Kdo441E(2-1920).1 - Group 5 Report.docx

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[.]

SCHOOL OF ECONOMICS

AND INTERNATIONAL BUSINESS

-*** -REPORT PERSONAL MONEY MANAGEMENT

1915550008 1915550019 1915550020 1915550022 1915550028 Class: KDO441E(2-1920).1

Instructor: MSc Lê Mỹ Hương

Hanoi, April 2020

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 2

1.2 Current financial management situation of students around the world 3

1.2.1 Financial attitudes and spending habits of university freshmen in the United States of America 3

1.2.2 Spending behaviors of management students in the Philippines 5

1.3 Comparison between the West and the East 6

1.3.1 Strengths and weaknesses of American behavior 6

1.3.2 Strengths and weaknesses of the Filipino approach 7

1.3.3 Summarized experiences 7

Chapter 2: Data Analysis

FTU freshmen’s views on personal money management 8

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

Figure Page

Figure 1: Respondents’ year level 8

Figure 2: The importance of Necessities in personal money management 9

Figure 3: The importance of Long-term savings in personal money management 9

Figure 4: The importance of Entertainment in personal money management 9

Figure 5: The importance of Education in personal money management 9

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

1 FTU: Foreign Trade University

2 VND: Vietnam Dong

The ability to manage one’s money is one of the keys to long-term success inlife All members of society need to have effective financial management strategies,including university students It has been postulated that students’ financialmanagement capability is crucial to their overall academic success and retention.For many students, starting university is a period in which they experiencefinancial independence for the first time This lifestyle change can result in financialmismanagement for several freshmen, as they lack the necessary experience andpreparation to make reasonable decisions regarding money In a new environment,students tend to be lured by novel commodities, which eventually leads to excessivespending

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 inundatedwith 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 withmoney

Therefore, university students need to be prepared before facing significantand mounting financial decisions A scientific system of managing money not onlybenefits students while on campus but also later in life However, many students donot have the resources, financial background, or volition to acquire an effectivefinancial management plan

This study will assess the financial attitudes and obstacles, as well as thespending habits, of first-year students, in particular Foreign Trade University’sfreshmen

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, andinformed 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 andimplement financial decisions

1.1.2 The importance of financial management for students

The ability to manage finances impacts students both personally andacademically Students who can manage their money are also more likely to be able

to manage their time wisely (Weaver, 1992) These same students will outperformtheir peers academically because they allow plenty of time to study Ray Edwards,

an admissions consultant and former East Carolina University Financial AidDirector stated, “As a rule, the more a freshman student has access to credit cardaccounts, the harder it is to get good grades” (Weaver, 1992)

According to a study released by the National Center on Public Policy andEducation, tuition at public, four-year institutions rose by an average of 10 percentfrom 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 Therehave 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 feelingoverwhelmed by the amount of debt they had acquired (Norvilitis & Santa Maria,2002)

1.2 Current financial management situation of students around the world

In the following part, we will analyze and compare the current spendingsituation of Western and Eastern states, represented by the United States and thePhilippines The reason why we chose these two countries is that the survey dataclearly shows the differences between the two cultures That is certainly aninteresting 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 thisperception A recent study provided evidence that consumers now define ‘fiscalresponsibility’ as making payments on time, rather than being debt-free (Diamond

& O’Curry, 2003) Approximately 80 percent of undergraduate college studentshave an average of $2,226 in credit card debt; 10 percent of them have outstandingbalances 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 wereless than twenty-five years of age (McBride as cited in Jones & Roberts, 2001).This percentage is up from 1 percent just two years earlier

The attitude of Americans toward debt has changed dramatically This changehas resulted in a generation of students desensitized to debt and not completelyprepared to handle the financial stresses of higher education College students areexposed to credit card offers and other opportunities to incur debt around theircollege campuses Many high school students take courses that include personalfinancial education However, the enormous amount of debt incurred by collegestudents 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 importantfinancial decisions

These changing attitudes concerning money, and the acceptance of debt as apart of life, are having a tremendous effect on teenagers and college students Boyceand Danes (as cited in Norvilitis & Santa Maria, 2002), argued that teenagersexperience “premature affluence” because of their high amounts of discretionaryfunds with a concurrent small amount of bills These teens are becomingaccustomed to the standard of living they have while they are with their parents, andexpect the same when they move out and go to college (Norvilitis & Santa Maria,2002)

$3000; and the vast majority of these students obtain credit cards before college orduring 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 one-fifth (21%) said they paid off their credit card balances in full each month and only4% said their parents were responsible for the payments Credit card debt is aspecial concern since it will likely be repaid at an 18% or higher interest rate whilethe interest rate on student loans is typically below market rates (currently less than5%)

To complicate the issue, college students are being inundated with credit cardoffers University campuses have become the perfect place for credit cardcompanies to lure students into applying for credit cards Four out of fiveuniversities allow on-campus solicitations from credit card companies In return,universities charge these vendors several hundred dollars each day they are oncampus soliciting students (Jones & Roberts, 2001) Students are caught up in therush and excitement of starting college Because of this, they are easily seduced andoverwhelmed by these offers For many, this is also a period in which theyexperience financial independence for the first time These two variables (lifestyle

change and financial freedom), coupled with being raised in a society comfortablewith 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 aperson utilizes their money to fulfill their needs and needs with no utilization ofcontrol He elaborated that the spending behavior of students today is not quite thesame 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 thesupervision of their parents during their college years (Sabri et al, 2008) In thatperiod, college students deal with a unique situation because of limited incomes andhigh expenses (Micomonaco, 2003)

According to Holland (2016), many college students are not used to managingmoney 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 incontrolling 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 freshmenhave 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 thespending behavior of college students The level of the perceived problems on thesaid field is still not figured out In this connection, the researchers decided toconduct a study that will focus on the spending behavior of college students at theUniversity 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 Femalestend to spend on appearance goods like clothing while males spend on electronics,

entertainment, and food Females were also found to exhibit more financialpractices like keeping a written budget, planning expenditures, and saving regularly.This result was somehow contradicted by Roberts (2000 as cited byVillanueva, 2017), who claimed that females are more likely to exhibit spendingbehaviors, particularly compulsive buying compared to men.

It was supported by De Guzman (2011) that female students tend to spend ahuge amount of money on food and art materials while male students have adifferent kind of priorities Male students also spend more on recreation and femalesspent 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 timeshas emerged as an essential concern in our society He concluded thatsocioeconomic status issue influences the spending behavior of the students

Koc and Ceylan (2012), stated that consumers in lower status groups spend thebiggest portion of their income on food products He added that the highest statusconsumers always check the price labels of the food products with a highpercentage (66.67 percent) before purchasing A total of 77 percent of studyrespondents stated that they were open to spend trying new food products.Meanwhile, consumers within the top groups consider food ingredients carefullybefore purchasing

 According to year level:

Stollak (2010) stated that freshmen were much more likely to spend all theirdollars quickly than juniors and seniors This could be due to a lack of awareness oftheir 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 exhibithigher spending behaviors while sophomores and juniors exhibit less

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 andnearly 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 smallnumber of them identified a “high school economics course” as the source of theirfinancial knowledge This was a surprise considering that a significant number ofISU freshmen come from an Idaho high school in which completion of aneconomics course is a requirement to graduate

Many students do not know how to manage their income Once they have anabundance of money, they simply spend it on necessary expenses and some whichare not necessary This spending pattern clearly shows the lacking of financialliteracy among students which needs to be changed There is a need to start trainingfrom 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 basicneed 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 andacademic purposes, this implies that amidst the evident increasing demand for thesaid aspects in today’s situation, they can still control the way they spend What ismore, they are rarely taught how to control their expenditure at school and thespending habit between 2 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

 Taking financial management education courses High schools mayrequire students to complete a finance course before graduation.