Academic journal article The Journal of Consumer Affairs

Financial Identity-Processing Styles among Young Adults: A Longitudinal Study of Socialization Factors and Consequences for Financial Capabilities

Academic journal article The Journal of Consumer Affairs

Financial Identity-Processing Styles among Young Adults: A Longitudinal Study of Socialization Factors and Consequences for Financial Capabilities

Article excerpt

Abstract

Using identity theory as a basis for conceptualizing and clustering the financial identity-processing styles of young adults, this study examines antecedent socialization factors and consequent financial capabilities associated with those clusters. Using two-timed longitudinal surveys (N = 1,511) of college students, we proposed and confirmed three financial identity-processing styles, resembling Berzonsky's three identity-processing styles (i.e., informational, normative, and diffused-avoidant). Labeled Pathfinders, Followers and Drifters: these three clusters were profiled with respect to their socialization factors and financial capabilities. We concluded that identity theory can be applied to the financial domain, financial identity-processing styles are influenced by socialization factors (e.g., parents, learning), and these styles have consequences for individuals' financial capabilities (financial knowledge, self-efficacy, attitudes, and behaviors). Insights from this study may inform the design and implementation of effective financial parenting, financial education and intervention programs, and identify those young adults who may benefit from education and intervention efforts.

Significant life changes occur during the late teens and early 20s, the period of life known as young adulthood, when most young adults leave home permanently, many to enter college and others to join the civilian workforce or the military. Nearly all who leave, no matter the path they take, begin to take on more personal responsibility. During this process, answering the question "Who am I?" which begins to concern individuals during adolescence, takes on new meaning. Identity--having a clear sense of who you are--helps a young adult navigate the transitional period and engage in more positive behaviors (Schwartz et al. 2011).

A well-developed sense of identity is important to a society and to individuals. Young people who do not know who they are and where they are going are less likely to capitalize on the opportunities presented by "the increasingly unstructured nature of Western societies" (Schwartz et al. 2011, p. 840). Furthermore, young adults with a less clear sense of their identity may experience social, personal and psychological stress (e.g., anxiety, depression) during the transitional period (C6t6 and Bynner 2008; Cote and Levine 2002). To better understand the role of identity in various aspects of life, identity researchers have expanded the study of identity formation in life domains such as religion, gender roles, occupation and relational choices (Schwartz 2001). To our knowledge very few studies have examined identity formation in the financial domain, however, despite the critical role personal finance plays in daily life. Only recently, Barber et al. (2011) developed financial identity measures and reported that achieved financial identity was a predictor of positive financial behavior and efficacy among Australian and US college students. Researchers should find the topic of positive financial identity development to be of particular importance because financial independence is a key marker of successful transition to adulthood (Danziger and Rather 2010).

In this study, we accept the notion that financial independence and identity formation are developmental challenges associated with the transition to adulthood. We also agree that, amid continuing global economic uncertainty, many young adults today are finding the process of acquiring financial independence challenging and protracted (Settersten and Ray 2010). We further believe that a well-established financial identity will facilitate the development of young adults' positive financial attitude and behaviors within a society, while the lack of a sense of clear financial identity may lead to the development of risky financial behaviors. As has been shown, responsible financial attitudes and behaviors predict several indicators of successful adjustment in college students, including academic success, psychological health and psychological well-being (Shim et al. …

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