Skidmore CollegeCreative Matter

Economics Student Theses and Capstone Projects Economics

2017

An Analysis of the Factors Affecting the Spendingand Saving Habits of College StudentsSamantha VillanuevaSkidmore College

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Recommended CitationVillanueva, Samantha, "An Analysis of the Factors Affecting the Spending and Saving Habits of College Students" (2017). EconomicsStudent Theses and Capstone Projects. 36.http://creativematter.skidmore.edu/econ_studt_schol/36

AnAnalysisoftheFactorsAffectingtheSpendingandSavingHabitsofCollegeStudents

By

SamanthaVillanueva

AThesisSubmittedto

DepartmentofEconomics

SkidmoreCollege

InPartialFulfillmentoftheRequirementfortheB.ADegree

ThesisAdvisor:QiGe

May2,2017

2

Abstract

Thispaperanalyzesspendingandsavingbehavioramongstudentsofvariousclassyears,

ethnicities,andgenderatSkidmoreCollegeusingdatacollectedfromanoriginalsurvey.The

modelsincorporatebothdemographiccharacteristicsaswellaspertinenteconomictheory.

ResultsindicatethatWhitesandAsiansspendsignificantlymorethanotherethnicitieswhile

Blackssavesignificantlymore.FindingsalsoprovidesupportforthePermanentIncome

Hypothesis,however,nosignificancewasfoundregardingHyperbolicDiscounting.

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Acknowledgements

ThispaperwouldnothavebeenpossiblewithouttheguidanceofProfessorGe.Ithank

himforhistimeandassistancethroughoutthisentireprocess.ThankyoutoProfessorGofffor

herhelpwiththedevelopmentofmysurveyandforfacilitatingtheIRBapproval.Iwouldalso

liketothanktheEconomicsDepartmentforfosteringanenvironmentofgrowthandlearning.

ThepastfouryearshasbeenincrediblystimulatingandIwouldliketoextendmygratitudeto

eachprofessor,allofwhomhavegreatlyshapedmyexperienceatSkidmore.

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I.INTRODUCTION

Managingpersonalfinanceshasshowntobeagrowingissue,particularlywithin

Americanculture.Withinthefirstthreemonthsof1999,consumerspendingincreasedby6.7%

whilesavingsreachedanall-timelowof-0.5%(Roberts&Jones,2001).Atanearlyage,

individualsareexposedtovariousmethodsofhandlingpersonalfinances,whichcanoftenlead

tothedevelopmentofpoorhabits(Gutter,Garrison&Copur,2010).Itisnotuntiltheuniversity

levelwheremostconsumersbegintoexperiencealargedegreeoffinancialindependence.

Attainingmoneyhasbecomeespeciallyimportanttocollegestudents,agenerationof

individualsraisedinacreditcardsociety(Roberts&Jones,2001).Astheygrowaccustomedto

this,studentsdeveloptheirownbeliefsregardingspendingandsavinghabits,manyofwhom

havelittleregardforincurringdebt(Pritchard,Myers&Cassidy,1989).Havingeasyaccessto

creditallowsstudentstodelaypayingoffpurchases,resultinginlargedebtbalances.Whilethe

majorityofstudieshavebeenconductedintheUnitedStates,fewresearchershaveexpanded

thescopeofthistopicacrossvariousculturesincludingMalaysia(Sabri&McDonald,2010),

Australia(Phau&Woo,2008),andtheUnitedKingdom(Furnham,1999).Asyoungadults

becomeenculturatedinacredit-heavyculture,findingshaveshowndependenceonthis

methodofpayment,resultinginthedevelopmentofpoorhabitsandpersonalfinancialissues

(Hayhoeetal.,2000).Thefurtheranalysisofpersonalfinanceamongyoungadultscanhelp

identifymethodstoresolvecommonissuesthatmayariseaswellasdevelopstrategiesthat

promotebetterfinancialpractices.

ThisstudyutilizesanoriginalsurveydistributedtostudentsatSkidmoreCollege,a

privateLiberalArtscollegelocatedinupstateNewYork.Thesurveycapturesdemographic

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characteristicsandpersonalattitudestowardspendingandsaving.Particularattentionisdrawn

towardsconnectingexistingeconomictheoriesofconsumptiontothebehaviorsofcollege

students,aslimitedresearchhasbeenconductedinthisrealmofpersonalfinance.Thedata

collectedincludesnumericalaswellasdescriptivestatisticsthatprovideinsightsintocertain

classyears,ethnicitiesandgenderthattendtospendmoreoverothers.Itwasfoundthat

overallspendinghasfluctuatedmorethansavingsoverthecourseofone’scollegecareer,so

thefocusofthisstudyisonaveragemonthlyspending.

Findingsfromthestudyprovidestrongevidenceforethnicdifferencesinspending

habits.ThereissupportfortheideathatWhitesandAsiansspendsignificantlymorethanother

ethnicities,whichisinlinewithmypredictionsofthissamplepopulation.Furthermore,the

resultsoftheanalysisonthePermanentIncomeHypothesisalsoprovideevidencethatthis

hypothesiscanbeappliedtothesamplepopulationofSkidmoreCollegestudents.About54.5%

ofrespondentslieonthethresholdofsupportforthePermanentIncomeHypothesis,whichis

theideathatthesestudentsarewillingtospendmorenowinanticipationofearningagreater

futureincome.IfindthatthereisverylimitedevidenceofHyperbolicDiscounting,as74.5%of

studentsreportedapreferenceforreceivingadelayedandhigherrewardratherthanonethat

wasmoreimmediatebutlessinvalue.Thereisreasontobelievethatfemalesemploymore

savingsmechanisms,whichsupportsthefindingsofFurnham(1999).Theutilizationofmoney

managementtechniquesisobvious,aswomenarefoundtospendlessonaverageby4.1%.

Bycarryingoutthisstudywithinthecontextofasmall,privateliberalartscollege,this

papercontributestothegrowingbodyofliteratureontheroleofpersonalfinanceinthe

contextofcollegestudents.Tomyknowledge,therehasbeennopriorresearchofpersonal

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financehabitsconductedonaliberalartspopulation.PreviousstudiessuchasthatofCummins

etal.(2009),indicatesageographicfactorthatmayplayintothedevelopmentoffinancial

habits.Certainregionsmayencourageparticularbehaviors,resultinginlocation-specific

effects,especiallyifstudentsselectedtoparticipatearemostlyfromthathomogenous

population.Theimplementationofthisstudyspecificallyusingindividualsfromvarious

ethnicitiesallowsforgreaterapplicabilitythatisrepresentativeofcollegeswithadiversified

studentbodyrepresentation.Thispaperhighlightstheimpactofculturalnormsthatinevitably

impacttheestablishmentofspendingbehaviors,manyofwhichareallappropriatedbasedon

differingsocialnormsacrosstheglobe.Asthistopicisrelevantacrossvariouscontinents,there

isincreasingdesiretofurthertheexaminationoffinancialhabitsamongcollege-aged

individuals.

Amajorityoftheliteraturereviewedfocusesondemographicfactorsorsocially

constructedmodelsofconsumptiontoexplainspendingbehavior.However,thereisvery

limitedknowledgeontheapplicabilityofexistingeconomictheoriesthatexplainconsumers’

spendinghabits,particularlywithinthesettingofcollegestudents.Assuch,contributionscan

bemadefromthisstudy’sattemptstodrawconnectionsbetweencollegelevelspendingand

theoriesofHyperbolicDiscountingandthePermanentIncomeHypothesis.

Subsequentsectionsofthispaperareorganizedinthefollowingmanner:SectionII

providesaframeworkofpertinentliteraturetocontextualizetheexistingfindingsoncollege

students’spendingandsavinghabits;SectionIIIincludesmethodologyanddata,wherea

descriptionofthesurveyquestionnaireisprovidealongwithdatacollectionmethods;Section

IVprovidesresultsfromtheregressionanalysis;SectionVisadiscussion,whichdraws

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conclusionsandrelatesfindingsfromthestudybacktoexistingliterature;andSectionVI

concludeswithfinalremarksandpolicyimplications.

II.LITERATUREREVIEW

Currentliteratureexplorestheimpactsofdemographicfactorsthatinfluencethe

financialhabitsofcollegestudents.Someresearchershavealsoextendedtheliteratureoutside

theU.S.,findingculturalaspectsthatmayinfluenceparticipants’responses.However,therehas

alsobeenverylimitedresearchontherelationshipbetweenfinancialbehaviorsofcollege

studentswhilealsoaccountforexistingeconomictheoriesofspending,whichthisstudyaims

toaddress.Theliteraturereviewedprovidestheoreticalframeworkonthepermanentincome

hypothesisandhyperbolicdiscountingaswellassufficientbackgroundonthefinancialhabitsof

collegestudents.

TheoreticalFrameworkI:HyperbolicDiscounting

Themodelofhyperbolicdiscountingaccountsforatime-inconsistentmechanismof

choices.Giventwooptions,humanstendtoshowapreferenceforamoreimmediate,smaller

valuerewardratherthanwaitingforalater,highervaluereward.Theseindividualsareoften

describedasbeingpresent-oriented,withmoreregardforcurrentorimmediatesatisfaction

ratherthandelayedsatisfaction.Asaresult,peopleendupdelayingcertaindecisions,suchas

savingmechanisms.Thisconflictoftimepreferencesresultsinhyperbolicdiscounting,or

intertemporalpreferences(Angeletosetal.,2001).AstudybyAngeletos,Laibson,Repetto,

Tobacman,andWeinberg(2001)analyzesthetheoryofhyperbolicdiscountinginthecontextof

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consumerbehavior.Theyapplythismodeltowardsdifferenthouseholdsandassumethat

economiclifebeginsatage20andretirementstartsatage63(Angeletosetal.,2001).The

findingsoftheirsimulationstudyconcludethatatanearlierstageoflife,consumerstendto

exhibithyperbolicdiscountingmannerisms(Angeletosetal.,2001).Thereisapreferencefor

instantgratificationandparticipantswerefoundtoputoffsaving,assumingtheywould

eventuallybeabletostartbudgetingmoreefficientlyatalaterdate(Angeletosetal.,2001).

Youngerconsumersinparticulararelinkedtohighvolumesofconsumptionfinancedbycredit

cards(Angeletosetal.,2001).Thestudycanbecritiquedintermsofitsapproach.Angeletoset

al.(2001)employasimulationmechanismwhichlaysoutagenericprofileofaconsumeranda

typicalspendingpattern.However,thismaybetoogeneralizedandtoosimplisticofamodel.

Consumerbehaviorschangeandadaptovertime,andthismodeldoesnotreflectforanysorts

ofincomeshocksorsavingsmechanisms.

SimilarlytoAngeleto’s(2001)findings,Laibson(1998)establishesamodelofan

individualconsumerwhoisanautonomous,temporalbeing.Heuseshismodeltostudyhow

onewouldactthroughvariousperiodsofcontroloveraconsumptiondecision(Laibson,1998).

Age,incomeandwealthareallfoundtobehighlycorrelatedwithmeasuresofpatience

(Laibson,1998).Morespecifically,theexpectationthatonewillbeearningmoreinthenear

futuredrivesmorewillingnesstospend.Youngconsumerswhoexpectrisingincomepathsand

consumerswithlowlevelsofcashonhandaremorelikelytohaveahigherMarginalPropensity

toConsume(Laibson,1998).Thoughabletoaccountforcertainbehavioralmannerismsin

consumers,themodelofhyperbolicdiscountingfailstoconsidersomeimportantfactors.For

instance,boundedrationalityandimpulsivebuyingaretwoconceptsthatmayinfluence

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consumerspending,butarenotaccountedforintheideabehindhyperbolicdiscounting.

Boundedrationalityistheideathatwhenfacedwithadecision,consumersareweighingtheir

optionsundercertainconstraintsincludinglimitedinformationaboutalternativeoptionsand

certainconsequencesthatmaycomewiththeirchosendecision.Ontheotherhand,impulsive

buyingexplainstheinstinctualbehaviorofaconsumer,whichmayprobehimorhertomakea

spurofthemomentdecision.Themodelofhyperbolicdiscountingmayfallshortinthatitdoes

notencompassotherfactorsthatliebehindconsumptionbehavior.

TheoreticalFrameworkII:PermanentIncomeHypothesis

AnothertheorythatalsoexplainsconsumerbehavioristhePermanentIncome

Hypothesis.Theideabehindthishypothesisisthatpeoplespendtheirmoneyinawaythatis

consistentwiththeirexpectedlong-termincome.Overtime,consumptionissaidtobe

smoothedbychangesinincome.ThePermanentIncomeHypothesisemphasizesthat

consumerswillspendmoneybasedonlifetimeincome,notjustcurrentincome.Hayashi(1985)

conductsastudywhereJapanesefamiliesarequestionedabouttheirspendinghabits,revisiting

theparticipantseverythreemonthsforanentireyear.Findingsfromthestudyconcludethat

thePermanentIncomeHypothesisappliedtoabout85%ofthesamplepopulation(Hayashi,

1985).Wageearnersarefoundtoexhibitconsumptionsmoothingmechanisms(Hayashi,1985).

Furtherreviewshowsthatchangesinincomeexplainedonlyasmallportionofexpenditure

differences,warrantingsupportforthePermanentIncomeHypothesis(Hayashi,1985).

However,thetheoryhasbeencriticizedforbeinglimitedinthetypeofgoodsconsumers

purchased.Muchofthepreviousliteraturefocusedonchangesinconsumptionofperishable

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goods.ThisgivesrisetothespeculationthatthePermanentIncomeHypothesismaynotbe

applicabletowardsnon-perishableitems.Perhapsconsumptionhabitschangewhenitcomesto

moredurablegoods,thustheneedforfurtherresearch.Withinthecontextofmystudy,the

PermanentIncomeHypothesisistestedinamannerthatinvestigatesthewillingnessof

individualstospendmoregivencurrentincome,inanticipationofearningahigher,morestable

incomeinthefuture.Thereisregardforbothdurableandnon-durablegoodstoaccountfor

differenttypesofgoodsthatarepurchasedoveraconsumptionperiod.

FactorsInfluencingFinancialBehaviorsI:TheRoleofEthnicity

Muchoftheexistingbodyofliteratureonthefinancialhabitsandattitudesofcollege

studentsfocusesontheincreasingimportanceofthistopicanditsimplicationsonthe

consumerculture.AstudybyChenandVolpe(1998)isconductedwiththreemainpurposesin

mind:toprovideevidenceofpersonalfinancialliteracyamongcollegestudents,examinewhy

somestudentsmaybemoreknowledgeablethanothers,andexplainhowastudent’s

knowledgeinfluenceshisorheropinionsanddecisionsonfinancialmatters.Theresearchers

utilizeasurveyquestionnairethatasksparticipantsabouttheirknowledgeofpersonalfinance,

opinionsanddecisionsaboutfinancialmattersanddemographicdata(Chen&Volpe,1998).

Thesurveywassenttostudentsfrom14differentcolleges,bothpublicandprivateschools

acrosstheUnitedStates.ChenandVolpe(1998)incorporateamultivariatemodelwith

independentvariablesbeingacademicdiscipline,classrank,gender,race,nationality,work

experience,age,incomeandtypeofmajor.Resultsfromthesurveyrevealmuchaboutthe

populationofcollegestudents.Atayoungage,mostofthemoneysourceavailabletocollege

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studentsisusedforconsumptionratherthansavings(Chen&Volpe,1998).Thismayinclude

personalallowancestocoverthecostsoffood,schoolsupplies,andothermiscellaneousitems.

Ethnicityalsoplaysasignificantrole,asAfrican-Americanswerelessknowledgeableonfinancial

mattersacrosstheboard,andforeignstudentsingeneralperformedworsethanAmerican

students(Chen&Volpe,1998).Researchersconcludethatstudentswithlessknowledgeon

financetendtohavewrongopinionsandmakeincorrectdecisions(Chen&Volpe,1998).The

surveyquestionnairewasdesignedtotestfinancialliteracyaswellasopinionstowardsfinancial

decisions.However,thismayposeasaculturalbias,asthesurveywasonlyconductedacross

theUnitedStates,drawingconclusionsfromanAmericanculturalperspective.Itishighly

possiblethatinternationalstudents,beingenculturatedunderdifferentstandards,holdvery

differentopinionsandmakeopposingdecisionswhendealingwithfinancescomparedto

Americanstudents.ThesurveydesignmayhavebeenbiasedtowardatypicalAmerican’s

mindsetonspendingandsaving.

Tobetterunderstandfactorsthatinfluencebasicadolescentspendingandsaving,

Pritchard,MyersandCassidy(1989)gatherdatafromhighschoolstudentsfromprivateand

publicschoolsacrossthenation.Anadministeredquestionnairedetermineswhetherstudents

aresavers,necessityspendersanddiscretionaryspenders(Pritchardetal.,1989).Findingsfrom

thestudyreportspecificsonethnicandgenderdifferences.Studentswhotendto

predominantlysavearefemaleandwhite(Pritchardetal.,1989).Thiscategoryofparticipants

performsbetteronstandardizedtests,receivesbettergrades,areratedashardworkersand

plantoenrollinfurthereducation(Pritchardetal.,1989).Thesekindsofindividualsaresaidto

bemorefuture-oriented,witharegardforhighersavingsanddelayedgratification(Pritchardet

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al.,1989).Forstudentswhoareprimarilynecessityspenders,mostofthepopulationare

femalesandblack(Pritchardetal.,1989).Overall,theyhavepoorerperformanceontests,

receivelowergradesanddonotfeelthatsavingisasimportantgiventheirlower

socioeconomicstatus(Pritchardetal.,1989).Thereisalowerdriveforfuturegoalsinthe

workplace,asmostofthestudentsseemtobepresent-orientedindividuals.Thispreferencefor

immediategratificationisassociatedwiththetheoryofhyperbolicdiscounting,wherenecessity

spendersprefertoreceiveasooner,instantreward.Withdiscretionaryspenders,themajority

ofthispopulationaremalesandwhites,whichresearchersattributedtocarownership

(Pritchardetal.,1989).Discretionaryspendersfeelthathavingalotofmoneyisimportant

(Pritchardetal.,1989).Generally,thereismoreinterestinattainingsuccessintheworkplace,

accountingforpooreducationalperformance(Pritchardetal.,1989).However,thesample

populationtakenforthisstudyonlyutilizedemployedhighschoolseniors.Whilethissheds

lightonthehabitsofstudentsenteringcollege,itisnotveryrepresentativeofhighschool

studentsoverall.Seniorsmayemploydifferentfinancialmechanisms,thustheresultswould

notbeverygeneralizabletoalargerpopulation.

FactorsInfluencingFinancialBehaviorsII:AGrowingCredit-DependentCulture

Muchoftheliteraturethatcoverscreditcardusagedrawssimilarconclusionsinthatthe

presenceofcreditmakesstudentshighlydependentonthispaymentmethod.Inastudyby

RobertsandJones(2001),theprimaryfocusrevolvesaroundtheroleofmoneyattitudesand

creditcarduseoncompulsivebuyingamongU.S.collegestudents.Theyemphasizethatthe

desiretobepartoftheconsumercultureisconstantlyincreasing,especiallyasAmerican

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studentsareraisedinasocietywherecreditcardusageisatanall-timehigh(Roberts&Jones,

2001).Theyutilizeamoneyattitudesdimensionscaletofurtherunderstandthefactorswhich

mostcommonlyleadtocompulsivebuyinghabits(Roberts&Jones,2001).Theresearchers

employamodeldevelopedbyYamauchiandTemplertodemonstratethemostpowerful

factorsbehindmoneyattitudes(Roberts&Jones,2001).TheMoneyAttitudescale(MAS)

consistsofthreedimensions:power,distrust,andanxiety(Roberts&Jones,2001).The

dimension,power,wasdefinedasindividualswhousemoneyasatoolofinfluenceandasa

meansofimpressingotherstoexhibitsuccess(Roberts&Jones,2001).Distrustislinkedto

pricesensitivity,withindividualswhoarehesitant,suspiciousanddoubtfulinsituations

regardingmoney(Roberts&Jones,2001).Thelastfactor,anxiety,isusedtoidentifypeople

whoviewmoneyasasourceofstressoruseittocopewithanxiety(Roberts&Jones,2001).

WiththeuseofasurveyandtheMoneyAttitudesScale,RobertsandJones(2001)find

thatmanycollegestudentsusecreditcardsirresponsiblyandinthefuture,tendtosufferboth

financiallyandevenpsychologically.Thesetypesofattitudesseemtocarryonaftercollegeand

canoftenworsen.Themodelthattheresearchersemployinthisstudyseemslimitedinits

scopeofattitudestowardsmoney.Itonlyconsidersthreedimensionsthatweretestedinthe

survey,leavingoutmanyotherfactorsthatcouldverywellinfluenceaparticipant’sfinancial

attitudes,suchasearlyexposuretofinancialmanagementandformalfinancialeducation.

Furthermore,thepresentstudy’ssamplepopulationappearshomogenous,utilizingstudentsall

fromonecollegeatagivenpointintime.Tobetterassesstherelationshipbetweenthe

proposedattitudedimensionsandspendinghabits,RobertsandJones(2001)addresstheneed

forfurtherlongitudinalresearch.

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Akeycomponentoftheconsumercultureisthematerialisticattitudesheldbymany

collegestudents.Thissegmentofshoppersisaparticularlyattractivemarketforcreditcard

companies,madeevidentbytheannualincreaseinon-campussolicitations.Palan,Morrow,

TrappandBlackburn(2011)discusstheissueofcreditcardmisuseamongcollegestudents,

statingthatstudentsassociatecreditcardswithspending.Theirfindingssupporttheideathat

creditcardspromotecompulsivebuyingbehaviorsandincentivizepurchasesthatmaynot

otherwisebeboughtwhenusingcash(Palanetal.,2011).Palanetal.’s(2011)studyutilizedan

onlinesurveymethodthatonlytestedseniorbusinessmajorsenrolledinacapstonecourse.

Thefactthatparticipantswereallbusinessmajorscompletingtheirculminatingclassgivesa

verybiasedviewofresults.Theseindividualshavebeeneducatedwithabusinessdegree,

whichcanprovideconclusiveresultsforbusiness-mindedstudentsbutnotthosewhodonotfit

intothiscategory.

AnotherstudyinsupportoftheseargumentsisonebyNorvilitis,Merwin,Osberg,

Roehling,YoungandKamas(2006).Researchersclaimthatstudentsoftendonotunderstand

thefinancialimplicationsoftheirbehaviors(Norvilitisetal.,2006).Thosewithcreditcardstend

tospendlesstimeandmoremoneywhenmakingpurchases(Norvilitisetal.,2006).Presently,

studentsarecaptivatedbytheconsumerculture,andhavingthemeanstodelaypayingoff

purchasesisenticing.Inthelongrunthiscanresultinhigherdebtandmoneymanagement

issues.Norvilitisetal.(2006)useacomprehensivestudymechanism,whichincludesa173-item

omnibusquestionnaire.Whilethestudydesignwasintentionallyextremelydetail-oriented,

capturingeverythingfromfinancialwell-being,attitudestowarddebt,psychologicalmeasures

andmaterialism,itwasextremelytaxingtocomplete,whichmayhavedeterredsomestudents

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frombeingfullyengagedthroughouttheentiresurvey.Furthermore,participantswere

instructedtocompletethesurveyoutsideofclassandreturnwiththecompletedquestionnaire

atasubsequentmeeting.Thereisahighpossibilityofextraneousvariablesthatcouldhave

affectedthesurveyresults.Studentsinevitablycompletedthesurveyatdifferenttimes,

locationsandcouldhavedonesoatmultipleintervalsratherthaninonesitting.These

variancesmaycauseresultstovaryinwaysthatwereunintendedbytheresearchers.

FactorsInfluencingFinancialBehaviorsIII:GenderDifferences

Inaseparatestudyofdifferencesinspendinghabitsandcredituse,Hayhoe,Leach,

Turner,BruinandLawrence(2000)studytherelationshipbetweenaffectivecreditattitudes

andgenderonpurchasinghabits.Theresearchersintroduceamultivariatemodelthatincludes

varietyofpurchases,financialmanagementpractices,financialstressors,affectivecredit

attitude,andnumberofcreditcardswithabalance(Hayhoeetal.,2000).Theyusethismodel

toanalyzebehavioraldifferences,particularlywithregardstogender.Hayhoeetal.(2000)

surveycollegestudentsovertheageofeighteenfromsixdifferentpublicuniversities.The

sampleconsistsofanevensplitbetweenmalesandfemales,themajorityofwhicharefull-time

students(Hayhoeetal.,2000).Toanalyzetheresults,theresearchersusealogisticregression

analysiswhenstudyingtheeffectofcreditpurchasesandapplyanOLSregressionmodelwhen

studyingfinancialpractices(Hayhoeetal.,2000).Afterwards,Hayhoeetal.(2000)useapath

analysismodeltoshowtherelationshipbetweencreditattitudes,varietyofpurchases,number

offinancialstressors,numberoffinancialmanagementpractices,andnumberofcreditcards

onwhichthestudentcarriedabalance.Astheresearchersuseanexploratoryanalysis,they

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firstrunasaturatedmodelwhereallpathsareinitiallyspecified,followedbyarestricted

model,wheretheyonlyincludesignificantpaths(Hayhoeetal.,2000).Resultsshowthatthere

isastronginfluenceofgenderandaffectivecreditattitudes.Inparticular,financial

managementpractices,financialstressors,affectivecreditattitudesandnumberofcreditcards

differedbygender(Hayhoeetal.,2000).Theresponsesreceivedallowresearcherstodraw

conclusionsaboutthewaysmenandwomenvaryintheirfinancialhabits.Femalestendtouse

creditcardsonappearancegoods,likeclothing,whilemalesusecreditcardsforelectronics,

entertainmentandfood(Hayhoeetal.,2000).Womenarealsofoundtoexhibitmorefinancial

practicessuchaskeepingawrittenbudget,planningspendingandsavingregularly(Hayhoeet

al.,2000).However,bothgendersfeelthatoverall,theydoagoodjobmanagingtheirfinances

(Hayhoeetal.,2000).Theshortcomingofthisstudyisthelackoftestingfordifferencesin

ethnicity.Thevariablehasproventohavesignificanteffectsamongotherstudiesinthefield

andisalsoavariableincludedinthemodelusedforthisstudy.Whiletherewasalargesample

sizeinHayhoeetal.’s(2000)analysis,itisunclearthevariousbackgroundsofindividualsthat

werecapturedbythisstudy,whichmayprovidefurtherunderstandingandexaminationofthe

results.

Amongvariouspiecesofliterature,genderoftenactsasastrongdeterminingfactor.In

astudyofmoneyattitudesandcreditcarddebt,womenreporthavingaself-imposedbudget

morefrequentlythanmen(Norvilitisetal.,2006).ContrarytoNorvilitisetal.(2006)and

Hayhoeetal.(2000),Roberts(2000)findsthatwomenhavebeenraisedandenculturatedto

findsatisfactionfromshopping.Thus,theyaremorelikelytoexhibitspendingbehaviors,

particularlycompulsivebuying,ascomparedtomen.Thisfindingsuggeststhatspendingfor

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femalesmayonlybegreaterthanthatofmalesinthecontextofshoppingforappearance

goods,suchasclothing,shoes,accessoriesandcosmetics.Theconclusionsfromdifferent

researchersfocusingongenderappeartoagreeonthesestatementsacrosstheboard.Roberts

(2000)acquiresdatastrictlyfromstudentsatBaylorUniversity,aBaptistuniversityinTexas.

ThestudentbodyofBaylorUniversitymayattractmanystudentsofthisreligiousdemographic,

whichcanholdcertainbeliefstowardsspendingandsaving.Researcherscouldhaveextended

theirresearchtoanon-denominationaluniversitywherethisreligiousaspectwouldnothave

beenanissue.

LiteratureoutsidetheU.S.

WhilemoststudiesfocusonAmericancollegestudents,someresearchershave

extendedtheliteratureoutsidetheU.S.,highlightingthefactthatthefinancialattitudesand

behaviorsofcollegestudentsarealsoaninternationalfocus.SabriandMacDonald(2010)

analyzetherelationshipofsavingsbehaviorandfinancialissuesamongcollegestudentsin

Malaysia.Theyfindthatfinancialexperiencepriortocollegeoftenfosterspoorhabits(Sabri&

MacDonald,2010).Asthemajorityofstudentsfirstexperiencefinancialindependenceatthe

universitylevel,thereisoveralllowfinancialliteracyamongtheparticipants.Thesample

consistsofbothprivateschoolandpublicschoolstudents,whichlaterprovestobeasignificant

factorinthestudy(Sabri&MacDonald,2010).Participantsthatcomefromprivateschoolsare

morelikelytocomefromwealthierbackgrounds,whichcanaccountforthehighvolumeof

spendingamongthesestudents(Sabri&MacDonald,2010).Moreover,SabriandMacDonald

(2010)arealsoabletoidentifythatthoseofChinesedescentareaspecificallywealthy

18

populationinMalaysia,andmuchofthespendingislinkedtothisgroupofstudents.Overall,

respondentsinthissamplearemorepronetospendingthansaving;morethanhalfofthe

respondentschoosetospendmoneythatisreceivedforscholarshipsoreducationloans(Sabri

&MacDonald,2010).Often,thismoneyisspentonpersonalshopping,mostofwhichis

consumedbeforetheendofonesemester(Sabri&MacDonald,2010).

TheconsumercultureisnotonlygrowingrapidlyintheU.S.butalsoseemstohave

takenshapeinbothdevelopedanddevelopingeconomiesaroundtheglobe.PhauandWoo

(2008)investigatemoneyattitudesandcreditcardusageamongYoungAustraliansusingamall

interceptmethodinapopularshoppingcomplex.Participantsofthestudyareadministeredan

eight-questionsurveywhichasksaboutdemographics,moneyattitudes,compulsivebuying

habits,creditcardusageandshoppingpatterns(Phau&Woo,2008).Itisfoundthatyoung

adultstendtoassociatemoneywithahigh-statusimage(Phau&Woo,2008).Frequent

spendinghabitsareassociatedwithanindividual’sdesiretoachieveacertainsocialstatus.

Moreover,PhauandWoo(2008)identifyculturalandsocialnormsthatmayhavevarying

effectswhenthestudyisconductedindifferentcountries.Thereexistsbothpresentoriented

andfutureorientedsocieties,whichcanbeastrongdeterminantinwhetherindividualsare

morelikelytospendorsave(Phau&Woo,2008).AsAustraliaisameltingpotofcultures,the

observedattitudestowardsmoneymattersarevaried(Phau&Woo,2008).Researchers

concludethatattitudesandbehaviorstowardspendingandsavingareafunctionofbothage

andcognitivematuration(Phau&Woo,2008).Theyoungerastudent,thelesstheyareinclined

tosave,asthereisnoimmediateworryofcoveringfinancialcosts(Phau&Woo,2008).Thereis

regardforattainingaconstantstreamofincomethatwillaccountforaccumulateddebt.This

19

findingbyPhauandWoo(2008)providessupportforthePermanentIncomeHypothesis.

Youngerconsumersarelessmindfulofcoveringcostsnow,astheyanticipateearningmoney

fromafutureemployerthatwillallowthemtosmoothoutconsumptionhabitsovertime.

However,thesamplewastakenfromasingle,homogenousAustralianpopulationinapopular

shoppingcomplex.Itisunknownwhetherthereisanenvironmentaleffectfactoringintothe

resultsofthisstudy.Conductingastudyonfinancialattitudesandbehaviorsinashoppingmall

mayhaveadverseeffectsonconsumerresponses.Consideringthatmanyoftheparticipants

hadmadeorwereplanningtomakeapurchasecaninfluencetheirviewsontheirpersonal

habits,skewingtheresultsofthisstudy.

InastudyconductedinLondon,Furnham(1999)observesthespendingandsaving

habitsofBritishadolescents.Itisinterestingtonotethefindingsofsuchastudy,asnotmany

researchershaveattemptedtoinvestigatethefinancialhabitsofchildren.Focusingona

youngeragebracketmayprovideinsightsintoreasonsastowhycollegestudentsspendorsave

thewaytheydo.Furnham(1999)isabletosuggestwhyanindividualmaybemoresusceptible

tospending,asearlyexposuretocertainattitudesandparentaltreatmentcanlargelyfactor

intothedevelopmentofspendinghabits.ThestudyonBritishchildrenasksparticipantsto

completeaquestionnairewhichasksaboutsourcesofincome,howmuchmoneyisgenerally

putintosavings,whereitisstoredandthepurposeitisintendedfor(Furnham,1999).The

maindemographicsFurnham(1999)focusesonaregender,ageandclass,withthefirsttwo

provingtobehighlysignificant.Researchersconcludethatageisthemostpowerfulpredictorof

saving(Furnham,1999).Theolderachildis,themoremoneyheorshewillreceiveandsave.In

termsofgender,femalesarebetteratmoneymanagement,astheyarelesscomfortablewith

20

handlingdebt(Furnham,1999).However,thiscouldbeduetodifferencesinsocialization,asit

isfoundthatatayoungerage,boysarereceivingmorepocketmoneyandareallowedtotake

onpart-timejobsbeforegirls(Furnham,1999).ThisfindingbyFurnham(1999)mayexplainthe

genderdifferencesthatappearwithinmultiplestudiesonfinancialattitudes.Thesocialization

andupbringingofboysincomparisontogirlsbuildsaseparateframeworkforhandlingmoney

issues.Finally,socialclassdifferencesappeartobeadifficultdemographictomeasure.Itis

predictedthathighersocioeconomicstatusimpliesmoresavings,butthesampleturnedoutto

beahomogenouspopulationofchildrenfrommiddleclassbackgrounds(Furnham,1999).This

limitationtothestudydidnotallowforfullinvestigationoftherangeofdemographicsthat

wereinitiallyintendedforstudy.

Afterexaminingabroadrangeofliterature,itcanbeconcludedthatthemain

contributionsofmystudystemfromaconnectionofeconomictheoriestothespendingand

savinghabitsofcollegestudents.Manyresearchershavefocusedonexaminingdifferent

variablesthatmayhavedifferenteffectsonacollegestudent’sfinancialhabits,butfewhave

analyzedwhethertheresultshaveshownsupportforexistingtheoriesthataccountfor

consumerbehavior.Morespecifically,theoriesofHyperbolicDiscountingandthePermanent

IncomeHypothesisservetounderstandfinancialattitudesamongconsumers,andminimal

researchhasbeenconductedtofurtherinvestigatethisrelationshipwithinthecontextof

personalfinance.Mystudyseekstoprovideabridgebetweenthespendingandsavinghabits

ofcollegestudentsandthetheoreticalframeworkbehindconsumers’financialhabits.

21

III.METHODOLOGY&DATA

DataCollection

Forthepurposesofthisstudy,IdesignedmyownsurveyusingQualtricsanddistributed

thequestionnairetostudentsviaconveniencesamplingatSkidmoreCollegeacrossallclass

years.Conveniencesamplingisamethodwhichrecruitsvolunteerstoparticipateinastudy,

selectedduetotheiravailabilityandeasyaccess.Studentswereapproachedincommonspaces

aroundcampusincludingthelibraryandCaseStudentActivityCenter,andthosewhoagreedto

participatewereemailedthelinktotheonlinesurvey.Aconsciouseffortwasmadetocapture

thedemographicsofthepopulation.Toaccountforthis,studentsfromvariousethnicitiesand

genderswereaskedtoparticipate,suchthatitisareflectivesampleoftheSkidmoreCollege

studentbody.Forinstance,approximately70.6%ofstudentsatSkidmoreidentifyasWhite,

followedbyAsianat6.2%,thenBlackat4.4%,allofwhichwerefactoredintotherecruitment

ofparticipants(SkidmoreCollege-CollegeDataCollegeProfile).Thedatacollectionprocesswas

conductedoveratwo-weekperiod,whereatotalof66surveysweresentoutand55complete

responseswererecorded–aresponserateof83.3%.

Surveymeasurementinstrument

Theseven-minutesurveywasdividedintothreeseparatesections.Thefirstaskedabout

demographicfactorssuchasclassyear,genderandethnicbackground.Studentsselectedthe

choicesthatbestreflecthowtheyself-identifyunderthesecategories.Thesecondsection

consistedofasetoffourrandomizedquestionsthataskedaboutfinancialsources,satisfaction

withcurrentspending,plansforfuturespendingandHyperbolicDiscounting.Thequestion

22

pertainingtofinancialsourcesinvolvedamultiple-choiceselectionwithoptionsbeinga)I

receivemostofmymoneyfromanallowance(fromparents,guardians,etc.)b)Iearnmoney

fromanemployerc)Ihaveadebitcardandd)Ihaveacreditcard.Participantswerethenasked

subsequentquestionsonwhethertheyplannedforfuturespendingaswellassatisfactionwith

currentspending.Bothweremeasuredona5-pointLikertscalewithoptionsrangingfrom

Always,Often,Sometimes,SeldomandNever.HyperbolicDiscountingwasmeasuredbyasking

ifastudentwouldprefertoreceive$15todayor$20tomorrow.

Thefinalsectionwasasetoffiverandomizedquestionsregardingmostfrequently

purchaseditems,financingofleisureexpenditures,anumericalaverageofmonthlyspending,

changesofspendingandsavingthatmayhaveoccurredovercollegecareer,andthe

PermanentIncomeHypothesis.Tounderstandwhatstudentsspentmostoftheirbudgeton,

participantswereaskedtorankamongfivecategoriesintheorderof1,beingmostfrequently

purchased,to6,beingleastfrequentlypurchased.Optionsprovidedwereclothing,electronics,

cosmetics,entertainment,andfoodandbeverage.Individualswerealsoaskedwhatsource

theyusedtomakepersonalorleisurepurchases,andthesurveyprovidedoptionsincluding

moneyfromaparentorguardian,moneyearnedontheirown,creditcardandother.Students

werealsoaskedtoestimateaveragemonthlyspendingandweregivenoptionssuchasa)Less

than$100b)$100-199c)$200-399d)$400-599ore)$600+.Thefinaltwoquestionswere

posedinagraphicslidemanner,whichaskedparticipantstoselectanoptiononagiven

numericalscalethatrangedfrom0to100.Thefirstquestionasked,“Onascaleof0(nochange

atall)to100(lotsofchange),haveyouexperiencedchangesinyourspendingorsavinghabits

overyourtimeatSkidmore?”Thesecondquestionaskedhowmuchparticipantsagreedwith

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thestatement,“IamwillingtospendmorenowbecauseIanticipategettingadecentlypaidjob

aftergraduation”.0indicatedstronglyagreewhile100denotedstronglydisagree.

Model

Aftercollectingresultsfromthesurveyquestionnaire,twobaselinemodelswere

developed.Themodelswerebuiltuponspecificfactorsbeingtestedwithinthesurvey

instrument.Uponinitialanalysis,itappearedthatspendinghadamuchmoresignificanteffect

thansavingonacollegestudent’sfinancialhabits.Whenaskedtoconsiderchangesinboth

savingandspendingthathaveoccurredoveranindividual’stimeincollege,thereweremore

reportedchangesinspendingwhilefewofferedthesamedegreeofchangesinsaving.

Specifically,25.5%ofparticipantsrecordedresponsesintherangeof50-100,indicating

significantchangesinspending.Conversely,whenaskedaboutchangesinsavings,only16.4%

ofrespondentsreportedmuchchangeinsavings.Asaresult,Ihavechosentofocustheanalysis

onspendinghabits.Iutilizedtwoprobitregressionsasmybaselinemodels.Model1teststhe

effectsofclassyear,genderandraceonaveragespendingwhileModel2analyzestwo

economictheoriesofconsumption,namelyHyperbolicDiscountingandthePermanentIncome

Hypothesis,inrelationtoaveragemonthlyspending.Theseparationofvariablesallowsfor

differenttypesofanalysesthatfocuseithersolelyondemographicsortheoreticalframework.

Pr(𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑.) = 𝜙(𝛽3𝑐𝑙𝑎𝑠𝑠𝑦𝑟. + 𝛽9𝑔𝑒𝑛𝑑𝑒𝑟. + 𝛽:𝑟𝑎𝑐𝑒. + e.) (1)

Pr(𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑.) = 𝜙(𝛽3𝐻𝐷. + 𝛽9𝑃𝐼𝐻. + e.) (2)

whereHDdenotesHyperbolicDiscountingandPIHindicatesPermanentIncomeHypothesis.

24

MeasurementofVariables

Thedependentvariable,whichanalyzesaveragespending,wasmeasuredthrougha

multiple-choicequestionthataskedstudentstoestimatetheiraveragemonthlyspending.

Optionsgiventostudentsincludeda)lessthan$100b)$100-199c)$200-399d)$400-599ore)

$600+.Theresultswereaggregatedandcategorizedtoruntheprobitregressionmodel.Itwas

foundthatmostoftherespondentsansweredeitherd)$400-599ore)$600+.Thus,those

resultsweretakentocreatethedummyvariable𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑,whereresponsesthatwere

eitherd)$400-599ore)$600+wereassignedavalueof1,and0otherwise.

Theindependentvariableseachcorrespondtoaspecificfactorbeingtestedinrelation

toanindividual’sspendingmechanisms.Thevariable𝑐𝑙𝑎𝑠𝑠𝑦𝑟accountsforwhetherstudentsin

differentclassyearscurrentlyattendingSkidmoreCollegehavedifferenteffectsonspending.

Thisprovidesacomparisonamongagegroupstotestspendingmechanisms.Thevariable

𝑐𝑙𝑎𝑠𝑠𝑦𝑟includedtheClassesof2020,2019,2018and2017.Ipredictthatyoungerstudents,or

freshmen,wouldhaveapositiverelationshipwithaveragespending,whileolderclassyears

wouldhaveanegativerelationshipwithaveragespending.Attheonset,Ipredictthatfreshmen

areonlystartingtogetacclimatedwithfinancialindependenceandmaynotbeabletomanage

spendingaswellasstudentsinotherclassyears.𝑔𝑒𝑛𝑑𝑒𝑟testsfordifferencesinspendingthat

mayarisedependingonwhethertheparticipantwasmaleorfemale.Mypredictionsfor

𝑔𝑒𝑛𝑑𝑒𝑟arethatfemalesaremorediscretionarywithspendingaspreviousliteraturehasshown

themtoemploymoresavingsmechanisms.Thishypothesisissupportedbytheresultsof

Norvilitisetal.(2006).Thethirdvariable𝑟𝑎𝑐𝑒isacompositeofthevariousethnicitiesincluded

withinthetestingparameters.ThesurveyincludedoptionsofWhite,BlackorAfricanAmerican,

25

Asian,Hispanic,AmericanIndiaorAlaskaNative,NativeHawaiianorPacificIslander,andOther.

SimilartothefindingsofChenandVolpe(1998),mypredictionsforethnicityarethatWhites

willspendmorethanotherdemographicswhileBlackswillspendless.Finally,𝐻𝐷and𝑃𝐼𝐻

correspondwithHyperbolicDiscountingandthePermanentIncomeHypothesis,respectively.

Thelasttwovariablesintheequationtestfortheapplicabilityofthoseeconomictheoriesin

thecontextofpersonalfinance.HyperbolicDiscountingwastestedbyaskingsurvey

participantsaquestionwithregardstotheirpreferencesforreceivingareward.Inparticular,

thequestionaskediftheindividualwouldprefertoreceive$15todayor$20tomorrow.Totest

theapplicationofthePermanentIncomeHypothesis,studentswereaskedtoranktheir

sentimentstowardastatement.Itwasframedinsuchamannerthataskedparticipantshow

muchtheyagreedwiththestatement,“IamwillingtospendmorenowbecauseIanticipate

gettingadecentlypaidjobaftergraduation”.Thequestionwaspresentedinagraphicslide

manneronascalerangingfrom0to100.Alongthescale,therewerevariousmarkersthat

indicatedsevenoptionsfromStronglyAgreetoStronglyDisagree.Ipredictthattherewillbe

someevidenceofboththePermanentIncomeHypothesisaswellasHyperbolicDiscounting

amongthesamplepopulationofcollegestudents.ResearcherssuchasAngeletosetal.(2001)

andLaibson(1998)bothfindthatatayoungerage,consumerstendtobepresentorientedand

exhibitmannerismsthatareinlinewithboththeoreticalmodels.Tables1,2,and3provide

summarystatisticsofthedatacollectedfromthesurvey.

26

Table1:Fivenumbersummarystatisticsofdependentvariable𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑andindependentvariables𝑟𝑎𝑐𝑒, 𝑐𝑙𝑎𝑠𝑠𝑦𝑟, 𝑔𝑒𝑛𝑑𝑒𝑟.

Variable Observations Mean Std.Dev. Min Maxavg_spend 55 0.286 0.456 0 1

race 55 2.071 1.263 1 4classyr 55 2.436 1.135 1 4gender 55 1.454 0.503 1 2

Table2:Summarystatisticsofethnicity,genderandclassyear.

Variable SubgroupPercentage(%) Observations

Ethnicity 100 55 White 51.79 29 Black 12.5 7 Asian 12.5 7 Other 23.21 13Gender 100 55 Male 45.45 25 Female 54.45 30ClassYear 100 55 2020 23.64 13 2019 23.64 13 2018 25.45 14 2017 27.27 15Table3:SummarystatisticsofPermanentIncomeHypothesisandHyperbolicDiscountingVariables

Variable DescriptionPercentage(%) Observations

PIH 100 55 StronglyAgree-SomewhatAgree 54.5 30 StrongDisagree-SomewhatDisagree 45.5 25HD 100 55 $15today 25.5 14 $20tomorrow 74.5 41

27

Basedonthesummarystatistics,itisevidentthatthevariablefor𝑟𝑎𝑐𝑒hasthehighest

standarddeviation,indicatingthelargestvarianceofvalues.Astherearefourdifferent

subsectionstothevariableraceandapurposefullydisproportionateamountbetweeneach,it

wouldmakesensethat𝑟𝑎𝑐𝑒holdsthehigheststandarddeviationvalue.Ontheotherhand,

𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑and𝑔𝑒𝑛𝑑𝑒𝑟bothhavefairlylowstandarddeviations,asthesevariableswere

encodedtobedummyvariables.

Thesummarystatisticsalsoshowthatthebreakdownof𝑒𝑡ℎ𝑛𝑖𝑐𝑖𝑡𝑦issuchthatitis

proportionatetotheactualdemographicrepresentationoftheSkidmoreCollegestudentbody.

Whitesarethemostprominentethnicity,witharepresentationof51.8%amongsurvey

participants,followedbyBlacksandAsians,eachcomposing12.5%oftheparticipantsinthe

study.The𝑜𝑡ℎ𝑒𝑟categoryofethnicbackgroundrepresents23.2%oftheparticipants,asthere

weremanyrespondentswhoreportedamixedethnicbackground.Intermsofgender,thereis

alargerpopulationoffemalestudents,aswasalsoreflectedduringtherecruitmentof

participants.Todrawsomeconclusionsbasedonclassyear,itwasensuredthatafairlyeven

numberofparticipantswererecruitedfromeachclass.27.3%ofparticipantswerefromthe

Classof2017,25.5%werefromtheClassof2018,andtheClassof2019and2020comprised

23.6%eachofthetotalresponses.

DataCleaning

Priortoconductingregressionanalyses,therawdatacollectedfromthesurveywere

cleanedandencoded.First,aninitialsweepthroughtheresponsesindicatedthatone

participantdidnotfullycompletethesurvey.Thissingleincompleteresponsewasdeleted,so

28

asnottoskewtheresultsandonlyincludeaportionofthisindividual’sanswers.Therealso

existedacolumnoftextresponseforthe𝑟𝑎𝑐𝑒variable,whereparticipantshadtheoptionto

specifyamoreparticularethnicbackgroundiftheychosetodoso.Sincetherewereno

recordedresponsesinthiscolumn,itwasalsodeleted.Therawdataoutputalsoincluded

columnsforamountoftimetakentofinishthesurvey,confirmationofconsent,and

confirmationofsubmission,allofwhichwereunnecessaryandomittedinpreparationforthe

dataanalysisprocess.

Sincemostoftherecordedresponseswereinnon-numericalform,mostofthedatahad

tobeencodedintonumericalvaluesthatdenotedspecificcharacteristics.Thevariable

𝑒𝑡ℎ𝑛𝑖𝑐𝑖𝑡𝑦wasinitiallyencodedintotenseparatecategories,whichresultedintoomany

subsetstoanalyze.Therefore,thevariable𝑟𝑎𝑐𝑒wascreatedwhichassignednumbers1-4to

correspondwithdifferentethniccategories;1=White,2=BlackorAfricanAmerican,3=Asian,

and4=Other.ThecategoryOtheriscomprisedofindividualswhorecordedresponsesof

Hispanicdescentormixedethnicities.Forthevariable𝑐𝑙𝑎𝑠𝑠𝑦𝑟,thesameprocesswasapplied

where1=Classof2017,2=Classof2018,3=Classof2019,and4=Classof2020.Withregards

togender,1correspondstofemaleparticipantsand0otherwise,resultinginthecreationofa

dummyvariable.

ThePermanentIncomeHypothesisrelatestotheideaofindividualsexhibiting

consumptionsmoothingmechanismsovertheirlifetime.Totestforthistheory,participants

wereaskedthedegreetowhichtheyagreedwiththestatement,“Iamwillingtospendmore

nowbecauseIanticipategettingadecentlypaidjobaftergraduation”.Onascaleof0being

StronglyAgreeto100meaningStrongDisagree,surveyparticipantsweregivenagraphicslider

29

toindicatetheirattitudestowardthestatement.Therefore,fourseparatevaluerangeswere

establishedtoaggregatethedatafortheregressionanalysis.Avariablenamed𝑝𝑖ℎ1was

createdtocorrespondwithvaluesrangingfrom1-25,𝑝𝑖ℎ2correspondswithvaluesranging

from26-50,𝑝𝑖ℎ3correspondstovaluesfrom51-75,and𝑝𝑖ℎ4indicatesresponsesbetween76-

100.

TheencodingofdataforHyperbolicDiscountingresultedinthecreationofanother

dummyvariable,wherevariableℎ𝑑=1iftherespondentanswered$15todayandℎ𝑑=0ifthe

responsewas$20tomorrow.About74.5%ofconsumersrespondedwithapreferencefor

receiving$20tomorrow,indicatingthattherewasverylittledesireforasmaller,sooner

reward.Instead,therewasastrongwillingnesstodelayreceivingmoneyifitentailedpocketing

alaterbutlargerreward.Thoughthenumericvalueisrelativelysmall,waitinganotherdayto

receiveanextra$5washypotheticallymoreenticing.Onlyanunderwhelming25.4%of

participantsappearedtobehyperbolicdiscounters.

Graph1:ActualSpendingvs.PerceivedSpendingofSamplePopulation

30

Graph1showstherelationshipbetweenActualSpendingandPerceivedSpending.

ActualSpendingwasmeasuredbystudentswhoself-reportedaveragemonthlyspending,

recordingresponsesthroughfivedifferentoptionsincludinga)lessthan$100b)$100-199c)

$200-399d)$400-599ore)$600+.Thesefiveoptionscorrespondtothey-axisscaleranging

from1-5.Perceivedspendingwasmeasuredbyaskingstudentstheirobservedchangesin

spendingovertheirtimeatSkidmore.Thequestionwasposedinalikert-scalemannerwhere

studentscouldselectanoptiononarangeof0-100,where0denotednochangeatalland100

denotedlotsofchange.Thegraphshowsthatstudentshavefalseperceptionsoftheirspending

habits,asthereisnotrendpresentfromthesefindings.

Afterprocessingtherawdata,Idecidedtotestnotonlydemographicsandtheory

alone,butalsovariouscombinationsofdemographiccharacteristicsaswellaseconomic

theoriesofconsumption.Tomyknowledge,previousliteraturehasnotaccountedfortestinga

modelthatincorporatesbothdemographicsandtheoryaltogether.Model1testsethnicity,

Model2testsforvariancesingender,Model3observesclassyear,Model4accountsforthe

PermanentIncomeHypothesis,Model5analyzesHyperbolicDiscounting,Model6isa

combinationofdemographicfactorswithHyperbolicDiscounting,Model7combines

demographicswiththePermanentIncomeHypothesis,andModel8isafullaggregationtesting

allindependentvariablesagainstthedependentvariable,averagespending.Thefullmodel

equationisasfollows:

Pr(𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑.) = 𝜙(𝛽3𝑤ℎ𝑖𝑡𝑒. + 𝛽9𝑏𝑙𝑎𝑐𝑘. + 𝛽:𝑎𝑠𝑖𝑎𝑛. + 𝛽K𝑓𝑒𝑚𝑎𝑙𝑒.+𝛽N𝑓𝑟𝑒𝑠ℎ𝑚𝑎𝑛. +

𝛽O𝑠𝑜𝑝ℎ𝑜𝑚𝑜𝑟𝑒. + 𝛽P𝑗𝑢𝑛𝑖𝑜𝑟. + 𝛽S𝑝𝑖ℎ1. + 𝛽T𝑝𝑖ℎ2. + 𝛽3U𝑝𝑖ℎ3. + 𝛽33ℎ𝑑. + e.)

31

PreviousliteraturetendstoutilizeanOrdinaryLeastSquares(OLS)regressionmodel,

suchasthestudyofHayhoeetal(2000).ThedownfalltoanOLSmodelinthecontextofmy

studyisthatitassumesalinearprobability,andinsomecases,thepredictedprobabilitiesmay

lieoutsidetheboundariesof0and1.Thisposesasanissue,asprobabilitiesneedtobewithin

therangeof0and1.Aprobitregressionmodelcorrectsforthisissuebyimposinganormal

distributionassumptionontheerrorterm.Probitmodelscanthusbindtheprobabilitybetween

thethresholdof0and1,toensurethattheresultsareapplicablewithinthecontextofa

probabilitymodel.

IV.RESULTS

Forthisstudy,aprobitregressionanalysiswasemployedwhere𝑎𝑣𝑔_𝑠𝑝𝑒𝑛𝑑isthe

dependentvariable.Themarginaleffectswerereportedtointerpreteachindependentvariable

usingtheirsub-categoricalassignments.Resultsfromalleightmodelsareprovidedinthetable

below.

32

Table4:Regressionresultsofdemographiccharacteristicsandtheoreticalframeworkinrelationtoaveragespending

(1) (2) (3) (4) (5) (6) (7) (8) VARIABLES avg_spend avg_spend avg_spend avg_spend avg_spend avg_spend avg_spend avg_spend white 0.294* 0.324* 0.256 0.268 (0.164) (0.173) (0.184) (0.185) black 0.318 0.261 0.117 0.115 (0.273) (0.308) (0.314) (0.313) asian 0.578*** 0.728*** 0.812*** 0.806*** (0.205) (0.177) (0.149) (0.152) female -0.0410 0.00991 -0.0157 -0.0119 (0.121) (0.128) (0.133) (0.134) freshman 0.0679 0.164 0.135 0.128 (0.171) (0.195) (0.197) (0.198) sophomore -0.0802 -0.0596 -0.0565 -0.0726 (0.156) (0.163) (0.152) (0.154) junior -0.0975 -0.237* -0.259** -0.270** (0.152) (0.141) (0.117) (0.119) pih1 0.438 0.556* 0.570** (0.271) (0.285) (0.281) pih2 0.382** 0.455*** 0.443** (0.171) (0.173) (0.177) pih3 0.244 0.328 0.335 (0.235) (0.259) (0.261) hd 0.0952 0.160 0.0711 (0.145) (0.196) (0.194) Observations 55 55 55 55 55 55 55 55

Standarderrorsinparentheses.Reportedcoefficientsaremarginaleffects.***p<0.01,**p<0.05,*p<0.1

Ethnicity

Asdiscussedinthemethodologysection,thevariableforethnicitywasgroupedinto

fourcategoriesconsistingofstudentswhoareWhite,BlackorAfricanAmerican,Asianor

Other.Tocomparespendinghabitscross-culturally,theregressionwasrunusingthe𝑜𝑡ℎ𝑒𝑟

categoryasthebaseline.ResultsfromtheregressionanalysisrevealthatWhites,Blacks,and

33

AsiansallspendmorethantheOtherethnicitygroup.Thecoefficientsfor𝑤ℎ𝑖𝑡𝑒and𝑎𝑠𝑖𝑎𝑛are

significantatthe10%and1%levels,respectively.ResultsindicatethatWhitesspend29.4%

more,Blacksspend31.8%moreandAsiansspend57.8%morethanthosegroupedintheOther

category.

PermanentIncomeHypothesis

ThesurveyquestionpertainingtothePermanentIncomeHypothesiswasdesigned

usingascalebar,suchthatthosewhorecordedaresponsebetween0-49aredeemedtobein

supportofthehypothesiswhilethosebetween50-100werenot.Whenobservingthedata,it

wasfoundthat52.7%ofsurveyrespondentsfellwithinthethresholdof0-49onthescale,and

47.3%ofsurveyrespondentsfellwithinthethresholdof50-100onthescale.Morethanhalfof

theparticipantserronthesideofagreementwiththestatement,warrantingsupportforthe

PermanentIncomeHypothesis.Toruntheregressionanalysis,theupperhandthresholdof

𝑝𝑖ℎ4wasusedasthebaseline.Resultsshowedthatthereisstatisticalsignificanceatthe5%

levelforthethresholdofvaluesin𝑝𝑖ℎ4.Comparedtorespondentswhoarecurrentlyless

willingtospendnowdespitethepossibilityofgreaterfutureincome,thosewhoaremore

willingtospendnow,willspendonaverage38.2%more.

ClassYear

Collectingdatafromstudentsinvariousclassyearsallowedtheresultstobe

representativeofindividualsatdifferentagesandphasesoftheircollegecareers.Thisallows

fortheanalysisofageanditsrelationshipwithpersonalfinance.Whencomparingaverage

34

spendingamountsbetweenthoseintheClassof2017andthoseintheClassof2020,thedata

revealedthat66.7%offourthyearstudentsindicatedspendinganywherebetween$100-399

while62.5%offirstyearstudentsindicatedspendinganywherebetween$400-600+onan

averagemonthlybasis.Inaddition,66.7%offourthyearstudentsnoticedsignificantchangesin

theirspendinghabitsovertheirtimeatSkidmore.Whenrunningtheregressionmodel,the

Classof2017,orseniorstudents,wasusedasthebaselineforcomparativeanalysis.Results

showthatfreshmanare6.8%moreliketospendthanseniors.Ontheotherhand,sophomores

are8%lesslikelytospendandjuniorsarealsolesslikelytospendatarateof9.8%.These

resultsshowthatthereisreasontobelievethatfirstyearstudentsspendsignificantlymore

withinthisdemographicframework,aspredicted.Althoughtheseresultswereinsignificant,the

signsofthecoefficientsareasexpected,wherefreshmanstudentswerepositivelycorrelated

andsophomoreandjuniorswerenegativelycorrelatedwithaveragespending.

Gender

Dataforgenderconsistofasplitbetween25maleparticipantsand30female

participants.Thesenumbersforthegendervariableareaggregatedacrossallclassyearsand

ethnicities.Betweenmalesandfemales,datasupportstheideathatmalesaremorelikelyto

spendmoreinagivenmonththanfemales.Moreprecisely,resultsrevealthatfemalesare4.1%

lesslikelytospendthantheaveragemalestudent,afindingthatwasexpected.Again,the

samplepopulation,consistingof54.5%femaleand45.5%male,isrepresentativeofthemore

populousfemaledemographicofSkidmoreCollege.

35

HyperbolicDiscounting

Theideathatconsumersarehyperbolicdiscountersandmakedecisionsbasedontime

preferencesdoesnotseemtobeaninitialtrendwithinthescopeofpersonalfinanceliterature

amongcollegestudents.Whenrunningtheregressionmodel,itwasfoundthatforevery

incrementalincreaseofhyperbolicdiscounting,averagespendingincreasesby9.5%.However,

thisfindingprovedtobeinsignificant.Theremayalsobealimitationtothedesignofthis

particularsurveyquestioninthatthetimelagofonedayistoosmall.Giventhisshorttime

frame,thevalueof$5isarguablytoohigh.Bothofthesefactorsmayhavecontributedtoa

poorquestiondesign,ultimatelynotabletocapturetheintendedtheoreticalnatureofthe

study.

DemographicandTheoreticalModels

Models6,7,and8allcombinedemographiccharacteristicswiththeoreticalframework.

ThesemodelstestforthesignificancewhenaccountingforbothdemographicsandEconomic

theory,whichtomyknowledge,hasnotbeenpreviouslytestedinrelatedliterature.When

lookingstrictlyatdemographicsandHyperbolicDiscountinginModel6,thereissignificance

amongethnicityandclassyear.Thecoefficientfor𝑤ℎ𝑖𝑡𝑒is32.4%,significantatthe10%level,

andfor𝑎𝑠𝑖𝑎𝑛is72.8%,significantatthe1%level.Fortheanalysisonethnicity,thevariable

group𝑜𝑡ℎ𝑒𝑟wasusedasthebaseline.Interpretingtheseresults,𝑤ℎ𝑖𝑡𝑒hasincreasing

probabilityofaveragespendingby32.4%while𝑎𝑠𝑖𝑎𝑛hasincreasingprobabilityofaverage

spendingby72.8%.Theresultfor𝑗𝑢𝑛𝑖𝑜𝑟isalsosignificantatthe10%levelbutwitha

36

decreasingprobabilityby23.7%inrelationtoaveragespending.HyperbolicDiscountingresults

wereinsignificant,butpositivelycorrelatedwithaveragespending,asexpected.

Model7examinesdemographicsandthePermanentIncomeHypothesis.The

coefficientsfor𝑎𝑠𝑖𝑎𝑛and𝑗𝑢𝑛𝑖𝑜𝑟arepositiveandsignificantatthe1%levelwhilethe

PermanentIncomeHypothesisalsoshowspositivesignificanceatboththefirstandsecond

thresholds.Thevariable𝑎𝑠𝑖𝑎𝑛hasincreasingprobabilityofspendingby81.2%and𝑗𝑢𝑛𝑖𝑜𝑟has

decreasedprobabilityofspendingby25.9%.𝑝𝑖ℎ1issignificantatthe10%levelwhile𝑝𝑖ℎ2at

the1%level.Thoseinthethresholdof𝑝𝑖ℎ1haveincreasedprobabilitytospendby55.%and

thoseinthethresholdof𝑝𝑖ℎ2haveincreasedprobabilityofspendingatarateof45.5%.

Thefullmodel,aggregatingall11independentvariables,showssignificanceamongthe

samevariablesdiscussedinModel7.Again,𝑎𝑠𝑖𝑎𝑛and𝑗𝑢𝑛𝑖𝑜𝑟arepositivesignificant,thistime

withincreasedprobabilitytospendat80.6%anddecreasedprobabilitytospendat27%,

respectively.However,inthefullmodel,𝑗𝑢𝑛𝑖𝑜𝑟ispositivelysignificantatthe5%levelwhile

𝑎𝑠𝑖𝑎𝑛stillholdssignificanceat1%.𝑝𝑖ℎ1and𝑝𝑖ℎ2showpositivecoefficientsatthelevelof5%

significance,bothwithincreasedprobabilitiesof57%and44.3%.Aninterestingfindingtonote

isthatineachmodel,thevariables𝑎𝑠𝑖𝑎𝑛and𝑝𝑖ℎ2remainsignificant,confirmingthatthese

variablesarestronglycorrelatedwithaveragespending.

Savings

Similarregressionswerealsoruntoobserveanypatternsinsavingsthatmaybepresent

amongthesamplepopulation.Whiletherewasstillsignificancepresentamongcertain

variables,changesinsavinghabitsdidnotseemtobeaspresentasthatofspendinghabits.The

dependentvariable,𝑎𝑣𝑔_𝑠𝑎𝑣𝑒,wasmeasuredthroughthequestionthataskedabout

37

perceivedchangesinhabitsovertimeatSkidmore.Studentswereaskedtoreporttheir

perceptionsofchangesinbothspendingandsavingonascaleof0to100,with0indicatingno

changeatalland100indicatinglotsofchange.Resultsfromtheregressionanalysisareshown

intable5below.

Table5:Regressionresultsofdemographiccharacteristicsandtheoreticalframeworkinrelationtoaveragesavings

(1) (2) (3) (4) (5) (6) (7) (8) VARIABLES avg_save avg_save avg_save avg_save avg_save avg_save avg_save avg_save white 0.0128 0.179 0.0866 0.131 (0.160) (0.184) (0.179) (0.193) black 0.305* 0.341** 0.267 0.293* (0.157) (0.140) (0.184) (0.174) asian 0.166 0.141 0.188 0.181 (0.196) (0.221) (0.208) (0.212) female -0.0872 -0.0312 -0.0571 -0.0428 (0.130) (0.138) (0.146) (0.148) freshman 0.165 0.142 0.153 0.154 (0.162) (0.179) (0.181) (0.181) sophomore 0.234 0.189 0.257 0.230 (0.153) (0.173) (0.160) (0.171) junior 0.255* 0.193 0.212 0.176 (0.149) (0.187) (0.175) (0.191) pih1 0.332** 0.321** 0.321** (0.139) (0.145) (0.142) pih2 0.321** 0.304** 0.262 (0.151) (0.155) (0.173) pih3 0.143 0.105 0.115 (0.173) (0.187) (0.186) hd 0.238* 0.221 0.136 (0.134) (0.168) (0.214) Observations 55 55 55 55 55 55 55 55

Standarderrorsinparentheses.Reportedcoefficientsaremarginaleffects.*** p<0.01, ** p<0.05, * p<0.1

38

Thesamesetofspecificationswasutilizedtostudysavingsbehavior.Model1,focusing

onethnicity,showsthatthecoefficientfor𝑏𝑙𝑎𝑐𝑘ispositiveandsignificantatthe10%level.

Specifically,blackstudentsare30.5%morelikelytosavethanotherraces.Model3,observing

differencesamongclassyears,findsthatthecoefficientfor𝑗𝑢𝑛𝑖𝑜𝑟ispositiveandsignificantat

the10%level,withjuniors25.5%morelikelytosavethanotherclassyears.Model4

investigatesaveragesavingsversusthePermanentIncomeHypothesis,withboth𝑝𝑖ℎ1and

𝑝𝑖ℎ2resultinginpositiveandsignificantcoefficientsatthe5%level.InModel5,theresultfor

HyperbolicDiscountingispositiveandsignificantatthe10%level.Model6,lookingat

demographicsandHyperbolicDiscounting,findsignificancefor𝑏𝑙𝑎𝑐𝑘atthe5%levelwitha

coefficientof34.1%.Thisindicatesblacksare34.1%morelikelytosaveincomparisontoother

ethnicities.Model7analyzesdemographicsandthePermanentIncomeHypothesis,where

𝑝𝑖ℎ1and𝑝𝑖ℎ2arebothpositiveandsignificantatthe5%level.Studentsinthethresholdof

𝑝𝑖ℎ1are32.1%morelikelytosavewhilethoseinthethresholdof𝑝𝑖ℎ2are30.4%morelikely

tosave.Finally,thefullmodelresultsshowthatBlacksaremorelikelytosaveatarateof

29.3%,afindingthatissignificantatthe10%level.𝑝𝑖ℎ1isalsopositivesignificantatthe5%

levelwithacoefficientof32.1%.

Whencomparingtheresultsofspendingandsaving,therearemorestatistically

significantresultswithinthespendingmodelsversusthesavingsmodels.Thisisinlinewiththe

students’responses,where25.5%ofstudentsobservedlotsofchangeinspendingwhileonly

16.4%ofstudentsobservedlotsofchangesinsavinghabitsovertheirtimeatSkidmore.Some

patternshaveemergedwheninterpretingtheregressionresults.Thespendingmodelsdisplay

significanceofthevariable𝑗𝑢𝑛𝑖𝑜𝑟,whichisnegativeandsignificantineachmodelitisused.

39

Thisisindicativeofthefactthatjuniorsspendtheleastincomparisontootherclassyears.This

canbeconfirmedwhenlookingatthesavingsregressionresults,where𝑗𝑢𝑛𝑖𝑜𝑟ispositively

correlatedwithsavingsinmodel3.Thefindingcansuggestthatjuniorsspendlessonaverage

becausetheyhaveobservedmoreimplementationofsavingsmechanisms.

Similarly,thevariable𝑎𝑠𝑖𝑎𝑛isalsosignificantinallspendingregressionsthatitis

utilized,eachwithasignificanceatthe1%level.Thisdemographicisstronglycorrelatedwith

averagemonthlyspending.Anotherinterestingresulttonoteisthat𝑏𝑙𝑎𝑐𝑘issignificantin

models1,6,and8ofthesavingsmodels.ThissupportstheideathatBlacksaremorelikelyto

saveasopposedtostudentsofotherethnicities.Thereisalsonosignificanceofthevariable

𝑏𝑙𝑎𝑐𝑘withinthe8modelsofspending,whichfurtherconfirmsthefindings.

V.DISCUSSION

Muchofthepreviousliteraturefocusesondifferentvariablesthatmayinfluencethe

spendingandsavinghabitsofacollegestudent,butfewresearchersdevelopamodelthat

accountsforbothdemographicandtheoreticalvaluesaltogether.Whileage,genderand

ethnicityhaveallshowntolargelyinfluencefinancialbehaviorsofacollegestudent,littlehas

beendonetoexaminetheroleofcertaintheoreticalframeworksincludingthetheoriesof

HyperbolicDiscountingandthePermanentIncomeHypothesis.Thisstudyexaminesspending

andsavingbehaviorsamongcollegestudents,takingintoaccountvariablesofclassyear,

genderandethnicityinonemodelandthePermanentIncomeHypothesisandHyperbolic

Discountinginaseparatemodel.

40

Intermsofplanningaheadforfuturespending,femalesweremorelikelytoplanfor

spending.Whenobservingthenumberofresponsesthatreportedplanningforspendingoften,

16.4%offemalesselectedthatoptionascomparedto7.3%ofmales.Onaverage,femalesin

thisdatasetspend4.1%lessthanmales.Thisfindingisinlinewithotherliterature.Sabriand

MacDonald(2010)concludethatfemalesemploymoresavingmechanisms,whichincluded

planningspendingbudgets.Thismayrelatetothesocializationandupbringingoffemalesin

comparisontomales.Insomesocieties,malesaregiventhefreedomtobeginworkingata

youngeragewhereasfemalesareheldbackuntilacertainage(Furnham,1999).Asmalesbegin

toearnincomeearlier,theyhavemoredisposableincometospendasopposedtowomenwho

arereliantonfinancialsupportfromparentsorguardians.

ChenandVolpe(1998)findthatwomen,particularlythosewhoarerankedlower

amongtheirclassandwithlittleworkexperience,arelessknowledgeableonpersonalfinance

andthereforetendtodevelopwrongopinionsandexecuteincorrectfinancialdecisions.

However,thisstatementseemstobeaculturalbias.Toclaimthatanindividualhas“wrong

opinions”isajudgmentagainstcertainculturalnormsandstandardsthatmaynotholdtruein

everysocietalstructure.Perhapsmanyoftheseindividualswereenculturatedunderdifferent

mannerisms,wherespendingisrevered.Furnham’s(1999)studyreviewsmoneypathology,

whichshowsthatmalesreportgreaterconfidence,independence,risktakingandgambling

withmoneymatters.Thismayapplytofindingsfromthisstudy,explainingwhymaleswere

foundtospendmoreonaveragethanfemales.

Fromanethnicitystandpoint,Cumminsetal.(2009)claimthatAmericanstudentshave

cherishedtheuseofcreditmore.Thecredit-dependentsocietyisoftendiscussedasagrowing

41

problemwithintherealmofpersonalfinances.Relyingoncreditusagecanleadtofinancial

issuessuchasincurringlargeamountsofdebt(Cumminsetal.2009).Manycollegestudents

tendtobepresentorientedinthattheyarenotconcernedwithcoveringthecostsofcredit

cardspending,mostlyduetothefactthatatthisage,studentsaredependentonparentsand

guardianstopayoffthesebalances(Hayhoeetal.,2000).

Theregressionresultsofclassyearfromthisstudyfindthatfreshmanandsenior

studentsexhibithigherspendingbehaviorswhilesophomoresandjuniorsexhibitlessspending.

Thisfindingmaybeinlinewiththefactthatfirstyearstudentsareyoungerandthereforedo

notknowhowtohandlefinanceswell(Chen&Volpe,1998).Thereisalearningcurvethat

existswhenmakingthetransitionfrombeingcompletelyfinanciallydependenttoslowly

becomingfinanciallyindependent.ChenandVolpe(1998)believethatparticipantswithless

workexperience,manyofwhomareyounger,alsoareunabletomanagefinances.An

interestingfindingfromthisstudyisthefactthatfourthyearstudentsarealsospendingmore

onaverage.Thetransitionfromcollegetopostgraduationmayalsoprobemorespendingin

preparationandanticipationofahigherincome.

WithinthecontextofthePermanentIncomeHypothesis,researchhasfoundthat

youngerindividualsseemtobemoreoptimisticabouttheirfuturefinancialearnings,whichcan

beagoodindicationofthereasonwhytheyareabletotakeonmoredebtnow,expectingto

payitofflater(Norvilitisetal.,2006).Similarly,RobertsandJones(2001)findcompelling

evidenceforthePermanentIncomeHypothesisthroughtheirreviewoftheUCLA/American

CouncilonEducationAnnualSurvey.Threeoutoffourstudentssaidthatoneofthemain

reasonsforgoingtocollegewastomakemoremoney(Roberts&Jones,2001).

42

InananalysisoftheHyperbolicDiscountingFunction,DavidLaibson(1998)suggests

thatage,income,andwealthareallcorrelatedwithvariouslevelsofpatience.Inotherwords,

atdifferentstagesofthelifecycle,thereisacertainpreferenceofpresentorientationorfuture

orientation.Accountingforage,incomeandwealthattheuniversitylevel,Hyperbolic

Discountingmaynotbeasapplicable.Thisstudyfindsthat,ingeneral,mostpeopledonot

displayhabitsthatarereflectiveofHyperbolicDiscounting.About74.5%ofparticipantsopted

forthechoicetoreceive$20tomorrowover$15today.Thepopulationtendedtowardsalater,

higherrewardamount,indicatingfutureorientedthinking.

Thestudycomeswithinherentlimitationsthatcanbeaddressedinfuturestudies.First,

thereistheissueofendogeneitythathassurfacedafterconductingthisstudy.Itcannotbe

completelydeterminedwhethertheindependentvariablesarethevariableswiththe

confoundingeffectsonthedependentvariable.Theissue,alsoknownasreversecausality,

indicatesthatthereisaconstantfeedbacklooptoindicateiftheindependentvariableis

impactingthedependentvariable,orifthisrelationshipexistsintheopposingdirectionaswell.

Forinstance,thereisnowaytocompletelydeterminewhethertherelationshipstrictlyexistsin

thesensethataveragespendingisaffectedbyclassyear,gender,ethnicity,PIHandHD,orif

theoppositecouldhappen.Itispossiblethataveragespendingcanresultinchangesincertain

variablessuchasthePermanentIncomeHypothesisandHyperbolicDiscounting.The

theoreticalframeworkscanhaveaconfoundingorunexpectedeffectbasedonchangesin

averagespending.Tocorrectforthisissue,aninstrumentalvariablecanbeintroduced,which

doesnotcorrelatewiththeerrortermbutinsteadcorrelateswiththeindependentvariables.

43

Secondly,thesamplesizeissmall,withatotalof55responses.Asconveniencesampling

wasusedandnomonetaryincentivewasprovided,thismayhavedecreasedtheprobabilityof

gainingmoreparticipants.However,whileonly55studentsparticipated,itwasensuredthatan

equalrepresentationofclassyearswaspresentandthattherewererepresentationsofgender

andethnicityreflectiveoftheSkidmoreCollegepopulation.

Thirdly,theremayhavebeensomeselectionbiasthatinevitablyplayedintothisstudy’s

design.Participantswerecarefullyselectedviaconveniencesamplingatcommonspaces

aroundcampus,however,studentswereaskedtoparticipateinthestudybasedon

demographics.Sincedemographiccharacteristicsarealargefocusinthisstudy,itwas

importantthatsurveyparticipantscamefromavarietyofcombinationsinage,gender,and

ethnicity.Assuch,studentswerefirstaskedtheirclassyearandethnicitypriortorecruiting

themtoparticipateintheproposedstudy.Thoughselectionbiaswaspresent,itwasnecessary

toaccountfordemographics,asitwasalargefocusinthecontextofthisstudy.

VI.CONCLUSION

Thespendingandsavinghabitsofcollegestudentsprovideaninsightintothefinancial

mechanismsthatareutilizedbyyoungadults.Resultsfromthisstudyshowthatthereareclear

patternsthathaveemerged,whichareinconjunctionwithfindingscapturedbyother

researchers.Conclusiveevidenceispresentofthefactthatethnicbackgroundisastrong

determinantofcertainspendingpatterns.Asdeemedbyotherresearchers,namelyChenand

Volpe(1998)andPritchardetal.(1989),studentswhoareWhitetendtospendmorethan

otherdemographics.Notonlyisthisfurtherexemplifiedinmystudy,butitisalsofoundthat

44

Asianstudentsalsospendasignificantamountmorecomparedtootherethnicbackgrounds.In

anefforttofindaconnectiontoexistingeconomictheoriesofspending,therewassignificance

behindthedatacollectedforthePermanentIncomeHypothesis.Ifthisattitudetowards

spendingholdstrueandcontinuesonanupwardtrend,studentsmaystarttooverestimate

futureearnings,resultinginmorefinancialissuestodealwithatalatertime.

Theresultsofthisstudyprovidevariousimplicationsandpolicysuggestionsthatcan

contributetotheliteratureofthespendingandsavinghabitsofcollegestudents.Asitstands

today,thebreadthanddepthofstudiescanbeextendedtofurtheranalyzeothervariablesthat

mayhavesignificanteffectsonthefinancialhabitsofcollegestudents.Demographicfactors

suchasage,genderandethnicityseemtobemostcommonlystudiedwhilemanytheoretical

frameworksofconsumptionandsavingshavenot.Thefindingspertainingtoexistingeconomic

modelsofHyperbolicDiscountingandthePermanentIncomeHypothesiscanbeextendedover

longerperiodsoftime.Forinstance,ifastudywasabletofollowapopulationofstudentspre-

collegeandpost-college,thismaygiveabetterunderstandingofthechangesthatoccurwithin

thetimeframeofuniversityeducation.Thiswouldcomewithobservedperceptionspriorto

collegethatmayinfluencefinancialhabitsaswellaspracticesthatweredevelopedduringthis

period.

Thescopeofthisliteraturealsofailstotakeintoconsiderationhabitualspenders,and

howtheseindividualsmayaffecttheresults.Futurestudiesshouldaccountforcategorization

oftypesofspendersinordertocomparefindingsanddrawconclusionsaboutfinancial

practicesamongdifferentspenders.Asmorefocusisbeingdrawntowardsstudyingthe

financialhabitsofyoungadults,thereisincreasingdesiretounderstandtheissueandthemain

45

drivingforcesthatliebehindthedevelopmentoffinancialhabits.Itwouldbeinterestingto

notetheimpactofformaleducationonthespendingandsavinghabitsofcollegestudents.

Veryminimalresearchhasbeenconductedinthisparticularbranchofthetopic,anddoingso

couldshedlightonmethodsthatallowstudentstodevelopgoodfinancialhabits.Mostyoung

adultshavetheirfirstsenseoffinancialindependenceduringtheircollegeyears,andhavingno

priorknowledgeofexperiencemayhaveadverseeffectsinthefuture.

46

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http://www.collegedata.com/cs/data/college/college_pg01_tmpl.jhtml?schoolId=57