Academic journal article Journal of Financial Counseling and Planning

Childhood Financial Socialization and Young Adults' Financial Management

Academic journal article Journal of Financial Counseling and Planning

Childhood Financial Socialization and Young Adults' Financial Management

Article excerpt

The current study investigates the association between childhood financial socialization and financial practices and asset choices of young adults, using a nationally representative dataset. Results revealed that childhood financial socialization experiences were positively associated with the beneficial financial practices and financial asset ownership of respondents in young adulthood. Financial outcomes were found to vary by types of parental socialization. Respondents who owned bank accounts and had their spending monitored by parents in childhood were more likely to own financial assets and had more positive attitudes toward personal finance as young adults.

Key Words: asset ownership, financial competence, parental financial socialization, transitioning adulthood


Researchers, educators and policymakers are working on strategies to improve the financial literacy of young Americans who often enter adulthood with a limited knowledge of credit, insurance, and other financial products, and have little experience managing their personal finances (Danes & Hira, 1987; Lusardi, Mitchell, & Curto, 2010). The effect of factors, such as employment, financial education, and socioeconomic status, on the financial practices of transitioning adults, have been extensively studied (Asinof & Chaker, 2002; Baek & Hong, 2004; Baum & O'Malley, 2003; Joo, Grable, & Bagwell, 2001; Lyons, 2004; Shenk, 1997), and socialization theories have also been applied to financial socialization. However, limited information is available about the process of financial socialization. A few studies determined different effects of socialization domains on the financial attitudes and behaviors of individuals (Jorgensen & Salva, 2010; Kim, LaTaillade, & Kim, 2011). Financial socialization is how these young adults develop their financial values, attitudes and behaviors that foster their financial independence and subsequently facilitate their successful transition into adulthood. Several previous studies have relied on surveys of college students and have focused on the career and educational consequences of financial socialization of young adults (Asinof & Chaker, 2002; Jorgensen & Salva, 2010; Lyons, 2004; Shenk, 1997). This paper extends the literature by using a nationally representative dataset, collected over two years, of young adults transitioning to adulthood to empirically examine the various factors leading to financial socialization and its related financial outcomes for young adults. The current study includes the general population of young adults between 18 and 21 who may or may not be attending college. In addition, previous literature has primarily focused on credit card uses of college students; we add to these findings by also examining the financial capabilities concerning asset ownership and the savings characteristics of young adults.

The purpose of the current study was to examine the predictors of financial attitudes and practices of the youth who are transitioning into adulthood (ages 18 to 21) using data from the Transition to Adult 2005 Supplement, the Panel Study of Income Dynamics (PSID, 2005) and the Child Development Supplement II (CDS, 2002/2003). This paper reports how individual and family variables, drawn from the two PSID supplements, influence the financial attitudes and practices of young adults. Specifically, this paper reports the extent to which the family processes, such as parental warmth, parental financial monitoring and parental financial communication, and individual and parent factors affect their financial behaviors (asset ownership, debt, and financial responsibility) and financial attitudes (financial expectations, financial anxiety, and perceptions of own financial management).

Review of Literature

Financial literacy and competence among young adults in the United States has received much attention in recent years. In their transition to adulthood, young adults face increasingly complex financial transactions such as managing credit card debt, obtaining and paying car loans, obtaining and beginning to repay student loans, managing health care and insurance costs, and savings. …

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