Poor financial literacy is a well-documented problem among college students.1 Coupled with increasing costs for higher education2, these issues create financial stress for students in the midst of their college careers.3 Studies have shown that financial stress leads to lower graduation rates.3

In fact, universities have reported that students are more likely to drop out due to financial stress than from failing grades.4 Financial literacy programs have been proven to help reduce attrition and promote four-year graduation rates.3

Financial Stressors

Multiple studies have been conducted about the financial literacy of college students. One survey found that about 50% of students report a lack of comprehension about their own financial situations.3 Worse than that, a study done at Texas A&M University on incoming freshmen found an average score of only 34.8% correct on a multiple-choice test about basic finances.1

This poor financial literacy is coupled with a steep increase in college tuition costs. In 2018, states spent an average of 13% less per student at public universities than they did in 2008.2 In the same ten years, the cost of tuition for a four-year college rose 37%.2

In order to defray these costs, more and more students are turning to work.5

  • 80% of students work at some point in their undergraduate career

  • Most students work more hours as they progress through college

  • Full-time students who work generally take fewer credits per term. This can increase their time to graduation and cost them future earnings5

The combination of low financial literacy and increasing costs for college can lead to poor money management for many college students.6 This can mean debt accumulation and increased financial stress

Effects of Financial Stress on Graduation Rates

Almost 60% of students worry about being able to pay for their education.7 That worry has been proven to have a detrimental effect on academic performance and even graduation rates.3 Financial stress has been shown to affect student decisions to:

  • Reduce course load

  • Withdraw from college completely

  •  Increase time to graduation 

Additionally, students with high debt, credit cards, and car loans are more likely to take longer than four years to graduate. So are those who feel under financial stress.3

Financial Literacy Programs Improve Graduation Rates

College-level financial education has been shown to reduce financial stress and increase four-year graduation rates.8

  • First-year students who participate in a financial literacy program are up to 11.7% more likely to return for their second year

  •  For second to third-year retention, that number nearly doubles to 22% more likely to return

  •  Participants are 8% more likely to graduate on time8 

On-time graduation is beneficial to students, as it is the gateway from spending money to saving money. It is also beneficial to colleges, as prospective students look at graduation rates when selecting schools. Financial education helps more than just the student who learns money management skills. It also helps the colleges retain their students, increase graduation rates, and improve their reputations.

Creating Financial Wellness in Students

As we have seen, increased financial literacy in a student population is beneficial not just to the students, but to the institution as well. Promoting financial wellness through a comprehensive educational program can improve college graduation rates.8

 To best serve their students, colleges should provide a program that covers the basics of financial literacy: 

1.       Earn – understanding gross and net income and employer deductions

2.       Spend – learning how to create and stick to a personal budget

3.       Save – prioritizing financial goals such as an emergency fund, retirement, and paying off debt

4.       Borrow – understanding annual percentage rates (APR), credit scores, and loan terms

5.       Protect – keeping a close watch on financial statements, passwords, and accounts9

 Literacy programs can come in many forms, but a 2008 study showed that many students would prefer to seek financial knowledge through the internet versus in person.10 

Increase Financial Literacy to Improve Graduation Rates

Stress from rising college costs and poor financial literacy can have a detrimental effect on a college student’s progress.8 Colleges can better serve their students by investing in a financial wellness education program. This will reduce students’ financial stress and increase retention rates. 


1- https://psycnet.apa.org/record/2005-06700-013

2- https://www.cnbc.com/2019/12/13/cost-of-college-increased-by-more-than-25percent-in-the-last-10-years.html


3- https://journals.sagepub.com/doi/10.2190/CS.10.3.c


4- https://journals.sagepub.com/doi/10.2190/CS.16.3.c

5- http://rajeevdarolia.com/wp-content/uploads/2017/07/Darolia_EcEdR_2014_WorkingCollege.pdf


6-  https://firescholars.seu.edu/cgi/viewcontent.cgi?article=1063&context=honors

7- https://cssl.osu.edu/posts/documents/nsfws-key-findings-report.pdf

8- https://digitalcommons.wku.edu/diss/140


9- https://www.mymoney.gov/mymoneyfive/Pages/mymoneyfive.aspx


10- https://pubmed.ncbi.nlm.nih.gov/16700775/