Effects of Recession on Financial Behaviour of Students

21K School · Feb 8, 2023 · 4 min read

Effects of Recession on Financial Behaviour of Students

Despite the many drawbacks, the current economic crisis has provided one benefit to a specific group of researchers: the opportunity to observe the impact of the recession on the financial behaviour of students. The results, which demonstrate an increase in financially risky activities and a decrease in perceived well-being, have been made public. The researchers were doing a long-term study of college students’ perspectives on money when the recession suddenly provided a “natural laboratory” for gauging the students’ reactions to challenging circumstances. Over 2,000 first-year University of Arizona students are being tracked throughout their time as undergraduates as part of the broader study titled “Arizona Pathways to Life Success for University Students.” Arizona Pathways to Life Success for University Students was initiated just before the economic downturn. APLUS examines how college students think about and handle their finances over time. This study aims to establish a causal relationship between these actions and the students’ future happiness and prosperity.


Test Sample of the Experiment

  • In 2007, while most of the sample population was just starting college, the first report was published. The researchers had intended to gather additional data during the student’s final year, but in light of the economic downturn, they opted to contact some of the students earlier. Throughout February and April of 2009, a follow-up survey was administered to nearly 750 of the original sample’s students.
  • Recession’s effects were felt most strongly by pupils from low-income backgrounds, racial and ethnic minorities, and women. Students expressed concern in the survey’s open-ended responses about rising tuition and a lack of elective offerings due to the university’s budget crisis. They reported cutting back on entertainment and meal spending.

Findings of the Experiment: Impact of Recession

  • After comparing the debt levels of the initial sample and the follow-up sample, the researchers discovered that the follow-up sample had more student debt. As opposed to the previous survey, which found that the average student credit card load was $95, this new one found that the average student credit card amount was $152. There was an increase from $1,041 to $1,932 in the average amount of student loan debt. Even though increasing amounts of student loan debt are expected as students advance through college, the researchers discovered that the disparity between the debt levels of white and minority students has worsened.
  • There was a little uptick in test scores for students’ financial literacy between the first and follow-up samples; the second group averaged 66.7% correct answers, while the first group averaged 66.2%. When asked to evaluate their financial literacy, however, students gave themselves lower marks than the original survey’s total sample. According to Soyeon Shim, the study’s primary investigator and a family and consumer sciences professor at the University of Arizona, students’ lack of confidence may influence their future financial decisions. She promised that this would be monitored in subsequent research phases.
  • The overall budgeting and saving rates reported by the second sample were lower than those of the first. Those who felt the most impact from the recession also reported tightening their budgets and cutting back on savings, indicating that they simply had less disposable income to work with.
  • Most students surveyed said they had turned to “normal” financial coping measures, such as reducing frivolous spending. As an illustration, 31% claimed they reduced spending on communication. Specifically, the gap between students from higher and middle-income backgrounds concerning the use of such tactics shrank as higher-income students made greater use of them.
  • Dropping classes, paying medical attention, and using one credit card to pay off another were all “risky” coping mechanisms that significantly increased, even though only a tiny percentage of students engaged in these practices.
  • The follow-up sample of students reported decreased levels of physical, financial, social, and intellectual well-being. Ms Shim noted that the researchers expected students to say marginally more significant well-being as sophomores, even if they cannot be sure how much of this reduction was connected to the recession.

Remarks from the Researchers: Effects of Recession on Students

Co-principal investigator & Assistant research scientist Joyce Serido speculated that students’ risky behaviour during college would become ingrained habits that would follow them throughout their careers. This means that the decisions taken throughout college may have far-reaching consequences. Ms Shim argues that teachers are responsible for guiding their students toward more sustainable financial decisions.This includes taking out a manageable loan to cover tuition costs rather than abandoning their education altogether.

Inference on the Effects of Recession

The study of student spending during a recession revealed both sound and adverse effects on students’ academic performance. Reviewing the available data, it becomes clear that the negative consequences are more powerful, leading to a decline in educational performance on a national scale at times of crisis. Particularly concerning is the reduction in students’ ability to make sound financial decisions. Reduced tuition, cash transfers with conditions, and publicity campaigns are all strategies that have proven successful in countries that have weathered economic downturns better than others. Granting federal funds to schools, which assist pay for expenditures and consequently sustain quality instruction, is another helpful step for safeguarding educational outcomes.


In the fall of 2010, the researchers wanted to poll all students again, paying particular attention to their plans after graduation. Those findings were made public in the early months of 2011. Authors of a new paper titled “Wave 1.5 Economic Impact Study: Financial Well-Being, Coping Behaviors, and Trust Among Young Adults” note that nearly all students in the follow-up group reported that the recession had harmed their families’ finances and money management. For more such exciting updates, follow 21K School.

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