LAWRENCE — The student debt crisis tends to overshadow another financial threat to young people: college students with credit card debt. While family and educational influences may prove factors in whether youths are prone to carrying high levels of credit card debt, new research from the University of Kansas argues that the community young people come from has just as much influence on whether they are burdened with credit card debt.
Researchers from the Center on Assets, Education and Inclusion in the School of Social Welfare analyzed survey data from a group of college students. They found that the characteristics of their hometowns were stronger predictors of students’ credit card debt than family characteristics like their parents’ level of education, income or financial habits and individual characteristics like their GPA or level of financial education.
“What I thought was interesting about credit card debt is it can be revolving, much like payday loan debt that is unsecured and carries high interest. Generally, this is very risky debt,” said Terri Friedline, assistant professor of social welfare. “Coming from the perspective that we are shaped by the environment around us, I wanted to take community influence and apply it to financial life. Does your community affect your financial outcomes and, if so, how?’”
The researchers found that, for the most part, acquiring credit card debt was a fairly universal experience among college students regardless of their individual, family or community background. The higher the average amount of debt in the community, the less likely college students were to use credit. In essence, college students may have benefited from the credit or debt accumulated within their communities, and communities’ debt might have protected students from using credit themselves.
When it came to the amount of credit card debt that college students accumulated, the community stood out as having the strongest association. Those from communities that had several bank branches accumulated less credit card debt, given that financial services were more accessible within their communities.
The study was co-authored by Stacia West and Nehemiah Rosell, doctoral and master’s students at KU, respectively; Joyce Serido of the University of Minnesota-Twin Cities; and Soyeon Shim, dean and professor of the University of Wisconsin-Madison School of Human Ecology. A Center on Assets, Education and Inclusion position paper, it is available at the AEDI website.
The researchers analyzed data from a survey of more than 2,000 students at a university in the Southwestern United States at four different periods in their lives: as first-year college students; in the spring of the following year; during their fourth year of college, and early in their careers, five years after the first survey. The survey gathered information on whether young adults had credit cards, their levels of debt, their race, grade-point average, parents’ income, financial health, and financial behaviors and their hometown community’s ZIP code.
To identify the characteristics of communities where college students lived or grew up, the researchers cross-referenced students’ ZIP codes from their permanent addresses with data from the FDIC to calculate the number of banks, census bureau data to determine the unemployment rate, and Equifax to measure the average credit score and average total debt.
“It turns out some of our strongest relationships are with community-level variables,” Friedline said. “It suggests that, maybe above and beyond what your parents teach you, your community and the resources within it play a large role in your financial habits and well-being.”
The findings also held over time. This suggests that a community may have a lasting effect even a year or more after a young person leaves their hometown community for college, where they likely have new and different financial opportunities
Students who came from “financial oases,” or communities with a very high number of financial institutions, showed no difference in their likelihood to hold credit card debt. Family factors like how parents modeled financial behaviors or talked to their college student about financial matters when they still lived at home also did not predict whether the student had such debt. Previous studies have found that family teachings about money are related to their children’s financial behaviors later in life. However, these studies have not considered the role of the community.
The findings suggest that poor financial choices and well-being, such as high credit card debt, may go beyond an individual’s lack of financial knowledge or financial training within the family. When policy makers think about interventions to improve financial knowledge and behaviors, they most often look at solutions that focus on an individual or the family, Friedline said. The research shows that focusing on improving the financial health of communities can be just as important.
“We do not live in a vacuum but instead are nested in larger environments that shape how we live and grow financially. It’s easier to pull yourself up by your bootstraps if your community has bootstraps,” Friedline said. “That doesn’t mean that family is not important. Instead, it means we are taking a more holistic approach than previous research. As a country, we’re very focused on making the individual better, which is important. But we also can’t lose sight of the many larger, structural problems that are in need of solutions — things that cannot be solved by taking a financial education class. We can’t just be focused on the individual and the family. We need to be just as critically focused on the community.”