Finance and budgeting principles

Finance and Budgeting

The overall impact of financial literacy is much more important now in times of global recession, and this is not only the case for the economics experts or household expenses, but also for the student community which makes up a large part of every nation. Schools, banks, student loan communities and boards of educations everywhere have realized the importance of finance administration and management amongst students as an integral part of the entire education process.

It is important at this point to understand what the term "financially literate" means exactly. Numerous researchers have defined the term, for example Mason and Wilson (2000) in their study explained that financial literacy was a "meaning-making process" and incorporated the utilization of one's abilities, assets and information along with their common sense, decision making abilities and management skills to result in desirable financial returns. In another study, Vitt and colleagues (2000) define financial literacy as: "the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy" (p. xii).

The National Council on Economic Education (2005) conducted a study where they focused on the financial management strategies and priorities of different states within America. They found that a total of 38 states had incorporated a thorough and comprehensive finance management structures within their educational institutes, especially colleges so that the students could not only understand the impact of their financial spending but also learn to manage their finances intelligently in the long-term. Furthermore, they also found that out of these 38 states, 21 states were very strict in monitoring the proper application of the financial management principles.

The overall impact of financial management is not only on the finances of the students but also their overall academic performance. The higher the overall expenses of a student, the higher will be his inclination to find work and invest more hours in earning a respectable wage as opposed to studying. Lyons (2003) in his study found that the overall ratio for students who felt that their academic performance was affected by financial mismanagement was 1:3. In contrast to that, Bodvarsson and Walker (2004) in their study asserted that, under controlled conditions, the likelihood of failure was more common amongst students who received some form of help form their parents or committees then those who were earning their finance personally.