FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS *** REPORT PERSONAL MONEY MANAGEMENT OF FIRST YEAR STUDENTS AT FOREIGN TRADE UNIVERSITY Group 05 Members Nguyễn Thị Thu Hoài Phạ[.]
FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS -*** REPORT PERSONAL MONEY MANAGEMENT OF FIRST-YEAR STUDENTS AT FOREIGN TRADE UNIVERSITY Group: 05 Members: Nguyễn Thị Thu Hoài 1915550008 Phạm Thị Nguyên Phúc 1915550019 Class: Đặng Mai Phương 1915550020 Hoàng Thu Phương 1915550022 Ngô Thu Trang 1915550028 KDO441E(2-1920).1 Instructor: MSc Lê Mỹ Hương Hanoi, April 2020 Table of Contents Content Page Introduction Chapter 1: Review of Literature 1.1 Introduction about financial management .2 1.1.1 The definition of financial literacy .2 1.1.2 The importance of financial management for students 1.2 Current financial management situation of students around the world 1.2.1 Financial attitudes and spending habits of university freshmen in the United States of America 1.2.2 Spending behaviors of management students in the Philippines 1.3 Comparison between the West and the East .6 1.3.1 Strengths and weaknesses of American behavior 1.3.2 Strengths and weaknesses of the Filipino approach .7 1.3.3 Summarized experiences Chapter 2: Data Analysis FTU freshmen’s views on personal money management 2.1 Changing Perceptions of Money .8 2.2 Financial behaviors of first-year students at Foreign Trade University 12 Chapter 3: Possible solutions 3.1 Financial education 15 3.2 Systems and methods of managing money 16 3.2.1 T Harv Eker’s Money Jar System 16 3.2.2 Expense tracking methods 17 Conclusion References Table of Figures Figure Page Figure 1: Respondents’ year level .8 Figure 2: The importance of Necessities in personal money management Figure 3: The importance of Long-term savings in personal money management Figure 4: The importance of Entertainment in personal money management Figure 5: The importance of Education in personal money management Figure 6: The importance of Financial freedom in personal money management 10 Figure 7: The importance of Giving in personal money management 10 Figure 8: Practical problems in personal money management .11 Figure 9: Possible justifications for financial mismanagement 11 Figure 10: Sources of income for first-year students at Foreign Trade University .12 Figure 11: Monthly income of FTU freshmen 12 Figure 12: FTU freshmen’s habit of making list before buying .13 Figure 13: Respondents’ tendency when buying valuable goods 13 Figure 14: First-year students’ online shopping behavior 13 Figure 15: Percentage of using bank cards for purchases .13 Figure 16: Money management methods of FTU students .14 List of Abbreviations FTU: Foreign Trade University VND: Vietnam Dong Introduction The ability to manage one’s money is one of the keys to long-term success in life All members of society need to have effective financial management strategies, including university students It has been postulated that students’ financial management capability is crucial to their overall academic success and retention For many students, starting university is a period in which they experience financial independence for the first time This lifestyle change can result in financial mismanagement for several freshmen, as they lack the necessary experience and preparation to make reasonable decisions regarding money In a new environment, students tend to be lured by novel commodities, which eventually leads to excessive spending Opinions on money have changed over time and students are now being raised in a society more lenient towards debt Staying out of debt is no longer considered an essential social norm To make matters worse, new students are being inundated with credit card offers on-campus while being caught up in the rush and excitement of starting higher education These issues can easily lead to poor choices with money Therefore, university students need to be prepared before facing significant and mounting financial decisions A scientific system of managing money not only benefits students while on campus but also later in life However, many students not have the resources, financial background, or volition to acquire an effective financial management plan This study will assess the financial attitudes and obstacles, as well as the spending habits, of first-year students, in particular Foreign Trade University’s freshmen 6 Chapter 1: Review of Literature Current views on financial management around the world 1.1 Introduction about financial management 1.1.1 The definition of financial literacy What does it mean to say that one is “financially literate”? Hogarth (2002, pp 15-16) described the consistencies in behavioral terms, stating that financially literate individuals are: 1) knowledgeable, educated, and informed on the issues of managing money and assets, banking, investments, credit, insurance, and taxes; 2) understand the basic concepts underlying the management of money and assets; and 3) use that knowledge and understanding to plan and implement financial decisions 1.1.2 The importance of financial management for students The ability to manage finances impacts students both personally and academically Students who can manage their money are also more likely to be able to manage their time wisely (Weaver, 1992) These same students will outperform their peers academically because they allow plenty of time to study Ray Edwards, an admissions consultant and former East Carolina University Financial Aid Director stated, “As a rule, the more a freshman student has access to credit card accounts, the harder it is to get good grades” (Weaver, 1992) According to a study released by the National Center on Public Policy and Education, tuition at public, four-year institutions rose by an average of 10 percent from 2001-02 to 2002-03 (Cavanaugh, 2003) Average student loan debt has grown to $17,000 and about 20 percent of college students work 35 or more hours a week (Cavanaugh, 2003) Debt can have devastating effects on college students There have been at least two cases of college students who took their lives, in part, because of their credit card debt Sean Moyer was a 22-year old student with $10,000 of debt and Mitzi Pool was a 19-year old student with $2500 in debt Before their deaths, both of these students had talked to others about feeling overwhelmed by the amount of debt they had acquired (Norvilitis & Santa Maria, 2002) 7 1.2 Current financial management situation of students around the world In the following part, we will analyze and compare the current spending situation of Western and Eastern states, represented by the United States and the Philippines The reason why we chose these two countries is that the survey data clearly shows the differences between the two cultures That is certainly an interesting comparison 1.2.1 Financial attitudes and spending habits of university freshmen in the United States of America 1.2.1.1 Changing Perceptions of Money The United States has evolved from cherishing savings to revering spending (Jones & Roberts, 2001) How Americans view and use credit is indicative of this perception A recent study provided evidence that consumers now define ‘fiscal responsibility’ as making payments on time, rather than being debt-free (Diamond & O’Curry, 2003) Approximately 80 percent of undergraduate college students have an average of $2,226 in credit card debt; 10 percent of them have outstanding balances of more than $7,000 (Kendrick as cited in Henry, Weber, & Yarbrough, 2001) A survey by VISA found that 8.7 percent of those filing for bankruptcy were less than twenty-five years of age (McBride as cited in Jones & Roberts, 2001) This percentage is up from percent just two years earlier The attitude of Americans toward debt has changed dramatically This change has resulted in a generation of students desensitized to debt and not completely prepared to handle the financial stresses of higher education College students are exposed to credit card offers and other opportunities to incur debt around their college campuses Many high school students take courses that include personal financial education However, the enormous amount of debt incurred by college students raises questions as to whether or not this financial education in high school is effective Students need to be prepared before they are faced with important financial decisions 8 These changing attitudes concerning money, and the acceptance of debt as a part of life, are having a tremendous effect on teenagers and college students Boyce and Danes (as cited in Norvilitis & Santa Maria, 2002), argued that teenagers experience “premature affluence” because of their high amounts of discretionary funds with a concurrent small amount of bills These teens are becoming accustomed to the standard of living they have while they are with their parents, and expect the same when they move out and go to college (Norvilitis & Santa Maria, 2002) 1.2.1.2 Spending behaviors Recent studies concerning college students and debt found the following: approximately 70 percent of college students have at least one credit card; between percent and 14 percent have four or more credit cards; more than 40 percent of those with credit cards not repay their balances in full each month; 14 to 16 percent report balances over $1000, while about percent report balances over $3000; and the vast majority of these students obtain credit cards before college or during their freshman year (Lyons, 2004) The 2004 Nellie Mae Credit Card Study (Nellie Mae, 2005) reported that the average credit card debt is $2,169 About onefifth (21%) said they paid off their credit card balances in full each month and only 4% said their parents were responsible for the payments Credit card debt is a special concern since it will likely be repaid at an 18% or higher interest rate while the interest rate on student loans is typically below market rates (currently less than 5%) To complicate the issue, college students are being inundated with credit card offers University campuses have become the perfect place for credit card companies to lure students into applying for credit cards Four out of five universities allow on-campus solicitations from credit card companies In return, universities charge these vendors several hundred dollars each day they are on campus soliciting students (Jones & Roberts, 2001) Students are caught up in the rush and excitement of starting college Because of this, they are easily seduced and overwhelmed by these offers For many, this is also a period in which they experience financial independence for the first time These two variables (lifestyle change and financial freedom), coupled with being raised in a society comfortable with debt, can easily become a formula for a series of poor choices with money 1.2.2 Spending behaviors of management students in the Philippines 1.2.2.1 Changing perceptions of money D’Silva (2008) defined spending behavior as conduct influencing how a person utilizes their money to fulfill their needs and needs with no utilization of control He elaborated that the spending behavior of students today is not quite the same as before, and claimed that students are getting more into consumerism 1.2.2.2 Spending behaviors The majority among student experiences financial independence without the supervision of their parents during their college years (Sabri et al, 2008) In that period, college students deal with a unique situation because of limited incomes and high expenses (Micomonaco, 2003) According to Holland (2016), many college students are not used to managing money One of the biggest money challenges that they usually encounter is staying on top of what they are spending, which means that they have difficulty in controlling the way they spend Overspending is a problem that can be connected to the conclusion of Holland (2016) It was reported by UNL Parent Newsletter (2012), that countless freshmen have drained their savings accounts within the first month of college and then have to take at most three part-time jobs just to pay for basic expenses In the Philippines, very minimal research has been conducted about the spending behavior of college students The level of the perceived problems on the said field is still not figured out In this connection, the researchers decided to conduct a study that will focus on the spending behavior of college students at the University of Saint Louis Tuguegarao, particularly the management students According to sex: In a study conducted by Hayhoe et al (2000 as cited in Villanueva, 2017), results show that there is a strong influence of sex in spending behavior Females tend to spend on appearance goods like clothing while males spend on electronics, 10 entertainment, and food Females were also found to exhibit more financial practices like keeping a written budget, planning expenditures, and saving regularly This result was somehow contradicted by Roberts (2000 as cited by Villanueva, 2017), who claimed that females are more likely to exhibit spending behaviors, particularly compulsive buying compared to men It was supported by De Guzman (2011) that female students tend to spend a huge amount of money on food and art materials while male students have a different kind of priorities Male students also spend more on recreation and females spent more on books and school supplies outspending males by 15% (Bailey, 2009) According to socioeconomic status: According to Tew (2016), the spending behavior of students in modern times has emerged as an essential concern in our society He concluded that socioeconomic status issue influences the spending behavior of the students Koc and Ceylan (2012), stated that consumers in lower status groups spend the biggest portion of their income on food products He added that the highest status consumers always check the price labels of the food products with a high percentage (66.67 percent) before purchasing A total of 77 percent of study respondents stated that they were open to spend trying new food products Meanwhile, consumers within the top groups consider food ingredients carefully before purchasing According to year level: Stollak (2010) stated that freshmen were much more likely to spend all their dollars quickly than juniors and seniors This could be due to a lack of awareness of their budget or not planning appropriately Contrary to this, Bailey et al (2009) said that juniors and seniors spent significantly more than freshmen and sophomores on recreation, food, general merchandise, and miscellaneous items Meanwhile, Villanueva (2017) claimed in his study that, freshmen and senior students exhibit higher spending behaviors while sophomores and juniors exhibit less 11 1.3 Comparison between the West and the East 1.3.1 Strengths and weaknesses of American behavior College freshmen appear to have some basic financial management strategies These initial data indicated only 15 percent of the students used a credit card and nearly 72 percent of them had savings accounts Of the students surveyed, n = 111 (94.9 percent) learned how to manage their money from their “parents.” A small number of them identified a “high school economics course” as the source of their financial knowledge This was a surprise considering that a significant number of ISU freshmen come from an Idaho high school in which completion of an economics course is a requirement to graduate Many students not know how to manage their income Once they have an abundance of money, they simply spend it on necessary expenses and some which are not necessary This spending pattern clearly shows the lacking of financial literacy among students which needs to be changed There is a need to start training from high schools and comprehensively in colleges and universities (Davidson, 2006) 1.3.2 Strengths and weaknesses of the Filipino approach They are loose in spending on food and transportation because food is a basic need and transportation is a necessity considering the locale of the study - a city Besides, they are tight in spending when it comes to personal needs and academic purposes, this implies that amidst the evident increasing demand for the said aspects in today’s situation, they can still control the way they spend What is more, they are rarely taught how to control their expenditure at school and the spending habit between genders are quite apparent 1.3.3 Summarized experiences Making a payment plan on time Saving money on emergencies Considering avoiding debt as an important social standard Staying away from the attractive advertising of credit cards Learning financial management methods from parents 12 Taking financial management education courses High schools may require students to complete a finance course before graduation 13 Chapter 2: Data Analysis FTU freshmen’s views on personal money management The purpose of this study was to evaluate the financial attitudes, perceptions, and spending habits of students at Foreign Trade University (FTU) The targeted audience was freshmen at FTU, however, during the survey, we received responses from sophomores, juniors, and even seniors They were asked to complete an online survey concerning personal money management This survey was conducted during four weeks across over 100 FTU students through an online form It has 19 multiple-choice questions in total, divided into parts Part is about basic personal information, and the other part is a variety of questions concerning attitudes, perceptions related to money, and actual expenses for different purposes We encourage participants to choose the answers which represent their opinion in the most precise way possible 2.1 Changing Perceptions of Money It can be seen from Figure that the majority of participants are the first-year students at FTU (56.5%) followed by sophomore, junior, and senior 8% 13% 56% 23% 1st year 2nd year 3rd year 4th year Figure 1: Respondents’ year level Figures to show answers to a question about financial priorities The first of these six tables shows opinions on the priority of Necessities, such as clothes, food, bill, etc Nearly 37% think that Necessities are an essential part while approximately 22.94% share the view that they are not important 14 Figure illustrates opinions on the importance of Long-term Savings, which include vacations, unexpected situations, etc Most participants share the opinion that Long-term Savings are not so important Only 12.84% thinks it is crucial Long-term savings are important in personal money management Necessities are important in Number of Percentage personal money management responses (%) Very 14 12.84% 36.70% Fairly 19 17.43% 11 10.09% Quite 22 20.18% Quite 6.42% Somewha 23 Somewhat 14 12.84% t Barely 12 11.01% Barely 18 16.51% Not 25 22.94% Not 13 11.93% Number of Percentage responses (%) Very 40 Fairly 21.10% N = 109 N = 109 Figure 2: The importance of Necessities in personal money management Figure 3: The importance of Long-term savings in personal money management The next figure shows the importance of Entertainment About 9% of students suppose that Entertainment plays an important part in their life while most of them share neutral attitudes Figure illustrates the priority of Education, such as books, courses, etc It is apparent that most participants share positive attitudes towards Education in daily life, with 22.94% agree that it is “fairly important” Entertainment is important in Barely 12 11.01% personal money management Not 7.34% Number of Percentage responses (%) Very 10 9.17% Fairly 28 25.69% Quite 32 29.36% Somewhat 19 17.43% N = 109 Figure 4: The importance of Entertainment in personal money management Education is important in personal money management Number of Percentage 15 responses (%) Very 10 Fairly Quite Somewha t Barely 15 13.76% 9.17% Not 14 12.84% 25 22.94% N = 109 26 23.85% 19 Figure 5: The importance of Education in personal money management 17.43% The next table shows opinions on the importance of Financial Freedom, or investments 23.85% think it is essential in personal money management while 17.43% strongly disagree The 7th figure illustrates the priority of Giving, or charitable donations It can be seen that 21.10% of participants consider giving fairly important in personal money management Financial freedom is important in Giving is important in personal money management personal money management Number of Percentage Number of Percentage responses (%) respondents (%) Very 26 23.85% Very 19 17.43% Fairly 15 13.76% Fairly 23 21.10% Quite 13 11.93% Quite 17 15.60% Somewhat 25 22.94% Somewhat 13 11.93% Barely 11 10.09% Barely 15 13.76% Not 19 17.43% Not 22 20.18% N = 109 Figure 6: The importance of Financial freedom in personal money management N = 109 Figure 7: The importance of Giving in personal money management Results about financial priorities revealed that students at FTU, freshmen appear to have some basic financial management knowledge before living a more independent life The purpose of this financial priorities questions is to encourage participants to apply analytical skills to decide which purposes should be indispensable in daily life 16 Figure illustrates some practical problems that interviewees have to encounter in personal money management 25 participants have never been in dire strait while 55 others not have enough money for their needs Another challenge is having no emergency savings for unexpected, as well as overspending on their budgets Surprisingly, no response was given for credit card debt 25 Never Credit card debt Discount No Emergency savings 45 Overspending 56 Not enough money 55 10 20 30 40 50 60 Number of respones Figure 8: Practical problems in personal money management This next figure shows some possible justifications for financial mismanagement 36 students suppose that their main problem is attractive products and advertisements, while 46 others have too many expenses However, the most common reason concerns financial management, either mismanagement or the lack of managing altogether, which accounts for 105 of the responses 17 Other No Alluring appearance Non-priorities Too many expenses Financial management 21 36 61 46 105 20 40 60 80 100 120 Number of responses Figure 9: Possible justifications for financial mismanagement The results revealed that students appear to understand clearly the reasons for financial mismanagement Daily habits such as spending without planning, not tracking expenses, lack of knowledge, etc can have a huge negative impact on their future if students not recognize and change immediately 2.2 Financial behaviors of first-year students at Foreign Trade University Data collected from our survey on personal money management of first-year students at Foreign Trade University shows that the most common sources of income are allowance from parents and earnings from part-time jobs (85.3% and 60.6% respectively) Scholarships are a small source of money for FTU freshmen, accounting for 8.3%, as they need more time to adapt to a new environment Other provisions are trivial Other Investment Scholarship 67 Part-time job Family 94 10 20 30 40 50 60 Number of responses Figure 10: Sources of income for first-year students at Foreign Trade University 70 80 90 100 18 The chart below represents the monthly income of FTU freshmen Approximately one out of three have between and million VND, followed by “1 to under million” and “3 to under million” Not many FTU freshmen earn over million VND each month Although part-time jobs are one of the major contributors to monthly income, the amount a first-year student earns each month is moderate 11% 17% 5% 18% < 1M 1M - 2M 2M - 3M 3M - 4M 4M - 5M >= 5M 18% 30% Figure 11: Monthly income of FTU freshmen In a particular scenario, depicted by Figure 12 and 13, more than half of the respondents (53.2%) would just go to shops and pick up goods instead of making a list of essentials beforehand Interestingly enough, before purchasing goods with high value, almost all (95.7%) need careful consideration, seeing that their monthly income is not enough to buy costly items without thinking through 4% 53% 96% 47% Make list Impulsive buying Figure 12: FTU freshmen’s habit of making list before buying Carefully considered Not reflected on Figure 13: Respondents’ tendency when buying valuable goods When shopping online, over a half tend to buy in bulk to receive promotions (discounts, free shipping, gifts, etc.) Few students avoid buying on the Internet 19 altogether The advancement of E-commerce with plenty of alluring advertisements and promotions is one of the reasons online shopping is becoming more appealing Concerning card using habit, 68.1% admit that bank card is their preferred method, while roughly one third disagrees Some have problems with keeping track of their money when using a card 11% 2% 28% 51% 38% 70% Buy with large number Buy single items Not shopping online Yes No - Unrestrained spending No - Does not have a card Figure 14: First-year students’ online shopping behavior Figure 15: Percentage of using bank cards for purchases Figure 16 shows the money management methods used by students Prioritizing and tracking expenses are the two most common ways Meanwhile, 24.8% of FTU freshmen choose to put aside monthly savings Not many choose to limit card usage or to invest Noticeably, some still not have any methods of finance management 15 No/Never Investments 27 Monthly savings 63 Prioritizing 15 Using cards less 59 Expense tracking 10 20 30 40 Number of responses Figure 16: Money management methods of FTU students 50 60 70 20 Chapter 3: Possible solutions Guidelines to effectively manage expenses 3.1 Financial education The welfare of entire economies depends on the financial literacy of every individual The more people who make sound decisions about their finances, the stronger the society will become as a whole When every person is financially secure, the nation will, in turn, be financially secure Therefore, it is essential to impart a strong personal finance education to every citizen of society The advantages of an education in financial literacy, while useful at any age, are especially strong for college students in particular College is often the first time in a person’s life when money management skills are needed This is the perfect time to become financially literate as it can directly impact life When a person learns a skill in theory and immediately puts it to use, the behavior becomes ingrained for life, especially when the subject is money The earlier that sound financial habits can be instilled within students, the more likely they are to let those habits guide them in making wise financial decisions Many researchers believe programs that teach financial management and proper use of credit must begin in junior high and high school By the time a student is on their own in college, social pressure and advertising, combined with a lack of financial literacy, can result in disturbing outcomes Parents need to be aware of the major role that they play in the financial socialization of their children and that this process occurs at a very early age Resources are needed to educate parents about how to constructively talk to their children about financial management issues Freshmen orientations on college campuses might include financial management education sessions for incoming students and their parents, either separately or together Online resources for parents and college and college-bound students also could be particularly useful Financial literacy doesn’t mean you have to spend years studying formulas, or trying to be an economist to understand how to manage your income and expenses