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The influence of locus of control on student financial behavior.

Data on psychological influences of financial behaviors has not been well addressed in student populations, which is concerning given the high levels of general and financial stress experienced by college students. The findings of this study indicate that college students with an external locus of control exhibit the worst financial behaviors. Male students and students who grew up with wealthier parents exhibit better financial behaviors. Black and Hispanic students exhibit slightly worse financial behaviors than other students. Students who receive work study, do not receive military-based education assistance, never attend religious ceremonies, or feel that religion is not very important were more likely to report an external locus of control. Identification of financially at-risk students is imperative given the high dropout rates among college students. This study provides a profile of at-risk students that can be used in developing targeted financial services on college campuses.

Keywords: Credit, spending, financial behaviors, locus of control, personality


Students must master numerous skills during the transition to college life. Some of these skills include preparing meals, cleaning house, living without immediate family, increased course work, and managing social activities on top of having to manage an independent (or more independent) financial budget. New financial behaviors that must be learned range from tracking receipts and spending, making debt payments on time, planning for a large purchase, repaying student loans, to saving for retirement. With college tuition rates at an all-time high (FinAid, 2011) the financial stress of students also continues to rise and financial well-being is on the decline (Norvilitis, Merwin, Osberg, Roehling, Young, & Kamas, 2006). The current study focuses on the inability to make ends meet as a measure of college students' financial well-being. A unique contribution to the literature is determining how college students' locus of control orientation influences financial behaviors. Another distinctive contribution is developing a profile of students who are most at risk for negative financial behaviors.

Conceptual Framework and Related Literature

According to social learning theory, past and current experience influences what is expected in the future (Rotter, 1954). In the financial arena, we have seen that financial knowledge (an indicator of past and current experience) is a strong predictor of future behavior where people with low financial knowledge exhibit lower levels of net worth and a general lack of preparedness for retirement (Lusardi & Mitchell, 2011). Another measure of past behavior not used extensively in financial studies is personality. This study incorporates the personality construct of locus of control in the prediction of college student financial behaviors.

Locus of Control

Locus of control is the degree to which individuals believe they are in control of their own future. Individuals who are internally driven believe that future events are determined by their own behavior, whereas individuals who are externally driven believe that future events are the result of luck, chance, fate, or due to the control of others. Individuals with a strong intemal locus of control are more likely to (a) be more alert to their environment, (b) take steps to improve their environment, (c) place greater value on skill and be more concerned with their ability, and (d) be more resistant to subtle attempts to influence them (Rotter, 1966).

There are a few notable studies that have explored the connection between locus of control and financial behaviors. Joo, Grable, and Bagwell (2003) found that locus of control, among other factors, has a significant relationship with college students' attitude toward credit with those with higher external locus of control having more positive attitudes toward credit. Earlier researchers also found that individuals with an external locus of control carry higher credit card debt balances (Tokunaga, 1993; Davies & Lea, 1995). In general, people who do not take ownership for their behaviors exhibit poor financial planning behaviors (Busseri, Lefcourt, & Kerton, 1998). Individuals need to feel in control of their financial destiny (i.e., have an internal locus of control) in order to take full advantage of their knowledge or financial resources (Perry & Morris, 2005).

Past Experience and Current Status

Literature regarding non-psychological predictors of financial behaviors is ample (e.g., financial knowledge, educational status, Gorin, & Hogarth, 2009). These items, when framed within social learning theory, can be conceptualized as measures of past experience and current status.

One of the most common findings in financial behavior research is that higher levels of financial knowledge are associated with more responsible financial management behavior as measured by better credit management, cash flow management, saving, and investing behaviors (Hilgert, Hogarth, & Beverly, 2003; Perry & Morris, 2005; Bell et al., 2009). It is also interesting to note that women tend to report a lower level of financial knowledge when compared to males (Chen& Volpe, 2002).

According to Perry and Morris (2005), higher income levels are associated with more responsible financial management behavior. In regards to the role of ethnicity in financial behaviors, Grable and Joo (2006) found that racial differences in financial behavior existed when all other factors were held constant; African-American students exhibited less desirable financial behaviors and higher credit card balances than non-Hispanic White students.

Based on social learning theory and previous literature, it is reasonable to expect that college students with an internal locus of control, greater levels of past experience, and higher socioeconomic status will exhibit better financial behaviors. If this is true, identifying which students have an external locus of control is important in order to develop specialized financial services for this group of externally driven students.


Data for the study was collected from two cohorts of the National Longitudinal Survey of Youth (NLSY). Parent data was retrieved from the NLSY 1979-2008 cohort. This sample is a nationally representative sample of 12,686 young men and women who were interviewed on an annual basis from 1979 through 1994 and are currently interviewed on a biennial basis. Respondent (i.e., child) data was retrieved from the NLSY 1986-2008 cohort. This data consists of children born to NLSY 1979-2008 female respondents. The researchers were interested in the financial behaviors of college students, therefore the final sample was limited to children of the NLSY 1986-2008 who were enrolled in grade 13 or beyond (n=937).

Dependent Variable

The outcome variable of financial behaviors of college students was measured by a summation of a three-item scale based on the following questions: (a) How often do you/ does your household put off buying something you need-such as food, clothing, medical care, or housing-because you don't have money?; (b) During the past 12 months, how much difficulty did you/did your household have paying bills?; and (e) Thinking about the end of each month over the past 12 months, how much money did you/did your household have left over? The first 2 items allowed for 5 responses and the last item allowed for 4 responses, resulting in a possible range of 3 to 14. The responses to the questions were coded so that better financial practices were represented by a higher score.

Independent Variables

Locus of Control. Locus of control was measured by responses to questions from the Pearlin Mastery scale. This seven item scale developed by Pearlin, Lieberman, Menaghan, and Mullan (1981) is a measure of self-concept and references the extent to which individuals perceive themselves as having control of forces that significantly impact their lives. Each item is a statement regarding the respondent's self-perception and allows four response categories: (a) strongly disagree, (b) disagree, (c) agree, and (d) strongly agree. As shown in Table 1, two items were oriented toward internal locus of control. These items were recoded so all items were oriented toward external locus of control. The total scale scores range from 7 to 28 with higher scores representing a greater tendency for external locus of control attitude.

Past Experience and Current Status. Parental income was measured on a continuous basis, taken from the most recent administration of the NLSY 1979-2008 cohort data. Using data from the most recent administration of the NLSY 1986-2008 cohort, students current educational level and annual income were measured on a continuous basis, while gender was coded 1 for male and 0 for female. The NLSY 1986-2008 cohort data categorizes race into just three categories of (a) non-Black, non-Hispanic; (b) Black; and (c) Hispanic.


Descriptive Statistics

The mean financial behavior score was 11 with a range of 1 to 14 meaning respondents, on average, felt like they had good financial behaviors. The mean locus of control score was 12 with a range of 7 to 22, meaning respondents were more likely to have an internal locus of control than an external locus of control. In 2008, median parental income was $66,000 (range = $0-$454,737). Finally, the mean year of school for students was 14.5 years (equivalent to sophomore and junior years in college) and respondents reported a median income of $8,500 per year (range = $50 - $119,116). The sample was fairly evenly distributed among males (43%) and females (57%). Blacks represented 21% of the sample, Hispanics represented 29%, and non-Black, non-Hispanic represented the remaining 50% of the sample. See Table 2 for full descriptive statistics.

Regression Results

An ordinary least squares regression was used to predict the financial behaviors of college students. The results indicate that respondents with a high external locus of control were statistically more likely to report a lower degree of financial behaviors and were the most important variable in the model based on standardized betas (I) = -0.20). Specifically, as external locus of control increased by one point, respondents' financial behavior score decreased by . 16 points (b = -0.16, p < .001). For every $1,000 increment increase in parental income, current financial behavior scores were expected to increase by .01 points (b = 0.01, p < .001) and were the second most important variable in the model (I) = 0.18). Men were more likely to report better financial behaviors than females (b = 0.48, p < .001) and non-Black, non-Hispanic respondents were more likely to report better financial behaviors than Black (b = -0.55, p < .01) or Hispanic (b = -0.78, p < .001) respondents. Although the overall variance explained may seem small, this study was able to explain 13% of the variation in college student financial behavior. See Table 3 for full regression results.

Locus of Control

Not only was external locus of control a significant predictor of poor financial behaviors, it was the most important variable to the model. Since externally focused individuals are unlikely to voluntarily attend self-help presentations, a profile of who is likely to be externally focused are needed so targeted services can be provided (and possibly mandated) in an attempt to improve financial behaviors of college students. Consequently, follow-up tests were used with variables hypothesized to influence locus of control.

First, an ANOVA test was conducted with locus of control and the demographic variables used in the regression. There were no statistically significant differences in locus of control scores based on parental income, year in school, gender, or race. There were, however, statistically significant results in locus of control scores based on respondent income (F = 12.39,p < .001).

Next, individual t-tests were conducted with variables not used in the regression analysis. Identifying students who receive financial aid is relatively easy with the help of administrators, so an attempt was made to determine if financial aid status is associated with locus of control orientation. Students who receive work study were slightly more likely to hold an external locus of control (M = 12.39, SD = 2.45) compared to students who did not receive work study (M = 11.81, SD = 3.01), t (102) = - 1.78, p <. 10. Students who received veteran's benefits or military education assistance were more likely to hold an internal locus of control (M = 10.17, SD = 2.99; M = 10.62, SD = 2.99, respectively), compared to students without these benefits (M = 11.95, SD = 2.93; M = 12.18, SD = 2.93, respectively), t (526) = 2.84, p < .01; t (524) = 1.99, p < .05, respectively.

Two additional t-tests were conducted to determine if religious attendance and beliefs have an influence on locus of control to help develop a profile of individuals who hold an external locus of control. As with identifying which students receive financial aid, it is relatively easy to assess which students are attending religious social groups and other events. Somewhat unexpectedly, students who never attend religious ceremonies had a slightly greater tendency to display an external locus of control (M = 12.22, SD = 3.28) compared to students who attend church at least a few times each year (M = 11.69, SD = 2.88), t (221) = -1.96, p < .10 and students who reported to be "very religious" had a higher internal locus of control (M = 11.40, SD = 2.95) compared to those who reported that religion was fairly important to not at all important (M = 12.17, SD = 2.92), t (934) = 4.01,p < .001.

Conclusion and Implications

It was hypothesized that locus of control, past experience, and current socioeconomic status would influence the financial behaviors of college students. Findings indicate that all of the hypothesized concepts influence financial behaviors to some degree. Namely, students with an external locus of control exhibit worse financial behaviors whereas male students and students who grew up with wealthier parents exhibit better financial behaviors. Since the respondents have not reached their full socioeconomic potential, it is not surprising that this concept did not have an overwhelming amount of statistical significance in predicting financial behaviors, nor did year in school.


Before implications are discussed, it is important to consider the limitations of this study. First, other data sets may allow for alternative options in measuring the outcome variable and theoretical concepts of past and current experience. Some of the predictors of financial behaviors used in prior research, such as financial knowledge, were not available in the NLSY data set. For purposes of this study, financial behavior was measured by the following three items where higher scores indicated more positive financial behaviors: (a) How often do you put off buying something you need-such as food, clothing, medical care, or housing-because you don't have money?; (b) During the past 12 months, how much difficulty did you have paying bills?; and (c) Thinking about the end of each month over the past 12 months, how much money did you have left over? There are other characteristics that could represent equally important financial behaviors, but are not available in the NSLY data set. The focus of this study was college students who naturally have less experience than older cohorts. Financial behavior questions designed specifically for college students may have resulted in different results. Nevertheless, the NLSY data set appears to be an appropriate data set to measure parental and college student experiences and behaviors.


The limitations of this study are outweighed by the new perspective it brings to the literature. Data on psychological influences of financial behaviors has not been well addressed in the literature. The findings of this study indicate that in addition to variables with a known association with financial behaviors of young adults (i.e., ethnicity, gender, parent socioeconomic status), having an external locus of control is also negatively associated with healthy financial behaviors. Financial educators can use this knowledge as another means to identify financially at-risk students. Follow-up t-tests indicate that students who receive work study, do not receive veterans' or other military education assistance, never attend religious ceremonies, or feel that religion is not very important were more likely to display external locus of control beliefs. Of these students, it may be easiest to target students who receive work study or do not receive veterans' or other military education assistance since this information is readily available from university financial aid offices. Sending electronic or paper mailings to these students with money management tips may encourage them to seek assistance with their financial situation. Alternatively, it would be wise for university administration to require students who receive work study to attend a financial education seminar. Targeting religious groups does not appear to be a successful way to reach students with an external locus of control and finding students who do not have a strong religious affiliation or belief system could be a challenging task.

The primary conclusion from this study is that students who display an external locus of control are likely to have difficulties with their personal financial situation. Rather than offering voluntary financial counseling services to the general student population in hopes that students who really need help will seek it, it may be more beneficial to target students who naturally would not seek help on their own (i.e., those with an external locus of control). Helping students understand that they do have control of their financial future is a great first step in building a strong financial foundation upon graduation.


Bell, C. J., Gorin, D. R., & Hogarth, J. M. (2009). Does financial education affect soldiers 'financial behavior. Networks Financial Institute Working Paper 2009-WP-08. Retrieved from http://ssm.eom/ abstract=-1445635.

Chen, H., & Volpe, R. E (2002). Gender differences in personal financial literacy among college students. Financial Services Review, 11, 289-307.

Davies, E., & Lea, S. E. G. (1995). Student attitudes to debt. Journal of Economic Psychology, 16, 663-679.

FinAid (2011). The SmartStudent guide to financial aid. Retrieved from

Grable, J. E., & Joo, S. H. (2006). Student racial differences in credit card debt and financial behaviors and stress. College Student Journal, 40(2), 400-408.

Hilgert, M. A., & Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The connection between knowledge and behavior. Federal Reserve Bulletin, 89(7), 309-323.

Joo, S. H., Grable, J. E., & Bagwell, D. C. (2003). Credit card attitudes and behaviors of college students. College Student Journal, 37(3), 405-419.

Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and planning: Implications for retirement wellbeing. NBER Working Paper, 17078, Retrieved from http://

Norvilitis, J. M., Merwin, M. M., Osbcrg, T. M., Roehling, P. V., Young, P., & Kamas, M. M. (2006). Personality factors, money attitudes, financial knowledge and credit card debt in college students. Journal of Applied Social Psychology, 36, 1395-1413

Pearlin, L., Lieberman, M., Menaghan, E., & Mullah, J. (1981). The stress process. Journal of Health and Social Behavior, 22, 337-356.

Perry, V. G., & Morris, M. D. (2005). Who is in control? The role of self-perception, knowledge, and income in explaining consumer financial behavior. The Journal of Consumer Affairs, 39(2), 299-313.

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Kansas State University


University of Central Oklahoma


Kansas State University
Table 1. Locus of Control Scale Items

External Locus of            Internal Locus of
Control                      Control

There is really no way       I can do anything I set
I can solve some of my       my mind to.

I am being pushed around     What happens to me in
in my life.                  the future depends on me.

I am helpless in dealing
with the problems of life.

There is little that I can
do to change the import
ant things in my life.

I have little control over
the things that happen
to me.

Table 2. Descriptive Statistics (N-937)


Dependent Variable

  Financial behavior scale       Mean = 11.09
  score                          (range = 3-14)

Independent Variables

  Locus of control scale score   Mean = 11.78
  (high score = external locus   (range = 7-22)
  of control)

  Parent family income in        Median =
  2008 (1)                       $66,000 (range =

  Year in school                 Mean = 14.54
                                 (range = 13-20)

  Respondent income              Median = $8,500
                                 (range = $50-

  Male (1)                       42.69%

  Female (0)                     57.31

  Non-Black, non-Hispanic        49.68%

  Black                          21.34%

  Hispanic                       29.09%

(1) Missing parental income scores were replaced with the
median parent income in 2008. Statistically significant
results of the regression were not affected by replacing the
score with the median versus further limiting the sample
size to those who reported parent income.

Table 3. OLS Regression Results
Predicting Positive Financial
Behavior (N=937)

Variable                          b           [beta]

Locus of control scale score      -0.16 ***   -0.20
(high score = external locus of

Parent family income in 2008      0.01 ***    0.18
(divided by 1,000)

Year in school                    NS

Respondent income                 NS

Males                             0.48 ***    0.10

Non-Black, non-Hispanic

Black                             -0.55 **    -0.10

Hispanic                          -0.78 ***   -0.16

[R.sup.2] = 0.13

** = p < .01; *** = p < .001
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Author:Britt, Sonya; Cumbie, Julie A.; Bell, Mary M.
Publication:College Student Journal
Article Type:Report
Geographic Code:1USA
Date:Mar 1, 2013
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