Your Future Starts Today, Not Tomorrow: An Explanatory Study of Financial Literacy and Debt-Related Behavior Among Students in the Netherlands

Abstract

This research analyzed the influence of financial literacy on debt-related behavior (decision making and understanding of the characteristics of debt) among university students in the Netherlands. First, this study looked at the level of financial literacy of Dutch students. A survey was conducted among a sample (N=309) of Dutch university students in the southern part of the Netherlands. On average the students had a sufficient level of financial literacy. The mean score on the financial literacy test was approximately 70% correct. In addition, compared with students in countries like the United States, Malaysia and the United Kingdom the Dutch students in the sample appear to possess a relatively high level of financial literacy. Second, various socio-economic factors that could determine one's level of financial literacy have been analyzed here. Factors like gender, major, class-rank, ethnicity and the parental income contribution (i.e. mother is breadwinner of family) appear to be significant determinants of a student's level of financial literacy. At last, this thesis looked at the relationship between a student’s level of financial literacy and his debt-related behavior. By controlling for omitted variables the influence of financial literacy was analyzed. Interesting findings have been derived from the statistical data analysis, although the nature of this evidence is at the same time quite mixed. For the relationship between the amount of study debt and the student's knowledge about the interest rate on study debt statistical significant effects were found. The lower someone’s level of financial literacy is the more likely it is that he has a lower level of study debt and a higher level of knowledge about this debt. For behavior related to credit cards and overdrawing on debit accounts no strong significant influence of financial literacy has been found in logistic regression analyses. There is also a small significant influence found for the influence of financial literacy on installments. Finally it can be concluded that based on the findings in this study it is difficult to derive a clear influence of Financial Literacy on debt-related behavior.