Tax Literacy and Tax Confidence in a US College Population: Relations to Accounting and Tax Education
Abstract
The ability to understand and properly plan for income taxes is crucial to successful financial planning. For young adults, recognizing the importance of taxes and how they work can foster confidence in handling tax matters and facilitate future financial success. While there are growing efforts to improve the financial knowledge of young adults, little is known about how they understand basic tax concepts and whether their levels of tax knowledge benefit from accounting or tax courses. In this study, we survey college students a) to gauge their levels of actual tax knowledge (tax literacy) and perceived tax knowledge (tax confidence) and b) to assess the role that accounting and tax education plays in those levels. The results reveal that students’ tax literacy is positively associated with their financial literacy and financial experience, and receiving tax education rather than accounting education increases both students’ tax literacy and confidence. In addition, students’ experience in financial transactions and tax return filing are positively associated with their tax confidence. Therefore, we recommend adding tax-related extracurricular activities or fundamental tax courses to college education to improve the tax literacy of young adults.