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Survey: Financial Illiteracy is Rampant Among College Students

money-fiveWhile building credit and maintaining a good credit history remains a necessary tool for Americans in order to provide financial opportunities such as obtaining a loan for a mortgage or to make other large purchases, recent studies revealed that many Americans do not have any credit and in many cases do not even know what a credit score is.

In a recent survey of 668 Bay Area college students [1] containing questions about consumer credit and how it effects financial decisions conducted by LendEDU [1], the results revealed that 59.3 percent of respondents could not produce a broad definition of a credit score.

“Our survey wasn’t limited only to individuals with student debt,” LendEDU CEO Nate Matherson said. “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.”

The results of the survey were in line with the findings of a study released last May [2] by the Consumer Financial Protection Bureau (CFPB [3]) which found that approximately 26 million American adults (about 10 percent) were “credit invisible,” or in other words, they do not have a credit history or not enough of a credit history to produce a score with any of the three nationwide consumer reporting agencies (Equifax, Experian, or Transunion).

3-21 LendEDU"A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity—to get an education, start a business, or buy a house,” CFPB Director Richard Cordray said. “Further, some of the most economically vulnerable consumers are more likely to be credit invisible."

Despite the importance of building and maintaining a good credit history, the Council of Economic Education (CEE) stated in its 2016 annual report that only 17 states require high school students to take a course in personal finance. There are no such requirements in California, the location of the LendEDU survey.

The survey showed that 42.5 percent of respondents did not believe that student debt was important in determining a credit score—and this despite the fact that seven out of every 10 college graduates leave campus with an average of $30,000 in student loan debt. Also, 42.4 percent of respondents could not name even one way to improve a credit score. Nearly half (45.5 percent) of respondents could not identify even one factor used to determine a credit score; 65 percent said they did not have a credit card in their own name; and 72 percent of the respondents who did have a credit card said they did not know their credit score.

Click here [1] to see the full results of the LendEDU survey.