New Evidence Shows Positive 'Snowball Effect' of Financial Education

Cumulative Education Leads to More Financial Knowledge

Date: September 6, 2011

Contact: Paul Golden 303-224-3514, [email protected]

TUCSON, Ariz.– New research shows that high school and college students who are exposed to cumulative financial education show an increase in financial knowledge, which in turn drives increasingly responsible financial behavior as they become young adults.

In fact, researchers at the University of Arizona document a "snowball effect" that these early efforts exponentially increase the likelihood that students will pursue more financial education as time goes on, including informal learning through books, magazines and seminars.

APLUS Gender, SES, Ethnicity Differences

Financial Education—Formal and Informal

  • More students (75 percent) were engaged in learning about finances at their fourth year than their first year (62 percent). However, there were gender and SES (socioeconomic status) differences. No ethnic differences were found.
  • More men, compared to women, took formal financial or economics classes (62 percent vs. 40 percent) and engaged in informal financial education such as seminars or workshops (75 percent vs. 66 percent).
  • More middle (72 percent) and higher (72 percent) socioeconomic participants participated in informal education as compared to lower SES participants (66 percent).

Work Experience

  • More students (65 percent) reported working at their fourth year than their first year (35 percent). However, there were gender and SES differences. No ethnic differences were found.
  • More women (68 percent) compared to men (58 percent), and lower SES (67 percent) and middle SES participants (68 percent) compared to higher SES participants (56 percent), reported working during the college period.

Financial Knowledge

  • Overall, objective knowledge rose five percent overall between their first and fourth year in college. Despite the fact that there was no gender difference in their first year, we found a gender difference in objective financial knowledge in their fourth year.
  • Men (57 percent) were more likely to pass the quiz than women (49 percent). There was no ethnic or SES differences in objective knowledge.

Financial Self-Efficacy (Self-Rated Ability to Manage One's Finances)

  • Overall, financial self-efficacy rose from the first year to the fourth year in college. There were gender and SES differences, but no ethnic differences.
  • Men were more likely to rate their self-efficacy higher than women at both times. Lower SES participants were more likely to rate their self-efficacy higher than middle or higher SES participants.

These findings come from the third wave of a landmark study, Arizona Pathways for Life Success in University Students (APLUS), co-funded by the National Endowment for Financial Education. In this round, researchers again surveyed more than 1,500 students and drop-outs four years after they entered the University of Arizona in the fall of 2007.

The findings show young adults also begin to display three distinct financial identities that reflect varying degrees of parental influence and autonomy: Pathfinders, Followers and Drifters. The researchers link the most positive financial attitudes and behaviors to "Pathfinders," those who actively choose their own financial management style.

Also, parents, more than anything, exert the most influence over their children when it comes to developing positive financial attitudes and behaviors—1.5 times more than continuing financial education and more than twice as much as what children hear from their friends.

"We have learned with each successive wave of this study that there are many important influences on young adults," says Ted Beck, president and CEO of NEFE. "These influences work together to form their financial identities. It is especially notable that the researchers are pinpointing cumulative financial education as a key positive influence. It always made common sense to believe that, but now we have proof."

"We are able to show linkages between repeated financial education and higher levels of good financial behaviors such as tracking expenses, paying credit cards in full, and saving money each month," adds Soyeon Shim, Ph.D., APLUS lead researcher. "Students also are generally smarter about finances compared to previous waves of the study." Objective knowledge measured by performance on a financial quiz rose five percent, she says. 

Three Financial Identities Discovered

APLUS researchers studied how individual financial styles develop in the cohort, including the degree to which young adults relied on parents or themselves to guide their financial decisions, and how financial style affects financial capability. They discovered three clusters of emerging financial styles among the students:

Pathfinders (31 percent): The most promising group of young adults are those most engaged in defining their financial style and see themselves as having actively chosen their approach to financial management. Of the three groups, Pathfinders exhibit more positive financial attitudes, feel much better about their efficacy and control and report the most positive financial behaviors.

Followers (39 percent): The largest group of young adults tends to follow their parents' guidance and imitate their parents' financial management style. Although they are exploring finances on their own, they also are the most unconcerned about the process of doing so. "This is not necessarily a negative financial style when parents are good at financial management," says Joyce Serido, an assistant research professor and co-principal investigator of the study.

Drifters (30 percent): These young adults are least accepting of their parents' financial management style, but they have not yet established any approach of their own. They are not necessarily unconcerned about personal finance, but their financial behaviors tend to be worse than their peers. However, financial knowledge and awareness overall are solidly average.

Researchers believe that some young adults will retain their financial identity, while others will continue to evolve and change places as they encounter new opportunities and unexpected financial demands on the path to financial self-sufficiency. For Hannah Gomez, a recent UA graduate, the decision to stay close to home in Arizona, rather than attend a private school, came with an important safety net. By taking advantage of in-state tuition and a scholarship, Gomez graduated debt-free in an unsteady economy.

"Not only was the cost much lower than my first-choice private university, but it gave me the chance to learn to manage my finances at lower stakes, and now I can afford and understand my loans for graduate school," Gomez says.

"Hannah models the pathway to financial capability, by weighing the pros and cons before making a financial decision and then reflecting on and learning from the consequences of that decision," adds Serido.

Parents Prove to Be Most Important Influencers

Although parents continue to be the most important factor in building financial capability in children, the nature of their influence changes over time. Parental modeling declines slightly while children are in college—perhaps because students spend less time at home, or parents are stepping back to let their young adult children take more responsibility for their own finances.

The value of parental communication—the most significant influence—remained stable over the study’s timeframe, Serido says. "As young adults mature, so do their conversations with their parents about money. Parents need to evolve their approach to fit their student's growing independence: treat the discussions as a dialogue between equals, adult to adult, and scale back on lecturing their children and flooding them with checklists and advice," she says.

Meanwhile, the reported influence of parental expectations for responsible financial behaviors, such as tracking expenses and sticking to a budget, increased 4 percent since their freshman year.

About the APLUS Study

Arizona Pathways for Life Success in University Students  is a longitudinal study that has examined financial attitudes and behaviors—and the forces that drive them—in youth ages 18 and up. The study is the first of its kind, and is particularly valuable because it tracks the same group of young adults and is designed to identify the factors contributing to positive financial behaviors.

"We are able to see what these young adults have in common when they change, or don’t change, their financial behaviors," says Serido. "And then we can determine the differentiators that contribute to or detract from good financial practices."

The APLUS study is a cooperative effort of the John and Doris Norton School of Family and Consumer Sciences, the College of Agriculture and Life Sciences and the Take Charge America Institute (TCAI) for Consumer Financial Education and Research at the University of Arizona.

"The APLUS research gives us the data we need to design more effective financial education programs, which in turn strengthens the financial decision-making skills of the next generation of young adults," says Michael Staten, UA professor and TCAI director.

For more about information about the study, visit

APLUS Webinar on September 14, 2011

Learn more about the APLUS findings by viewing the webinar, "Changing Financial Behaviors of First Year College Students: Three years and one financial crisis later,". Co-principal investigator Joyce Serido presents research results and takes questions from attendees.



  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
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