Academic journal article Journal of Financial Counseling and Planning

Differences in Bank Account Ownership among White, Black, and Latino Children and Young Adults

Academic journal article Journal of Financial Counseling and Planning

Differences in Bank Account Ownership among White, Black, and Latino Children and Young Adults

Article excerpt

Wealth disparity between Whites and minorities has been increasing over the past several decades. In 2009, the median wealth of White households ($113,149) was almost 20 times that of Black ($5,677) and Latino ($6,325) households (Kochhar, Fry, & Taylor, 2011). Racial and ethnic wealth gaps have widened in the past 25 years and even more after the Great Recession (Shapiro, Meschede, & Osoro, 2013). Low socioeconomic status as measured by education and income explains some of the disparity, as do factors such as home ownership, inheritance, and number of children (Bradford, 2003; Shapiro et al., 2013). Social and cultural factors may also play a role in this process (Shapiro et al., 2013).

Bank account ownership is often regarded as an indicator of mainstream participation and of access to additional financial opportunities such as credit, investing, and home ownership that can lead to wealth building (Heflin & Pattillo, 2002). Racial disparities have previously been documented in bank account ownership (Bradford, 2003; Federal Deposit Insurance Corporation [FDIC], 2012). This disparity, however, was not fully accounted for by differences in income and education, which suggests that race may play a role in bank account ownership (Bradford, 2003).

Moreover, researchers have established the benefits of having a savings account and the importance of developing savings habits in childhood (Eliott, 2012; Friedline, 2014; Schreiner & Sherraden, 2005; Supon, 2012). In addition, having a savings account can result in benefits such as educational attainment and improved financial management skills, as documented in the research (Elliott, 2012; Loke, Libby, & Choi, 2013). However, the foundation for wealth inequality may be laid at an early age. Children and young adults from households with limited resources lag in bank account ownership compared with their higher income counterparts (Elliott, 2012; Loke et al., 2013). It has been found that many children may not receive the financial socialization within their families necessary to achieve a positive financial attitude, knowledge, and skills to build financial wealth (Kim, LaTaillade, & Kim, 2011). In addition, they lack the important socialization opportunity of applying their financial knowledge to money management, owning a bank account, and saving.

Despite the documented racial differences in bank account ownership (Elliott, 2012; Hefflin & Pattillo, 2002), limited research is available on financial socialization of minorities such as Black and Latino children and young adults.

Furthermore, little is known about when the disparity begins or how it persists in young adulthood. The purpose of this study is to examine factors influencing bank account ownership in childhood and young adulthood. Financial socialization, family, and individual characteristics were included in the estimation models. The study also tests whether there were any racial and ethnic group differences in bank account ownership. The findings contributes to the extant literature by providing insight into bank account ownership of young Black, White, and Latino young adults and increasing the understanding of the role of financial socialization in bank account ownership over time using a nationally representative dataset.

Review of Literature

Financial Capability and Bank Account Ownership

Financial capability includes financial literacy as well as access to financial services and products that allow people to act in their best interest; financial capability contributes to a person's financial functioning, financial well-being, and life chances (Sherraden, 2013). Persons with financial capability are able to maintain positive financial management behaviors that can lead to financial well-being in the future (Dodaro, 2011).

One aspect of financial capability, owning a bank account, has been associated with wealth building (Bradford, 2003). …

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