The Study on Financial Aid and its Effects on the Financial Literacy of Undergraduates in

Malaysian Universities.

Muhammad Suhail bin Samsudin 1014278

AIKOL

International Islamic University Malaysia

LE 4000

English for Academic Writing

Section 1

The Study on Financial Aid and its Effects on the Financial Literacy of Undergraduates in

Malaysian Universities.

One of the biggest changes in a student’s life begins when he/she leaves high school and

has to shoulder the burden of financing their own spending for tertiary education. Low-income

adult learners often struggle to finance their college expenses, having to contend with competing

responsibilities involving work, family, and school.. This is especially true for the people from

the lower-income group as without scholarships, the likelihood of being able to obtain a tertiary

education is significantly lessened.

It is important to understand that financial aid can come in two ways; loans and

scholarships. Loans are grants that require a student to repay the amount granted, where

scholarships are awarded based on various criteria that match the values and purposes of the

founder of the award or donor (Peterson, Kay 2008). Both are sources of monetary aid and thus

are categorized together as “financial aid”.

As times have changed, so too has the focus on expenditure by students. In the past,

students’ main focus on spending has been on their stationeries, clothes and other similar

products. In the modern era, students needs have drastically increased with the need for

computers and mobile gadgets for effective completion of assignments and to a certain extent,

vehicles for increased mobility. Different groups of students spend their money differently,

especially according to gender norms. Females tend to spend more money on clothes, while men

spend more money on entertainment and eating out (Wang and Xiao, 2009). According to

Norvilitis et al. (2006), women are more likely to have a budget then men, but women more

frequently accumulate higher amount credit card debt and total debt (Micomonaco, 2003).

It is stated by Leach, Hayhoe & Turner (1999), that early exposure to financial

management is pertinent to the younger generation as they have obligations such as paying back

the various study loans, even before graduation. The educational background of each student

seems to have an effect on whether or not students are capable of being financially aware. Chen

& Volpe (1998) find that non-business majors are more likely to be less knowledgeable about

personal finance than business majors particularly in finance and accounting. Given the

increasing number of students who obtain some form of financial aid, it is thus important to

determine whether students on scholarship have different spending patterns, and thus, different

forms of financial management compared to their peers who do not receive financial aid.

It is revealed in literature that different classes of students spend their money in different

ways, particularly in terms of gender. These include Chen & Volpe (1998), Danes & Haberman

(2007), Manton et al. (2006), Micomonaco (2003), Peng et al. (2007) and Volpe et al. (1996),

who found out that male scored better in the financial knowledge compared to the female.

However, Ibrahim et al. (2009) found out that there is no difference between the level of

financial knowledge between males and females students. It is theorized here that gender plays

no part in the difference in spending habits.

Additionally, the course of a students study in university are an indicator for their

knowledge to personal financial literacy. There is a relationship between financial courses taken

in college and students’ knowledge of investment (Peng, Bartholomae, Fox, & Cravener, 2007).

According to Beal and Delpachitra (2003), business majors are more knowledgeable about

personal finance than non-business majors. As university students accumulate higher levels of

personal financial responsibility, their interest in personal finances heightens and learning takes

place. It is also more likely that college age students are experiencing more challenges with

finances as they pay bills, use credit cards, workings, savings, budgeting monthly expenses, and

manage student debt. As university students face more financial challenges in conjunction with

relevant instruction, the learning process may be enhanced (Peng et al., 2007). The researcher

found that a business student is more careful in their spending habits than non business student.

Subsequently, in another research it is found that the attitudes of young adults have a

pivotal part in sustainability perspectives of their finance and is a significant variable in financial

prudence (Pillai et al., 2010). If students know how to manage their finances, there will be less

default on student debt (Cummins et al., 2009) In addition, students with high financial literacy

enable them to decreases their chances of bankruptcy, receiving government assistance (Huston

et al., 2003) and making poor consumer decision (Hayhoe, Leach, Turner, Bruin, & Lawrence,

2000).

Furthermore, financial education plays a significant role in how students make use of

their money and their credit. There is a correlation between the amount of credit card information

learned from parents and student credit card use. The amount of credit card information and

education given by parents is greater than any other socialization agent. Mothers and fathers are

extremely influential on college students’ money beliefs and attitudes. Students who had a lower

credit card balance were more likely to be educated by their parents about proper spending and

credit debt (Pinto, Parente, and Mansfield 2005). Graduates leave college with an average of

$20,402 in education and credit debt (Robb and Sharpe 2009).

A survey on the spending habits of young people in Guangzhou, Hong Kong and Macau

found that spend it mostly on entertainment, clothes and accessories. Hong Kong youths would

borrow from friends or take up part-time work, in order to earn enough money to spend. The

survey found that the more pocket money an average Hong Kong youth is given; the chances are

that the proportion spent on enjoyment will be greater. in addition, nearly 20% of Hong Kong

youths say they "spend all they have". When they run out of pocket money, they either borrow

from friends or take up part-time work. (MSE, 2004)

As can be seen, a lot of research has been done on the different classes of students and

how it affects their spending habits including gender differences, educational differences and the

difference in attitude but there has been little empirical study done on how financial aid given to

students has an impact on an undergraduate’s financial literacy. Does financial aid change how a

student manages his/her spending?

The purpose of this study is thus, to ascertain the effects of financial aid on the fiscal or

financial literacy of an undergraduate student in a Malaysian university. It is theorized, that

because of the availability of cash to an undergraduate who receives financial aid, he/she is less

frugal in terms of spending.

The researcher wishes to answer the following questions:

1) Is there a significant relationship between the enjoyment of financial aid and the spending

habits or financial literacy of a student?

2) What are the reasons for said relationship if there is a correlation?