed retirement accounts for their retirement.
Therefore, there are few factors that influence the financial well-being of college
students or young generations.

2.2.1 Credit Cards Factors

In recent years, educators, policy makers, and university officials have focused on
one aspect of college students’ financial practices – their use of credit, and most
specifically credit cards (Allen J.A. & Jover M.A., 1997). Nearly three out of four
of US households receive at least one credit card offer every month with many
offers being sent to college students (Speer T., 1998). College students are seen as
a lucrative market since they have higher than average lifetime earnings and are
just beginning a major transition period which is a key time to change their
previous behaviours (Speer T., 1998). Credit card companies pay schools
thousands of dollars to be able to solicit credit card applications
 from students while offering rewards such as free T-shirts or food
(Lyons A.C., 2004 & Miller, 2002).

The ability to apply for and receive a credit card has become
more and more easily reached on college campuses today (Lyons
A.C., 2004 & Miller, 2002). Miller (2002) even equates receiving a
credit card as a freshman, a “rite of passage” (p. 1). In many cases,
consumers today live on or over the financial edge often spending everything they
make, or more than they make, not even realizing their expenditures consistently
exceed their income (Mapother, 1999). “Baby Busters” have been raised in a
credit card society; they grew up with debt and use credit freely (Mapother,
1999). Increased use of credit cards by college students has generated a concern
among many that credit card debt puts college students at greater risk for financial
problems after graduation (Allen J.A. & Jover M.A., 1997; Armstrong A.J. &
Craven M.J., 1993). This attitude toward credit can make worse of credit card
debt and personal bankruptcy.

2.2.2 Demographic Factors

2.2.2.1 Gender Factors

Although most research finds that the majority of college students manage their
use of credit effectively, there are some college students still at risk of not being
able to repay their debts due to the lack of financial knowledge, experience, or
funds (Lyons A.C., 2004). According to Lyons A.C. (2004), the relationship of
demographic factors to effective credit behaviors has not been extensively
examined, although some studies have sought to identify differences between
individuals who are more likely to engage in effective management of their
finances and those who are not.
Gender is another characteristic that has been examined in the literature on
financial practices. For some measures, gender is a moderating factor for financial
management practices (Bell S. et al., 2001). Yet, in broad measures of borrowing,
gender does not impact the borrowing practices among college students (Bell S. et
al., 2001). Although women and men have similar borrowing patterns, but the same
cannot be said of their repayment patterns (Jamba-Joyner L. A. et al., 2000). Jamba-
Joyner L. A. et al. (2000) stated that there is no difference between men and
women in the number of credit card owned; nevertheless men are more likely to
pay off their credit card balance in full each month than women do. Thus, it
would seem that the major difference between men and women is in repayment
practices, but not in borrowing practices (Jamba-Joyner L. A. et al., 2000).
 Furthermore, gender also influences attitudes toward financial management
(Davies E. & Lea S.E.G., 1995). In a study of 150 college students looking at
student attitudes toward debt and their corresponding levels of debt, men
demonstrate more tolerant attitudes toward debt than women (Davies E. & Lea
S.E.G., 1995). In this case, females are shown less tolerance for debt and that
leads to less overall debt (Davies E. & Lea S.E.G., 1995). However, other
research suggests that differences exist in view of educational loans between men
and women (Mortenson T. G., 1989). The findings on attitudes toward education
loans, 84.2 percent of men and 76.4 percent of women reported positive attitudes
toward education loans (Mortenson T. G., 1989). This study revealed that men
have a various favorable views of borrowing money for education loans than
women (Mortenson T. G., 1989).

However, findings regarding gender differences on attitudes toward credit cards

have been mixed. For example, in a study of gender differences in credit card
behaviour of college students, Hayhoe C. R. et al. (2000) found that females
saved more regularly, used budgets more often, kept bills and receipts more
regularly, and planned spending more regularly compared to their male
counterparts (Hayhoe C. R. et al., 2000). However, Lyons (2004) examined 2,650
undergraduate students as well as graduated students at the University of Illinois
and found women were more likely than men to be risky in using credit cards.

2.2.2.2 Ethnicity and age Factors

Other than gender, research also has revealed that race is an important factor in
financial management practices. Bell S. et al. (2001) found that African-American
students tend to borrow significantly more money than any other racial
demographic. Therefore, black students tend to accumulate a greater debt over
their college careers than other students (Bell S. et al., 2001). There were some
cases shown, race is not a factor in measures of financial management practices
(Jamba-Joyner L. A. et al., 2000). According to the findings, race does not impact
the rate of credit card ownership (Jamba-Joyner L. A. et al., 2000). Mean for
minority students do not own significantly more credit cards than their majority
counterparts (Jamba-Joyner L. A. et al., 2000). Although race does not affect the
rate of credit card ownership, it does have an effect on repayment practices which
similar with the demographic of gender (Jamba-Joyner L. A. et al., 2000).
In these two studies, this concept of credit card repayment among college students
was examined. Both studies concluded that racial minorities are significantly
more likely to be revolving account holders than the general student population
(Jamba-Joyner L. A. et al., 2000; Munro J. & Hirt J. B., 1998). These problems
persist outside of credit cards. When examining the manageability of debt in the
monthly budget, manageability is defined as 8% of the month’s income (King T.
& Bannon E., 2002). The rate of minorities facing unmanageable debt is higher
than the rate for students in the racial majority (King T. & Bannon E., 2002). In
this study, King T. & Bannon E. (2002) found that upon graduation, there are
more than 50 percent of blacks and Hispanics face significant debt. Thus, racial
 minorities struggle more with their debts post-graduation (King T. & Bannon E.,
2002).

Furthermore, students’ ethnicity and marital status have also been identified as
major factors influencing students’ financing decisions. In the USA, non-white
students tend to have a higher probability of applying for tertiary aid and are also
more likely to take out larger student loans than their white counterparts (Curs V.
and Singell S., 2002; Clinedinst M. et al., 2003). In the UK, however, ethnic
minorities have been reported to have a much lower probability of taking out
student loans than white students (Callender C. and Kemp M. 2000). For example,
Callender C. and Kemp M. (2000) reported that the odds of an Asian student
taking out a loan are 35 per cent of the odds that a white student will borrow for
their tertiary education.

Beside of race factors, age is one of the significant impacts would influence
college students’ financial well-being. In the studies of both developed countries,
United States and England, as students’ age, they appear to become more tolerant
of debt and obtain more credit cards (Davies E. & Lea S.E.G., 1995; Hayhoe C.
R. et al., 1999), a factor that appears to be statistically independent of academic
year in college when both are included in analyses (Davies E. & Lea S.E.G.,
1995).

2.2.2.3 Employment factors

Employment status is one of the major factors that influence college students’
attitudes, knowledges and behaviours (Xiao et al., 2006). Chen H. & Volpe R.P.
(1998) surveyed 924 college students to examine their financial well-being, its
relationship to personal characteristics, and the impact on students’ opinions and
decisions about finances. They found that participants with more years of work
experience were more knowledgeable than those with less experience (Chen H. &
Volpe R.P., 1998). It is possible that students’ work experiences enhance their
financial knowledge through Lyons A.C.’s (2004) studies. Lyons A.C. (2004)
found that students with risky behaviors using credit cards were more likely to be
working students and those working more hours per week were more likely to be
risky in using credit cards than the entire sample of students.

Besides, Xiao et al. (1995) found that college students working fewer than 20
hours per week showed the most favorable cognitive attitudes toward credit cards.
Other researches from Nellie Mae (2004) reported that students working more
than 20 hours per week during the school year reported the highest credit card
balance among students who did not work, those working fewer than 20 hours per
week during the school year, and those working during summer or vacation only.
These studies showed that employment is also one of the factors that affecting
students’ financial behaviours in college life.

2.2.3 Financial Education Factors

Among those factors affecting college students’ financial behaviours, financial
education is another important issue which affects students’ financial knowledge
and attitudes (Ajzen I. & Fishbein M., 1980; Varcoe K. P. & Wright J., 1991).
Besides, financial education also increases financial knowledge and affects
financial attitudes (DeVaney S. A. et al., 1996; Grable J. E. & Joo S., 1998). In
the studies of Fletcher C.N. et al. (1997), he completed a pre and
post-assessment of financial knowledge, attitudes, and
behaviours to review the effectiveness of Iowa State’s personal
finance workshops and found that participants had improved
knowledge, attitudes, and behaviours. Moreover, another study
was found that increased in financial knowledge will also affect
students’ attitudes positively toward business in general and
their ability to be wise consumers in society (Langrehr F.W., 1979).
Figure 2.1 shows the relation of financial education influence of
college students’ financial decisions and behaviours.

Figure 2.1: Relation between Financial Education and Students’

Behaviours

Sources: Against Financial-Literacy Education : Lauren E. Willis

Grable J.E. & Joo S. (1998) found that financial education “levels the playing
field” in regards to gender differences and “is effective in changing knowledge,
attitudes, and behaviours” (p.213). They also found that increasing financial
knowledge through education was found to be significantly related to risk
tolerance, financial attitudes, and saving and investing behaviour (Grable, J. E., &
Joo, S. 1998). On the other hand, the large-scale, biennial surveys of high school
seniors carried out by the Jump$tart Coalition for Personal Financial Literacy
consistently found that students who had taken a high school class in personal
finance or money management do not having a financially literate problem than
those who have not (Mandell L., 2009). Specifically, a financial literacy index
was developed from student responses to basic age-relevant questions relating to
financial knowledge (Mandell L., 2009). The four key areas covered in the survey
included (i) income, (ii) money management, (iii) savings and (iv) investing, and
spending and credit (Mandell L., 2009). Six surveys have been administered from
1997 through 2008, and the average grade has never exceeded 58%. Furthermore,
Mandell L. (2009) also found that students who took a full semester high school
 class in money management or personal finance were no more financially literate
than students who had not taken such a course.

2.2.4 Personal Characteristic Factors

Previous studies have identified the personal student characteristics as factors that
influence their financial decisions (Chen H. & Volpe R.P., 1998; Danes S.M. &
Hira T.K., 1987; Hayhoe C.R. et al., 2005). For example, Danes S.M. & Hira T.K.
(1987) found that being married created a necessity for learning financial issues
that many college students who were single may not confront (e.g., health and life
insurance, budgeting, investing, and wills). Again, married students also a well
understanding of the issue of money and work out how each thinks money should
be handled (Danes S.M. & Hira T.K., 1987). Besides, in the study of Chen H. &
Volpe R.P. (1998), he showed that college students are more knowledgeable and
score higher on what they are familiar with like credit cards, bank accounts, and
rental leases. Yet, for those having a lower understanding of the issue of money,
they have lower scores in areas which they have not thought much about yet such
as life insurance and investing (Chen H. & Volpe R.P., 1998).

Another study from Knapp J. P. (1991), he found that when college students gain
more knowledge and more positive attitudes toward money, they make better
decisions which save resources and improves their situation. Further, financial
literacy also promotes self-confidence, control, and independence for individuals
(Allen M. W. et al., 2007; Conger R. D. et al., 1999). This comes by the feeling in
control and knowing how to function in an entire life cycle giving an example,
when consumers feel they are in control of their finances, they are more likely to
participate in their financial life cycle (Knapp J.P., 1999). Compounding the
problem, prior research in England has found that those students with more liberal
attitudes toward credit use are more likely to be in debt (Livingstone S.M. & Lunt
P.K., 1992). Furthermore, in another study from the United Kingdom, tolerant
attitudes toward debt appear to increase after students become indebted (Davies E.
& Lea S.E.G., 1995), indicating that there may be a cyclical relationship between
debt and pro-debt attitudes related to the accumulation of debt. However, in
studies in the United States, those with high levels of self-control are more likely
to save money and to spend less money (Baumeister R.F., 2002; Romal J.B. &
Kaplan B.J., 1995) and are less likely to engage in reckless spending (Strayhorn
J.M., 2002).

2.2.5 Family Background Factors

 Until recently, very little has been written about the financial socialization of
children within their families (Danes S. M., 1994). In fact, family is one of the
factors that affecting youngsters’ financial behaviours especially for college
students. Within the family, children learn how to or how not to handle their
money and interact with the adult financial world (Danes S. M., 1994). Family
history, experience, and skills, as well as the beliefs and values of each distinctive
family member, inform their construction of finances (Danes S.M., 1994). This
specific social setting provides rules and expectations that govern thoughts and
behaviors that influence their social construction of gender and finance issues
(Coltrane S., 1998). Besides, families have provided an informal environment
whereby parents teach children skills and develop shared understandings of what
is acceptable behavior (Parrotta J.L. & Johnson P.J., 1998).

In fact, children truly have observed informal skills which demonstrated by

parents in their daily actions that often involve finances (Parrotta J.L. & Johnson
P.J., 1998). According to Danes S.M. (1994), as well as Bowen C.F. (1995),
asserted that non-formal education within the family starting with very young
children sets a foundation for further financial education. Children have often
become active participants with their parents on financial issues, such as a trip to
the market for essential needs or to the shopping mall for wanted items (Danes
S.M., 1994). More formally, parents may have directly discussed financial
choices with their children to help them understand financial decision making
processes (Bowen C.F., 1995). Moreover, a study conducted by Bartholomae S. &
Fox J.J. (2002), he found that parents who modeled planning behaviour which
would also contributed positively to the investment behaviour of their children.
Thus, the role of parents in children’ financial behaviours and attitudes are
tremendously important because most of the time, children are following the
financial patterns of their parents (Clarke M.D. et al., 2005)

2.3 Analyse and Evaluation of The Most Significant Factors that Affecting
College Students’ Financial Well-being.

2.3.1 Family Background – Parents and Peers

Among all of the variables found, family background is one of the most important
factors that affect college students’ financial well-being and decision making.
When children are still young, family is the primary socialization unit for finance
learning, and it serves as a filtering point for information from the outside world
(Danes S.M., 1994; Danes S.M. et al., 1999). Thus, it is expected that the
financial behavior of many families would reflect societal trends (Danes S.M.,
1994). The research of Beverly S. & Clancy M. (2001), indeed, found this to be
true. They reported that parents are not providing children with adequate financial
education based on their own lack of knowledge.

Therefore, having children acquire competence in financial literacy is important if

they are the one who function effectively in today’s society (Martin A. & Oliva
J.C., 2001). Literature also suggests that parents have the most influence on the
consumer socialization of their children (Alhabeeb M.J., 1999; John D.R., 1999).
Strong parenting practices such as modeling and teaching can influence financial
literacy from a young age through the teen years (Clarke M.D. et al., 2005) and
can have more influence than their child’s peers (Brown B.B. et al., 1993). Most
of the time, children are following the poor financial patterns of their parents
which repeating the financial difficulties faced by their parents (Clarke M.D. et
al., 2005). Alhabeeb M.J. (1999) quotes Robert Fulghum saying, “Do not worry
that your children never listen to you; worry that they are always watching
you” (p. 2). Helping children achieve awareness of financial principles early is
important because it will affect their financial competency as adults (O'Neill B. &
Brennan P., 1997).

A study by Danes S.M. (1994) has provided additional support for this statement.
Danes S.M. (1994) studied parental perceptions on the financial socialization of
children. Danes S.M. (1994) also stated that parents are primary socialization
agents for children and the majority of what is transferred from parent to child is
not purposeful. She asserted that educational activities for parents of children are
best focused on non-formal settings where parents gather or through the mass
media (Danes S.M., 1994). Among college students, research completed in the
United States has indicated that students report learning more about credit cards
from their parents than from other sources (Pinto M.B. et al., 2005), even though
about one- third of college students report that their parents rarely discussed credit
cards with them (Sallie M., 2009). Furthermore, Palmer T.S., Pinto M.B. &
Parente D.H. (2001) also found that parental involvement when their children
acquired credit cards was related to lower balances in the future. This supports the
findings of Hayhoe C.R et al. (2005) who examined the relationship between
students’ imagined conversations with their parents about money and the number
of credit cards that students’ held. Moreover, Hayhoe C.R et al. (2005) also found
that students with more credit cards reported fewer imagined conversations with
their parents about money, perhaps showing that they had fewer actual
conversations about money with their parents.

In a nationwide survey conducted for Jump$tart Coalition for Personal Financial

Literacy, Mandell L. (1997) found that high school students learned about money
primarily at home was nearly 60 percent, on their own was nearly 30 percent and
 lastly at school was 10 percent (High school seniors lack financial, 1997).
Furthermore, a similar finding was reported by the USA Weekend in its May
1999 special report on Teens and Money (American Savings Education Council,
1999). When asked where they learned about money matters, 77 percent indicated
from their parents and 20 percent indicated schools (American Savings Education
Council, 1999). Survey respondents were 224 students in grades 6-12. Finally, 94
percent of the respondents in the 1999 Youth and Money Survey (American
Savings Education Council, 1999) said they are likely to use their parents as a
source of financial information. Therefore, parents and peers are tremendously
important information source about finance decisions for their children.

2.3.2 Credit Cards Factors

Apart from as a technical topic within economics or finance, credit is a much-

neglected issue in the social sciences (Burton D. et al., 2004). This lack of
academic attention is particularly important causing the sharp increase in access
to and use of credit in everywhere around the world, which has been accompanied
by an overall growth in indebtedness evident in all sectors of society (Burton et
al., 2004). Today, credit cards are responsible for more than $2.5 trillion in
transactions a year and are accepted at more than 24million locations in more than
200 countries (Ben W. & Matt S., 2010: Source: American Bankers Association,
March 2009). According to Oxera (2004), there is a significant rose in both
secured and unsecured lending which led to an increased concern over the high
level of personal debt, with the British Bank found that 40-50 percent of
households and 34 percent of individuals have some kind of unsecured (non-
mortgaged) debt which is not paid off in full at the end of the month.

The relationship between credit and indebtedness among college students has
been highlighted in the literature with many researchers predicting that a general
rise in students’ debt and spending (Mustafa M. & Rahman M., 1999; Griffiths
M., 2000) has resulted in a consequential rise in students credit (Ross D., 2002)
and compulsive buying (Park H.J. & Burns L.D., 2005). Further, undergraduates
are carrying record-high credit card balances among with public (Ben W. & Matt
S., 2010). The study also conducted that the average balance grew to $3,173
which represent the highest in the years and the median of debt grew from 2004’s
$946 to $1,645 (Ben W. & Matt S., 2010). These figures show that, college
students do not have a high level of knowledge in making their financial
decisions. Hence, in investigating debt, access to credit must also be examined as
part of the indebtedness cycle as it has been relatively under explored in research
and policy

Moreover, the economic and psychological of youngsters today, moved from a

saving to a spending culture has been noted in many western countries (Ritzer,
1995; Griffiths, 2000; Berwick, 2004) together with a change in consumer attitude
from the avoidance of debt to its general acceptance as part of modern life (Lea et
al., 1993). From the study of (Davies E. & Lea S.E.G. 1995; Lea S.E.G. et al.,
1996), they examined that students may accept debt as a part of their life, and
once in debt they may become more tolerant of it. Sallie Mae (2009) examined
nine in 10 undergraduates, the average amount they charged are more than
doubled when they are paying for direct education expenses with credit cards
(Ben W. & Matt S., 2010). It would also appear that debt increases through a
student’s university career (Christie H. et al., 2001). This supports the theory of
attitude-behaviour consistency whereby the necessary behaviour of taking out a
loan at university leads to a more tolerant attitude to it that may continue
throughout adult life and consequently affect behaviour (Davies and Lea, 1995).

Furthermore, the relationship between credit and spending decisions (Soman D. &
Cheema A., 2002) underlines the connection between the availability of credit and
increased overspending among younger consumers. More recent research
suggests however, that indebtedness may move across lifecycle stages, showing
that young people continue to carry debt throughout their lifecycle (Soman D. &
Cheema A., 2002). The Federal Reserve reported that the total U.S. revolving
debt suffered $852.6billion in 2010 which is 98 percent made up of credit card
debt (Ben W. & Matt S., 2010). In 2009, 1.4million people filed for personal
bankruptcy, which increased from 1.09million in 2008 (Ben W. & Matt S., 2010).
According to Paquin P. & Squire-Weiss M., (1998), he suggests that the change in
the personal bankruptcy rate can be explained by the combination of four
determinants (three are direct correlation to credit cards): (i) the supply of
consumer credit, (ii) consumers’ capacity to service their debt and (iii) the
condition of the job market, (iv) interest rates. A 1995 Roper College Track poll
asked students why they had a credit card and the responses were: “to establish a
credit history” at 65 percent, “to meet emergency needs” at 35 percent, and “to
become more financially responsible” at 18 percent (Newton C., 1998).

Hence, we would expect college students to report positive attitudes towards the
use of credit cards. Danes S.M. & Hira T.K. (1990) examined individuals’
 knowledge, beliefs, and behaviors regarding the use of credit cards and found that
people who normally using credit cards for installment purchases were more
likely both to use credit cards and incur finance charges compared to people who
did not endorse the use of credit cards for installment purchases. Xiao et al.
(1995), in examining affective, cognitive, and behavioral attitudes of 137 college
students, found that students generally held favorable attitudes toward credit card
use. Further, students who owned credit cards were more likely to hold favorable
behavioral attitudes toward credit card usage than students who did not own credit
card (Xiao et al., 1995). Finally, more frequent use of credit cards was associated
with more favorable overall and affective attitudes toward credit card use.
Therefore, a high level of awareness and knowledge on college students’ financial
situation is tremendously important to be avoidance for students to becoming
socialized into the borrowing or indebt culture.

2.4 Conceptual Framework

Based on the literature review, the conceptual framework for this study is shown
in Figure 2.3. In general, it depicts that the most significant impacts comprises of
credit cards, family background, personal characteristic, financial educational and
it has an impact upon college students’ financial well-being. Moreover, it shows
that factors have a direct influence on college students’ financial well-being. The
model also posits that factors above affect college students’ financial well-being.

2.4 Conclusion

This chapter has provided a comprehensive examination of literature that supports the
present research with corresponding theories and propositions from earlier research. This
study of financial well-being among college students is discussed in depth to provide a
better insight from previous studies on the extent of the research area. In the following
chapter, it discusses the research methodology, data sample and collection methods,
sampling procedures, questionnaire design and data analysis techniques.
Hypotheses Development

Credit Cards Factors Toward College Students’ Financial Well-being

Although limited research has been done, there is empirical evidence that credit cards are
closely associated with college students’ financial well-being. Regarding the study of
incidence of indebtedness, there appears be a consent regarding the low level of
awareness and knowledge among students as to their own financial situation (MORI,
2003). Thus, credit cards and college students’ financial well-being are consistent
concepts. Based on the literature, the following hypothesis is formulated:

Hypothesis 1: Credit cards have a significant impact on college student’s financial

well-being.

Family Background Factors Toward College Students’ Financial Well-being

Previous research has shown that family background affect college students’ financial
well-being and decision making (Danes S.M., 1994; Danes S.M. et al., 1999). When
children are still young, family is the primary socialization unit for finance learning, and
it serves as a filtering point for information from the outside world (Danes S.M., 1994;
Danes S.M. et al., 1999). Thus, it is expected that the parental education and financial
behavior of many families would reflect societal trends (Danes S.M., 1994).

Based on these prior findings, parents tend to have greater influence on students at a
younger age (Brown B.B. et al., 1993; Clarke M.D. et al., 2005).

Hypothesis 2: The significant factor of family background will affect college students’
financial well-being.

Personal Characteristic Factors Toward College Students’ Financial Well-being

Prior research stated that nearly one-fourth of college students recently do not have a well
financial behaviour (Elisa Rose et al., 2003). According to the research, college students
do not tend to consider the long-term consequences when they use a credit card.
However, some of the studies shown that those students with high levels of self-control
are more likely to save money and to spend less money (Baumeister R.F., 2002) and are
less likely to engage in impulsive spending (Strayhorn J. M., 2002). Based on the
literature, the following hypothesis is formulated:
Hypothesis 3: Personal characteristic factors have a significant impact on college
students’ financial well-being.

Financial Education Factors Toward College Students’ Financial Well-being

Students’ financial education also plays a role in predicting debt. Also, financial
education influences financial knowledge, attitudes, and behaviors (Ajzen I. & Fishbein
M., 1980; Varcoe K. P. & Wright J., 1991). Financial education increases financial
knowledge and affects financial attitudes (DeVaney S. A. et al., 1996; Grable J. E. & Joo
S., 1998).

Hypothesis 4: The important impact of financial educational affect on student’s financial

well-being.

Financial Management Factors (Credit Cards, Family Background, Personal

Characteristic, Financial Education) Toward College Students’ Financial Well-
being

A number of previous studies have highlighted that parents have the influence on the
consumer socialization of their children (Alhabeeb M.J., 1999; John D.R., 1999). Strong
parenting practices such as modeling and teaching is one of the important factors that
show how parents can influence children’s financial (Clarke M.D. et al., 2005). Further,
Lea S.E.G., Webley R.M., & Levine R.M. (1993) also found that individuals from low
income families were more likely to be in debt than those from higher income families.

Last but not least, previous studies have identified the personal student characteristics as
factors that influence their financial decisions (Chen H. & Volpe R.P., 1998; Danes S.M.
& Hira T.K., 1987; Hayhoe C.R. et al., 2005). Some of the studies shown that those
students with high levels of self-control are more likely to save money and to spend less
money (Baumeister R.F., 2002) and are less likely to engage in impulsive spending
(Strayhorn J. M., 2002). On the basis of this logic, financial management factors have a
significant impact on students’ financial well-being.
Hypothesis 5: The significant factors of financial management will affect college
students’ financial well-being.