Academic journal article Family Relations

Financial Literacy of Young Adults: The Importance of Parental Socialization

Academic journal article Family Relations

Financial Literacy of Young Adults: The Importance of Parental Socialization

Article excerpt

This article tests a conceptual model of perceived parental influence on the financial literacy of young adults. Structural equation modeling was used to test whether (a) parents were perceived to influence young adults' financial knowledge, attitudes, and behaviors and (b) the degree to which young adults' financial attitudes mediated financial knowledge and perceived parental influence on young adults' financial behaviors. A sample consisting of 420 college students participated in the study. Findings by the College Student Financial Literacy Survey (CSFLS) indicated that perceived parental influence had a direct and moderately significant influence on financial attitude, did not have an effect on financial knowledge, and had an indirect and moderately significant influence on financial behavior, mediated through financial attitude.

Key Words: family resource management theory, financial attitudes, financial behavior, financial literacy, financial socialization, parental influence.

Financial issues are an important part of everyday life for individuals and families. The recent downturn in the economy provides numerous examples of how the lack of financial capability can impact family life. Negative economic trends such as an increasing unemployment rate (6.2% in September 2008 to 10% in December 2009), as well as increasing consumer debt (Economic Report of the President, 2010) demonstrate the need for families to better understand the economy and have the knowledge and skills needed to make important financial decisions. Family financial difficulties can come from insufficient financial knowledge and relate to the health of the individual and their family physically (Norvilitis, Szablicki, & Wilson, 2003), economically (Alhabeeb, 1999), and psychologically (John, 1999). Increased consumer debt and bankruptcies (Lyons & Hunt, 2003), a loss of savings and investments for retirement (Grable & Joo, 1998), and unwise economic decisions (Alien, Edwards, Hayhoe, & Leach, 2007) contribute to the financial burden of families.

Young adults need to have the basic knowledge and skills to make important personal financial decisions (Chen & Volpe, 1 998); unfortunately, few do. Many college students accumulate large amounts of debt that may contribute to academic failure (Parks- Yancy, DiTomaso, & Post, 2007) as well as future financial hardship (Roberts & Jones, 200 1 ). On the basis of surveys by the Consumer Federation of America (1993) and Jump$tart Coalition (Mandell, 2008), American high school and college students have inadequate financial knowledge. In the most recent JumpStart (Mandell) study, the average score of high school seniors was 48.3%. These scores have been declining since the first survey of 1997. This deficiency may lead to poor financial habits, influencing students' ability to become financially secure adults (Martin & Oliva, 2001). Many students acquire basic financial knowledge through trial and error, yet this knowledge may not be sufficient for them to become informed consumers (Lachance & ChoquetteBerneir, 2004; Norvilitis et al, 2003).

Teaching children to be financially literate has been mostly left to parents, yet studies have found that many parents do not have these skills themselves (Moschis, 1985). Lyons and Hunt (2003) found that young adults wanted to gain financial knowledge and become responsible consumers but that financial issues were not discussed much in their home. TIAA-CREF Institute's (2001) Youth and Money Survey found that 94% of young adults turned to their parents for financial education, yet parents were not the best financial educators for their children nor did parents think it was their responsibility to teach finances to their children. Thus, whether parents believe teaching financial skills to their children is their responsibility or not, children look to their parents for guidance.

Several studies have found evidence that individuals' attitudes toward finances are associated with their spending habits, financial practices, and behaviors (Hayhoe, Leach, & Turner, 1999; Xiao, Noring, & Anderson, 1995). …

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