Childhood Financial Socialization

Childhood Financial Socialization and

Young Adults’ Financial Management

Jinhee Kim and Swarn Chatterjee

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

Introduction

Researchers, educators
and policymakers are working on strategies to improve the financial literacy of young Ameri-cans who often enter adulthood with a limited knowledge of credit, insurance, and other financial products, and have little experience managing their personal finances (Danes

1& Hira, 1987; Lusardi, Mitchell, & Curto, 2010). The ef-fect of factors, such as employment, financial education, and socioeconomic status, on the financial practices of transitioning adults, have been extensively studied (Asinof

2& 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 socializa-tion domains on the financial attitudes and behaviors of individuals (Jorgensen & Salva, 2010; Kim, LaTaillade,

3& Kim, 2011). Financial socialization is how these young adults develop their financial values, attitudes and behav-iors that foster their financial independence and subse-quently facilitate their successful transition into adulthood.

Several previous studies have relied on surveys of col-lege students and have focused on the career and educa-tional consequences of financial socialization of young adults (Asinof & Chaker, 2002; Jorgensen & Salva, 2010; Lyons, 2004; Shenk, 1997). This paper extends the litera-

ture by using a nationally representative dataset, collected over two years, of young adults transitioning to adult-hood 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 litera-ture 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 predic-tors 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, paren-tal financial monitoring and parental financial communica-tion, and individual and parent factors affect their financial behaviors (asset ownership, debt, and financial responsibil-ity) and financial attitudes (financial expectations, financial anxiety, and perceptions of own financial management).

Jinhee Kim, Ph.D., Associate Professor and Extension Specialist, Department of Family Science, 255 Valley Drive, Room 1142, University of Maryland, College Park, MD 20742, [phone], [e-mail]

Swarn Chatterjee, Ph.D., Assistant Professor, Housing & Consumer Economics, 205 Dawson Hall, University of Georgia, Athens, GA 30602, [phone], [e-mail]

© 2013 Association for Financial Counseling and Planning Education®. All rights of reproduction in any form reserved. 61

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 man-aging credit card debt, obtaining and paying car loans, obtaining and beginning to repay student loans, manag-ing health care and insurance costs, and savings. Growing numbers of young adults are struggling with such trans-actions, as indicated by the increasing numbers of young adults who report rising financial debt and bankruptcy fil-ing (Ensign, 2012; Rohrke, 2002). Research on the finan-cial practices and credit card behavior of college students suggests that although most students manage their per-

sonal finances responsibly, the number of students who get into financial difficulties because of poor personal finan-cial management skills is increasing (Baek & Hong, 2004; Baum & O’Malley, 2003; Joo et al., 2001; Lyons, 2004). Proficiency in financial skills is crucial for young adults to achieve financial wellbeing over their lifetime (Chen & Volpe, 2002; Lusardi, Mitchell, & Curto, 2010). However, most young adults do not have the financial literacy neces-sary to responsibly make basic financial decisions (Chen & Volpe, 2002; Hira, 1993; Lusardi, 2008; Mandell, 2008; Mandell & Klein, 2007; O’Neill, 1993).

Developmental Contributors to Young Adults’ Financial Competence
According to individual and family life cycle theories (Mc-Goldrick & Carter, 1999), one of the key tasks in the tran-sition to young adulthood is gaining financial independ-ence. The development of financial independence among young adults is often associated with acquisition of finan-cial skills and resources, including obtaining post-second-ary education and employment, establishing and maintain-ing checking and saving accounts, and acquiring assets. These skills facilitate financial literacy and competence as young adults obtain earned income and incur financial obligations that are traditionally associated with adulthood such as paying rent and other bills (Destin & Oyserman,

2009; Whittington & Peters, 1996). Young adults them-selves appear to recognize the importance of financial self-sufficiency and cite this as one of the top three criteria for becoming an adult (Arnett, 2000). However, the process by which young adults acquire the skills and resources to become financially independent is not well known and has not been a traditional focus of developmental theories thus far (Shim, Xiao, Barber, & Lyons, 2009).
Family life cycle and developmental theorists posit that a successful transition to the next life cycle stage is depend-ent largely on achievements and skills acquired in previ-ous stages (McGoldrick & Carter, 1999). Following from this developmental framework, the acquisition of financial skills and practices in childhood and adolescence may be presumed to aid the young adult in successfully meet-

ing the financial demands associated with the transition to adulthood (e.g., economic self-sufficiency, self-regulation and delayed gratification). Research from the literature on family and consumer economics has found several factors linked to financial literacy in children and adolescents that may serve as developmental precursors to financial compe-tence in young adulthood.

Childhood Factors

Knowledge of the adult economic world (e.g., money, pos-session, wealth, supply and demand, pricing and profit) is dependent in part on the development of mathemati-cal conceptual understanding and problem-solving ability

(Beutler & Dickson, 2008; Webley, 1996). Mathemati-cal ability, or numeracy, has been linked to the ability of children to develop and maintain a savings plan (Lusardi,

2008) and is associated with future financial investments such as stock ownership (Christelis, Jappelli, & Padula, 2010) and assets (McArdle, Smith, & Willis, 2009). In her work as a welfare advisor, Caunt (2001) found that a lack of numeracy awareness, coupled with an inability to understand financial concepts such as annual percentage

rate (APR), often resulted in the debt experienced by many of the consumers she served.
Acquisition of mathematical skills and problem-solving abilities in childhood is likely to influence the development of financial management skills in adolescence and young adulthood.

Adolescent Factors

Graduation from high school, post-secondary education, and obtainment of a college degree have all been associat-ed with greater financial knowledge and savings behavior in young adulthood (Cole & Shastry, 2009; Lusardi et al., 2010). Education was positively associated with financial behaviors such as savings, investing (Bertaut & Starr-Mc-

Cluer, 2001; Cole & Shastry, 2009), and portfolio manage-ment (Campbell, 2006).

Participation in the workforce is common during adoles-cence (Mortimer, Harley, & Staff, 2002), and researchers have explored the positive and negative effects of em-ployment on adolescent development for more than two decades (e.g., Greenberger & Steinberg, 1986). Two de-

62 Journal of Financial Counseling and Planning Volume 24, Issue 1
2013 velopmental perspectives, work benefits and work con-sequences, have been utilized to clarify the nature of this debate (Bauermeister, Zimmerman, Barnett, & Caldwell, 2007; Bauermeister, Zimmerman, Gee, Caldwell, & Xue, 2009). The work benefits perspective hypothesizes that the entry of young adults into the labor force contributes to the development of a positive adult identity through op-portunities for future gainful employment and financial independence, monetary competence, personal responsi-bility, and exposure to adult financial roles as they obtain earned income (Abramovitch, Freedman, & Pliner, 1991; Bauemeister et al., 2009; Beutler & Dickson, 2008; Irwin, Burg, & Cart, 2002). Conversely, the work consequences perspective suggests that youth employment may be harm-ful to the academic and social development of adolescents by distracting them from scholastic and extracurricular activities and encouraging the adolescent to prematurely transition to adult roles for which they may not be ready (Bauermeister et al., 2009). This situation may especially be the case for youth who work over 20 hours per week, as such work hours have been associated with increasing divestment from education and involvement in health-compromising behaviors, such as alcohol and cigarette use (Johnson, 2004).

Engagement in various types of risky behavior, includ-ing most types of substance use, tends to peak between the ages of 18 and 25, during the transition to young adult-hood (Raveis & Kandel, 1987). Several researchers have proposed that experimental or occasional substance use, particularly use of alcohol and cigarettes, in adolescence may be described as normative for this period (e.g., Baum-rind, 1991; Chassin, Pitts, & Prost, 2002), and reflective of the process of identity formation, a salient developmental task for adolescents (Erikson, 1963). While experimental substance use may be considered by some to be a norma-tive activity during adolescence, continued use into young adulthood has been linked to adverse financial outcomes, including divestment of funds for basic necessities to sup-port the cost of chronic substance use and taking out high-interest instant loans to support purchases of alcohol and cigarettes (Autio, Wilska, Kaartinen, & Lähteenmaa, 2009;

Siahpush, Borland, & Scollo, 2003).

Parent and Family Factors

Multiple investigations have documented the positive as-sociation of parent socioeconomic status with positive fi-nancial outcomes in childhood and young adulthood (e.g.,

Destin & Oyserman, 2009; Shanks, 2007). Parents with college and graduate degrees (Shanks, 2007) and financial resources (e.g., wealth, savings, and income) can provide more resources that increase human, social, and financial capital for the developing child (Conger & Dogan, 2007) and foster positive financial practices and asset acquisition in young adulthood through parental access to financial institutions (Destin & Oyserman, 2009; Johnson & Sher-raden, 2007). Parental wealth and assets appear to not only foster resources and skills that contribute to financial in-dependence (e.g., post-secondary educational attainment, establishment of independent checking and saving ac-counts) but may also buffer against negative socioeconom-ic outcomes such as dropping out of high school (Destin &

Oyserman, 2009). Similarly, financial difficulties can have an adverse effect on the emotions, behaviors, and beliefs of parents, which in turn can negatively influence their parenting practices and socialization strategies (Conger & Conger, 2002).

Schoeni and Ross (2005) found that, during their transition to adulthood, many young adults depended on financial support from their parents due to the period of early adult-hood becoming more protracted. Furstenberg, Ruben, and Settersen (2005) argued that young adults who lacked the needed supports from family to make a successful tran-sition to adulthood are vulnerable. Further, parents who own stocks were more likely to provide their children with financial information and discuss their experiences in the financial market. Parental education not only influenced parental resources available to their children but was also associated with parent-child interactions about finances and spending (Anderson & Newitte, 2005).

Transition to Adulthood and Parent Financial Socialization

Although the research literature on young adult financial practices has tended to focus on variables at the indi-vidual level, family relationships and dynamics between parents and their children are key processes by which children and adolescents learn sound financial practices and other skills needed to negotiate a successful transi-tion to young adulthood (Kalil, Ziol-Guest, & Coley,

2005). Financial socialization is the process by which young people acquire the standards, values, norms, skills, knowledge, and attitudes needed to become functioning consumers in the marketplace (Lueg, Ponder, Beatty, &

Capella, 2006; Rettig & Mortenson, 1986). Parents are considered the most influential agents of socialization in their children’s lives. According to Allen (2008), “Paren-tal [financial] socialization instruction generally involves

(a) modeling consumer behaviors, (b) making rules about

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 63 children’s consumer behaviors, and (c) engaging in direct discussions about purchasing decisions, money, credit, and related topics” (p. 352).

Theorists have drawn upon social learning perspectives to explain the influence of financial experiences in one’s fam-ily of origin on financial attitudes and practices in young adulthood. According to the parental socialization hypoth-esis, parental behaviors (e.g., parental monitoring of child behavior, discipline practices) and emotional responses to financial situations (e.g., positive and negative expressions of parental affect) predict the financial outcomes of adult children, including their financial attitudes (e.g., financial anxiety, financial hopes, and future expectations), finan-cial practices (e.g., fiscal responsibility), and acquisition of assets and debts (Conger, Cui, Bryant, & Elder, 2000). A recent study of college students found that parental influ-ences had significant effects on the financial attitudes and behaviors of young adults (Jorgensen & Salva, 2010). Effective parents often monitor, communicate, establish and maintain rules and guidance regarding financial atti-tudes and practices with their children in order to foster fu-ture adaptive financial practices. In addition, the emotional climate in which parents socialize their children on finan-cial matters appears to be important in promoting adap-tive financial practices. Warm parent-child relationships foster motivation to comply and cooperate with parents, through positive affect toward and identification with them (Grusec, Goodnow, & Kuczynsk, 2000; Laible & Thomp-son, 2007). High levels of parental warmth can foster positive affect within the parent-child dyad, which in turn enhances the children’s attentiveness and receptiveness to parental requests and socialization practices (Dix, 1991; Kochanska, 1995; Laible & Thompson, 2007), as well as positive gains in financial socialization (Pliner, Freedman,

Abramovitch, & Drake, 1996). Parents’ inability to pro-vide warmth and comfort during difficult financial periods could also facilitate the development of financial worry in childhood and subsequently foster reluctance in young adulthood to seek financial and emotional support during times of crisis.

Previous investigations have confirmed that parental social-ization and instruction in financial matters exert a positive influence on a child’s efforts to acquire adaptive financial knowledge, skills, and attitudes (e.g., Jorgensen & Salva,

2010; Kim et al, 2011; Moschis, 1987; Shim et al., 2009). However, few investigations have examined the influence of parent socialization practices on the development of fi-nancial competence in young adulthood (Shim et al., 2009).
Results from a cross-sectional investigation of college stu-dents indicated that discussions with parents about financial matters during childhood were positively associated with confidence regarding the individual’s own financial knowl-edge (Shim et al., 2009). A recent study of college students revealed that parental influences, such as discussion and direct learning, were positively associated with financial at-titudes and behavior (Jorgensen & Salva, 2010).

Sources of Variation in

Young Adults’ Financial Competence

Several demographic factors have been associated with the development of financial competence among young adults.
The young adult’s gender and ethnic or cultural back-ground may enhance early socialization and understanding of economic concepts. Female children and young adults are more likely to receive consumer-oriented training from parents and to describe their parents as more approachable during financial conversations (Allen, 2008). However, female college students were less knowledgeable about personal finances (Chen & Volpe, 2002), often borrow at higher costs, and are less likely to participate in the finan-cial market (Lusardi, 2008). Although young adults across different racial and ethnic groups may be similar in devel-opmental understanding of mathematical and numeracy concepts, there may be differences between groups regard-ing more complex financial concepts due to racial and eth-nic variations in experienced economic and social condi-tions during their formative years (Beutler & Dickson, 2008). In addition, the residential status of young adults (i.e., whether or not they reside with their parents) may also affect attainment of financial independence (Whitting-ton & Peters, 1996).

Hypotheses of the Current Study

The purpose of the current study was to examine factors that explain young adults’ financial attitudes and practices.

Four hypotheses were identified:

H1: Financial asset ownership will be influenced by the respondents’ childhood financial so-cialization, mathematical problem- solving ability and educational attainment. These associations will be significant even after controlling for a number of socioeconomic, demographic, and family-level variables.
H2: The debt of young adults will be influenced by the childhood financial socialization, mathematical problem- solving ability and educational attainment of the respondents.

64 Journal of Financial Counseling and Planning Volume 24, Issue 1 2013
These associations will be significant even af-ter controlling for a number of socioeconom-ic, demographic, and family-level variables.

H3: Money management will be positively asso-ciated with childhood financial socialization, maturity (age) and employment experience.

These associations will be significant even af-ter controlling for a number of socioeconom-ic, demographic, and family-level variables.

H4: Financial attitudes (perception of financial management ability and financial worry) will be negatively associated with financial so-cialization, parents’ socioeconomic status and mathematical problem-solving ability. These associations will be significant after child-and family-level variables are controlled.

Method

Data

The current study used the Panel Study of Income Dy-namics (PSID) data to examine predictors of financial attitudes and practices among young adults. This study drew information on young adults aged 17 to 21 from the PSID Transition to Adult 2005 Supplement, the Panel Study of Income Dynamics (PSID, 2005), and the Child Development Supplement II (CDS, 2002-2003). The PSID is a longitudinal study of a nationally representa-tive sample of U.S. men, women, children, and the fami-lies in which they reside. For approximately the past four decades, the researchers have collected annual data from these families and individuals about their demographic, economic, and employment behavior.

The present study included the 2002 CDS-II data from the Child Interview, Child Assessment, Primary Car-egiver Household and Primary Caregiver Child files.

The childhood socialization variables and the variables related to the respondents’ mathematical problem-solv-ing abilities were drawn from the CDS supplements. The present study also included the transition to adulthood (TA) supplement from 2005. The TA supplement includ-ed 745 young adults aged 17 and over. For the purpose of this study, respondents who were in high school or less than 18 years of age were excluded. As a result, the sam-ple size for this study was 628. The variables related to the financial attitude and money- management practices of young adults were taken from the TA supplement. This paper includes how individual and family level variables, drawn from the main PSID and the two PSID supple- ments, influence the financial attitudes and practices of young adults.

The dependent variables used for empirically testing our hypotheses included financial asset ownership, debt man-agement, money management, and financial attitudes re-lated factors. Financial asset ownership was coded as “1” if the respondent had any bonds, CDs or other non-bank account related liquid assets and “0” if otherwise.

The debt management variables that were tested included having a credit card balance (coded as “1” if the respond-ents carried any revolving credit balance and “0” if other-wise), the log transformed values of total debt, and non-school and school-related debts. Log transformation was used to account for any potential non-linearity present

in the variables (Wooldridge, 2009). For financial prac-tice, the variable was coded as “1” if the respondents had full responsibility for managing their finances and “0” if otherwise. Financial attitude variables included financial worry (dummy variable coded as “1” if the respondents had daily worries about their financial situation and “0” if otherwise) and the respondents’ perception of their ability to manage money (dummy variable coded as “1” if the respondent reported managing money extremely well and

“0” if otherwise).

Demographic Factors

The respondents’ age and gender were self-reported. One dummy variable was used to indicate the gender of the respondent (1, 0), with the omitted category being fe-male. A dummy variable was used to indicate whether or not the respondent was employed (1, 0). The race/ethnic-ity variable included in the study was coded as “1” if the respondent was White and “0” if otherwise. Respondents below 18 years of age or respondents currently attending high school were dropped from the analyses of this study. Binary variables for full -time and part-time college at-tendance were included in the model. These respondents were compared against the reference group of respond-ents that did not attend college.

Mathematical problem-solving ability

This variable was measured using the Applied Prob-lems subtest of the Woodcock-Johnson Revised Tests of Achievement for Reading and Math (Woodcock & John-son, 1989). Respondents were coded as “1” if living with their parents and “0” if they lived away from their par - ents. Mathematical problem solving was indicated by a standardized score that ranges from 0 to 200, with a mean

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 65 score of 100 reflective of basic knowledge, and scores higher than 200 indicative of greater mathematical skill in solving applied problems. Mathematical problem solv-ing came from the Child Assessment file and other vari-ables came from the CDS-II Child Interview file.

Childhood socialization variables

The socialization variables were obtained from the CDS-II childhood interview supplement. The socialization vari-ables included parental warmth, allowance, monitored spending, parental communication about donations, and having savings accounts. Parental warmth is a seven-item scale developed by Child Trends for use in measuring the warmth of the relationship between child and parent. The questions, asked of the parent about the child, determine how often the parent told the child they love him or her, spent time with the child, told the child they appreciated what she or he did, and talked with the child about her or his interests, relationships, day, and current events. The re-sponse categories ranged from 1 (not in the past month) to 5 (every day). A scale was created by summing the number of behaviors that the parent reported that they did with the child in the past month. Scale reliability was 0.79.

Parental financial monitoring was a single-item measure that asked the child about his or her parent’s knowledge of how the child spends his or her money. The response cat-egories ranged from 1 (never) to 5 (almost always).

Parent-child interactions about money were measured by two variables: child allowance and parent communica-tion about child donations. Child allowance was a dummy variable indicating whether or not the child was given an allowance (1, 0). Parent communication about child dona-tions was measured by a single-item dummy variable ask-ing whether or not the parent talked with the child about donating his or her money to a religious or other charitable organization (1, 0).

Parental factors included father’s education, parental in-come, net worth, and stock ownership. These variables were taken from the 2005 PSID core surveys. Father’s education was the father’s number of years of education. Parental income and net worth variables were included in the model to control for the socioeconomic status of the re-spondent’s family. Parental stock ownership (1, 0) was also included in our model.

Analysis

Binary logistic regression analyses were used to predict categorical outcomes, including financial asset ownership, full financial responsibility, credit card balance, financial worry, and the self-reported ability to manage money well. Binary logistic regressions were appropriate for estimating parameters of dichotomous dependent variables (Kennedy, 1994). We used OLS regression analysis for estimating the log of total debt, school-related debt, and non-school related debt.

Results

Descriptive statistics for the variables in the estimation are presented in Table 1. The t-test results showed that average mathematical problem-solving scores were significantly higher for respondents who had financial assets and did not have full financial responsibility and were lower for those who reported financial anxiety. A significantly higher percentage of respondents with financial assets, credit card balances, and responsibility for managing their finances reported being employed. Conversely, significantly lower proportions of transitioning adults living with their parents reported having financial asset ownership and credit card balances. However, a higher proportion of respondents who lived with their parents reported that they did not have full responsibility for managing their own finances.

Parental net worth, income, and stock ownership were sig-nificantly higher for respondents with financial asset own-ership, credit card balances, and no financial responsibility.

Parental net worth and stock ownership were also higher for respondents who reported having no financial worries.

Overall, childhood socialization was found to be posi - tively associated with financial asset ownership, lack of financial anxiety, and credit card debts. Among the child-hood socialization variables, we observed from the de-scriptive statistics that a significantly higher percentage of those who received an allowance from their parents carried a credit card balance, were less worried about their finances, and had full responsibility for managing their finances. Similarly, a higher percentage of respond-ents with savings accounts, or who had learned about helping others with money from their parents, had finan-cial assets and were less worried about their financial sit - uation. Additionally, a higher percentage of respondents who had savings accounts as children reported currently carrying a credit card balance. A greater proportion of those respondents whose parents monitored their spend-ing in childhood had financial assets, were less worried about their finances, and did not currently have full re-sponsibility for managing their finances.

66 Journal of Financial Counseling and Planning Volume 24, Issue 1 2013
Financial Asset Ownership

The logistic regression results for the financial asset own-ership of transitioning adults are reported in Table 2. Hy-pothesis 1 was partially supported. Childhood financial socialization, mathematical problem-solving ability, and educational attainment were significant after controlling for socioeconomic, demographic, and family-level vari-ables. Financial asset ownership was positively related to employment status and parental income as well as net worth. White respondents were also more likely than oth-ers to have financial assets. Owning savings accounts as a

child and having parents who monitored spending in child-hood were positive predictors of financial asset ownership during young adulthood.

Debt Management

The logistic regression results for carrying credit card bal-ances by transitioning adults are reported in Table 3. We controlled for demographic factors, parental factors, and childhood socialization-related factors in this model. Hy-pothesis 2 was not supported. Educational attainment and mathematical problem solving ability were not significant, while parental warmth was moderately significant (p <

.10). Having a credit card balance was negatively associ-ated with being male. Respondents whose parents owned risky assets (stocks) were more likely to carry a credit card balance. Receiving greater parental warmth as children was negatively associated with carrying credit card bal-ances among the respondents.

The results for log transformed values of the amounts of debt for transitioning adults are reported in Table 4. We ran three sets of these models to examine total debt (columns 1-4), debt due to school-related expenses (columns 5-8), and debt due to non-school related expenses (columns 9-12). Hypothesis 2 was not supported in terms of amount of debt. Attending college full time was positively associated with the amount of total debt and college-related debt, and attending college part-time was positively associated with the amount of total debt. Living with parents was negative-ly associated with having higher levels of total debt and college-related debt. Age was positively associated with carrying higher levels of non-school related debt. Con-versely, being male was negatively associated with carry-ing total debt and non-school related debt. Being employed was positively associated with the amount of non-school related debt among the respondents. Additionally, none

of the parental economic factors were associated with the amount of debt holdings.
Money Management

The logistic regression results for the money management practices of the respondents are reported in Table 5. We ran three sets of these models to examine the responsibil-ity of managing one’s own finances (columns 1-4) and the respondent’s perception of being a good manager of money (columns 5-8). Hypothesis 3 was supported. Finan-cial socialization, age, and employment were significantly associated with the responsibility of money management. Savings account ownership in childhood and learning about charitable donations from parents as a child were positively associated with managing one’s own money as a transitioning adult. Conversely, receiving greater parental warmth as a child was negatively associated with manag-ing one’s own finances among the respondents. Respond-ents who were older, male, and employed were found to be more likely to manage their own finances. Respondents whose parents owned risky assets (stocks) were less likely to be responsible for managing their own money.

Financial Attitudes

The logistic regression results for perception of money management ability and financial worry are reported in

Table 5. Hypothesis 4 was partially supported for the perception of being good at money management. Finan-cial socialization factors were significant, while age and employment were not. Receiving parental warmth as a child was negatively associated with the perception of being good at managing one’s money. Conversely, those respondents who had their spending monitored by their parents when they were children were significantly more likely to report being good at managing their own money. Parental income was a negative predictor of the perception of being good at managing one’s finances. Perception of being good at managing one’s finances had a positive asso-ciation with being male and living with one’s own parents.

Hypothesis 4 was supported for financial worry. Financial socialization factors, parents’ socioeconomic status, and mathematical problem-solving ability were significantly associated with financial worry. Respondents who received an allowance as a child and those who had their spending monitored by their parents were less likely to be finan-cially worried. Results showed that respondents’ financial worry was negatively associated with parents’ net worth. Being White and father’s education were positively associ-ated with financial worry. Higher levels of problem solving ability were also significantly related to financial worry.

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 67
Table 1A. Descriptive Statistics (N = 624)

t-tests t-tests Variable
M
SD
%
1 = Own
0 = No
1 = Carry 0 = Do not

liquid liquid balance carry assets assets balance
Young adults’
Age
19.2
0.09

19
19
19
19
characteristics

Gender (male = 1)

53
45
51*
43
48

Never married

85.5
86
86
85
87

Race White

48.1
60***
20
47***
61

Attending college

53.3
63***
23
68***
46

Problem solving score
103.1
0.91

104***
91
102
104

Employed

49.3
52***
37
58***
42

Live with parents

60
55
67***
54
64**

Parental factors
Father’s education (1 - 17)
11.5
0.301

11.6***
8.4
11.01
10.9

Parental net worth 2005
$327,938
$73,562
Log:
10.3***
7.24
10.2***
9.2

Parental income 2005
$81,913
$4,534
Log:
11***
10.2
11.1***
9.7

Parental stockownership

24.5
29***
7
32***
21

Childhood
Received allowance

28
24
24
27*
24 socialization Savings account

57
71***
30
74***
52

Parent monitored spend

50
84**
71
84
83

Parental warmth (0 - 35)
27
4.3

26**
24
25.8
25.6

Worked for pay

30
33**
22
41***
24

Parents taught donation

59
77**
68
77
74

Assets and debt
Liquid assets

59

Carry credit card debt

39

Total card debt
$2,323.00
$9,621

School related
$1,678.00
$5,928

Non-school related
$648.00
$7,591

Financial practice Full fin. responsibility

60.9

Good money manager

49.5

Have financial worry

52.9

*p < .05. ** p < .01. *** p < .001.

68 Journal of Financial Counseling and Planning Volume 24, Issue 1 2013
Table 1B. Descriptive Statistics (N = 624)

t-tests t-tests (TA050065 > = 4)

Variable
M
SD
%
1 = Fin.
0 = No fin.
1 = Fully
0 = Not fully

anxiety anxiety responsible responsible Young adults’
Age
19.2
0.09

19
19
19
19

characteristics
Gender (male = 1)

53
46
48
48*
37

Never married

85.5
84
90***
87
87

Race White

48.1
50
50
55
55

Attending college

53.3
49
57**
48
61***

Problem solving score
103.1
0.91

101
105*
102
108***

Employment

Employed

49.3
48
47
57***
37

Live with parents

60
58
60
56
62**

Parental factors
Father’s education (1 - 17)
11.5
0.301

11
10.9
10.1
11.6**

Parental net worth 2005
$327,938
$73,562
Log:
9.05
10.1***
9.2
10.02***

Parental income 2005
$81,913
$4,534
Log:
10.8
10.8
10.7
10.9***

Parental stockownership

24.5
22
28*
20
30***

Childhood
Received allowance

28
21
33***
31**
24

socialization
Savings account

57
55
64**
60
60

Parent monitored spend

50
79
84**
79
86**

Parental warmth (0 - 35)
27
4.3

25.5
25.8
24.3
26.6***

Worked for pay

30
31
27
34***
21

Parents taught donation

59
71
78**
75
75

Assets and debt
Liquid assets

59

Carry credit card debt

39

Total card debt
$2,323.00
$9,621

School related
$1,678.00
$5,928

Non-school related
$648.00
$7,591

Financial practice
Full fin. responsibility

60.9

Good money manager

49.5

Have financial worry

52.9

*p < .05. ** p < .01. *** p < .001.

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 69
Table 2. Financial Asset Ownership (N = 628)

Variables
Have financial assets b SE
Odds
Demographic
Age
0.003
0.131
1.003

Male
-0.392
0.274
0.676

White
0.679***
0.114
3.188

Full-time college student
0.369***
0.034
2.054

Part-time college student
0.192**
0.446
1.341

Live with parents
-0.184
0.278
0.831

Problem solving
0.006***
0.001
1.006

Employed
0.286***
0.041
1.392
Parental
Father’s education
0.017
0.099
1.017

Log parental income
0.433***
0.141
1.543

Log net worth
0.075**
0.031
1.078

Parent stockowners
0.284
0.382
1.386
Childhood socialization
Receive allowance
-0.063
0.278
0.940

Saving account
0.191***
0.028
1.339

Parental warmth
0.011
0.025
1.011

Monitored spending
0.136**
0.049
1.145

Learned about donation
0.077
0.266
1.080

Intercept
-4.071***
0.285

Pseudo R2
0.334

Χ2
234

**p < .01. ***p < .001.

Discussion tion process to develop financial behaviors. Some previ-

Researchers have found that financial literacy is not preva- ous studies found that giving an allowance promotes the

lent among young adults (Lusardi et al., 2010; Mandell, child’s development of financial management (Abramov-

2008) and the present study extends the literature regard- itch, Freedman, & Pliner, 1991), while others found that

ing the financial management practices of young adults. allowances had no or negative effects on adolescent money

Very early in the life cycle (average age of 18.9), almost management and financial decision making (Marshall &

one third of young individuals carry credit card balances.
Magruder, 1960; Miller & Yung, 1990). Results of the cur-

About a quarter are unbanked, while half do not feel confi- rent study indicate that not having an allowance during

dent about their financial management skills. childhood is positively associated with financial anxiety

The findings suggest that some childhood socialization among young adults. Similarly, a previous study finds that

children who did not receive allowances were more likely

variables influence the financial attitudes and behaviors of to worry about money as young adults compared to others

young adults. However, differences were found in finan-
(Kim et al., 2011). It seems that the association continues

cial outcomes by types of socialization domain. Giving an through young adulthood regardless of parental and indi-

allowance itself may not be the most effective socializa- vidual factors.

70 Journal of Financial Counseling and Planning Volume 24, Issue 1 2013
Table 3. Carrying Credit Card Balance (N = 629)

Variable
Carry balance b SE
Odds
Demographic
Age
0.192
0.145
1.212

Male
-0.605*
0.302
0.543

White
0.195
0.376
1.214

Full-time college student
0.108
0.129
1.109

Part-time college student
0.671
0.578
1.955

Live with parents
-0.272
0.328
0.763

Problem solving
0.004
0.009
1.004

Employed
0.158
0.196
1.171
Parental
Father’s education
0.058
0.078
1.062

Log parental income
-0.264
0.177
0.768

Log net worth
-0.029
0.043
0.979

Parent own stocks
0.192*
0.082
1.212
Childhood socialization
Receive allowance
0.053
0.318
1.055

Saving account
0.202
0.227
1.224

Parental warmth
-0.022*
0.009
0.977

Monitored spending
0.002
0.108
1.002

Learned about donation
-0.108
0.306
0.898

Intercept
-2.949***
0.371

Pseudo R2
0.192

Χ2
71.4

*p < .05. ***p < .001.

Owning a savings account as a child seems to be associat-ed with financial asset ownership among young adults. The benefits of having a savings account have been advocated by a number of researchers (Curley & Sherraden, 2000; El-liott & Beverly, 2010; Johnson & Sherraden, 2007; Peng,

Bartholomae, Fox, & Cravener, 2007). Those with savings accounts during childhood were more likely to own finan-cial assets beyond bank accounts than those without. Sav-ings accounts for children can be an effective starting point to build assets. Additionally, those who owned savings accounts as a child were also more likely to be responsible for managing money. This finding supports the positive ef-fects of owning a bank account on investment knowledge found by Peng et al. (2007) with college alumni samples. However, owning savings accounts did not affect credit

card management and financial attitudes. This finding may suggest that parents must discuss and teach about credit specifically to have positive impacts on the credit card management of young adults. This conclusion is impor-tant, as a number of studies identified the credit problems of young adults (Lyons, 2004; Lyons & Hunt, 2003).

Parental warmth has shown modest negative associations with stock ownership, carrying credit card balances, re-sponsibility for managing money, and perception of money management. Except for carrying credit card balances, these results are not very positive for the financial manage-ment of young adults. In general, affective closeness with parents increases when children move from adolescence to young adulthood (Aquilino, 1997; Bucx & Van Wel, 2008;

Rossi & Rossi, 1990). Such parental closeness may facili-

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 71
Table 4. Debt Management (N = 629)

Log

Log

Log

(total debt)
(debt due to school)
(debt non-school related)

Variables
Debt Management b SE b SE b SE

Demographic
Age
0.235
0.182
0.989
0.730
2.316***
0.644

Male
-0.548*
0.284
-1.231
1.335
-2.503*
1.152

White
0.631
0.372
-1.982
1.669
-1.032
1.531

Full-time college student
1.382***
0.304
1.814***
0.458
1.124
0.522

Part-time college student
1.024*
0.574
0.834
0.622
0.684
0.591

Live with parents
-4.132***
1.132
-5.635***
1.326
-0.982
1.449

Problem solving
0.018
0.023
0.014
0.018
0.032
0.030

Employed
0.961
0.971
-0.357
0.884
2.723*
1.104

Parental
Father’s education
0.039
0.192
-0.033
0.187
-0.026
0.122

Log parental income
-0.312
0.595
-0.412
0.434
-1.424
0.874

Log net worth
-0.114
0.128
-0.111
0.186
0.014
0.166

Parent stockowners
0.217
0.414
-0.228
0.446
0.203
1.454

Childhood
Receive allowance
-0.981
1.026
-0.838
1.398
0.522
1.453

socialization

Saving account
1.717
1.132
2.333
1.596
1.345
1.875

Parental warmth
-0.033
0.711
-0.043
0.741
-0.177
0.128

Monitored spending
-0.058
0.122
-0.037
0.184
-0.291
0.457

Learned about donation
-0.093
0.341
0.118
1.391
0.270
1.196

Intercept
-22.755***
5.343
-39.431**
14.721
-34.332*
14.481

R2
0.154

0.146

0.144

F-square
397***

245***

194***

*p < .05. **p < .01. ***p < .001.

tate continued communication about financial matters into young adulthood. However, parents who may be overly close and threatened by the young adult’s eventual residen-tial and financial independence may use their resources to induce the avoidance of such adult roles and to encourage the young adult’s continued financial dependency (Avery,

Goldscheider, & Speare, 1992). As parental warmth can fa-cilitate the socialization process of children, young adults may be more receptive to the teaching of affectionate par-ents to develop financial capability.

Young adults whose parents monitored their spending as children were likely to own savings account and perceive that they are good at managing money and less likely to worry about their personal finances. Effective parental control not only facilitates a child’s adoption of his or her parents’ financial practices but also fosters their positive attitudes toward personal finances. The findings from the current study are consistent with previous studies that con-clude that monitoring children’s money management helps children internalize expectations about savings and long-term planning (Pliner et al., 1996).

72 Journal of Financial Counseling and Planning Volume 24, Issue 1 2013
Table 5. Money Management and Financial Attitudes

Responsible for
Good at managing money
Financial worry

managing money

Variables
Manage
b
SE
Odds b SE
Odds
b
SE
Odds

full money

Demographic
Age
0.240**
0.095
1.319
-0.030
0.090
0.970
-0.058
0.090
0.944

Male
0.442**
0.190
1.556
0.358*
0.181
1.431
-0.094
0.180
0.911

White
0.496**
0.244
1.644
0.047
0.224
1.047
0.475*
0.235
1.608

Full-time
0.112
0.225
1.013
0.326
0.205
1.385
-0.274
0.201
0.758

college student

Part-time
0.174
0.448
1.191
-0.327
0.356
0.721
-0.048
0.339
0.952

college student

Live with parents
0.276
0.204
1.612
0.671***
0.195
1.944
-0.171
0.205
0.841

Problem solving
-0.009
0.007
0.991
-0.771
0.692
0.462
-0.018*
0.008
0.983

Employed
0.694***
0.198
2.004
-0.104
0.181
0.903
-0.159
0.180
0.853
Parental
Father’s
-0.085
0.100
0.915
-0.045
0.074
0.957
0.181*
0.095
1.199

education

Log parental
-0.183
0.128
0.833
-0.259**
0.112
0.778
0.112
0.120
1.119

income

Log net worth
-0.007
0.029
0.993
-0.013
0.028
0.996
-0.077***
0.026
0.924

Parent own
-0.453*
0.231
0.633
0.019
0.226
1.019
-0.128
0.224
0.880

stocks

Childhood
Receive
-0.193
0.194
0.823
-0.205
0.194
0.809
-0.371*
0.191
0.686 socialization allowance

Saving account
0.473**
0.218
1.605
0.097
0.205
1.101
-0.185
0.205
0.831

Parental warmth
-0.043*
0.021
0.958
-0.042*
0.020
0.994
-0.007
0.019
0.993

Monitored
-0.021
0.073
0.980
0.138*
0.070
1.149
-0.138*
0.070
0.871

spending

Learned
0.655***
0.202
1.785
0.138
0.191
1.116
-0.267
0.142
0.754

about donation

Intercept
-2.222**
0.946

9.493**
3.832

7.236**
2.146

N
573

575

575

Pseudo R2
0.145

0.141

0.116

Χ2
69.4***

58.3***

45***

*p < .05. **p < .01. ***p < .001.

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 73
While there were no direct measures of communication about general money management in the data, a proxy of communication about money management, communi-cating about donations during childhood, was included.

Communicating about monetary donations was positively associated with responsibility for money management. Communication is a very important social interaction that affects children’s consumer behavior (Moschis, 1987). Par-ents guide and share their values, norms, attitudes and be-haviors with their children through communication about money (Bakir, Rose, & Shoham, 2006), and learning from and discussing with parents were found to have an effect on the financial knowledge and behavior of young adults

(Jorgensen & Salva, 2010).

Mathematical problem solving was positively associ-ated with financial asset ownership, stock ownership, and worries about finances. These associations seem to last into young adulthood, as Kim et al. (2011) found, during childhood. The findings support previous studies that link numeracy, the ability to reason with numbers, and other

mathematical concepts to stock ownership (Christels et al., 2008), asset holdings (McArdle, Smith, & Willis, 2009), and financial market participation (Cole & Shastry, 2009).

Furthermore, mathematical ability has been associated with acting patiently (Benjamin, Brown, & Shapiro, 2006) and time preference (Gruber, 2001), which affects financial management and long-term planning. An interesting find-ing was the negative association between financial worry of young adults and mathematical problem-solving ability. It is possible that those who may have the ability to delay gratification and act patiently are less likely to worry about their future, because they feel more control over their fi-nancial future than others do.

While college attendance influences ownership of liquid assets in positive ways, college education also is likely to increase the total amount of credit card and education debt. As costs of higher education have become an increasing burden on many Americans, more young adults are taking on credit debts to fund their education. Attending college seems to have a positive effect on financial asset owner-ship, similar to previous findings on the positive relation-ship between education and savings behavior (Bertaut

& Starr-McCluer, 2001), and the positive relationship between educational attainment and financial literacy (Lu-sardi et al., 2010). While college education is invaluable, attending college can put young adults at risk in terms of debt, especially if they are financially independent and from families with modest means (Lyons, 2004). Although the Credit CARD Act of 2009 limited credit card market-ing for college students, there seems to be a great need for credit and financial education for young adults, especially college students. Most literature on financial management among young adults has focused on college students. In addition to the credit card debt, those who are not attend-ing college may be at a higher risk as they are more likely to be unbanked. When half of young adults are not at-tending college, additional delivery methods for financial education other than personal finance courses and classes on campus need to be developed for them, as they are not easy to reach.

Employed young adults are more likely to own financial assets and be responsible for managing money, while they are also more likely to have more non-school credit card debts than unemployed adults. This finding may be due to the fact that young adults who need to be financially inde-pendent are working, putting them at higher risk. The find-ings are consistent with the previous study that associated a child’s wage opportunities with financial independence (Whittington & Peters, 1996). More financial education opportunities targeting these working young adults, both in college and not, are needed to address the potential credit card issue.

Previous studies found the socioeconomic status of parents to be linked to financial literacy and financial manage-ment of young adults (Lusardi et al., 2010; Mandell, 2008;

Shim et al., 2009). The effects of parental factors on asset ownership start early in life and continue throughout adult-hood. Young adults whose parents have higher net worth are less likely to worry about personal finances. However, young individuals from higher-income households feel that they are poorer at money management. Parents with higher socioeconomic status may protect their children from financial concerns but may not give opportunities to learn and practice financial management skills. The present study found some effects of parental income and asset ownership on the asset ownership of young adults, while parental asset and income did not explain the amount of credit card debt that young adults took on. The results fur-ther confirm that young adults are in a great need of educa-tion on credit card management regardless of their socio-economic background.

Racial differences have been found in financial litera-cy and management (Lusardi et al., 2010; Lyons, 2004).

The present study showed that White students were more likely to own financial assets than others while they did

74 Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 worry more about their finances. This situation may be because minority students were more likely to come from unbanked households, which limits their own financial as-set ownership. In terms of financial worry, White students may have different expectations and standards for their financial futures. Also, they worry more as they feel they may not be able to maintain the lifestyle they are accus-tomed to, which has been provided by their parents. Gender differences were observed in a more favorable way toward men. Males were more likely to own financial and liquid assets. Further, men tended to have lower credit card debt (total and non-school related), but were 53% more likely than women to have greater responsibility for managing their finances and were 43% more likely than women to perceive themselves as being good at managing their money.

Implications

The results of this study have a number of implications for researchers, financial educators, parents, and policymak-ers. Findings support existing concerns about the finan-cial management abilities of young adults such as credit management, savings, and investing. To suggest that pa-rental socialization fully explains young adults’ financial attitudes and behaviors may be overreaching. Although it is understood that parents are the most salient factor in in-fluencing young adults’ financial values, attitudes, and be-haviors, limited information has been available about the mechanisms of parental financial socialization. Addition-ally, it is suggested that the follow-up studies with these adults a few years later (ages 25-30) would provide useful information. Currently, extensive financial management data were not available in the ongoing PSID for the transi-tioning young adults in this age group. However, there will be additional waves of TA, which will allow the gathering of data of young adults over time.

Additional studies on child-parent interaction, such as rela-tionship, parenting aspects, and financial outcomes, could provide more information about the socialization process.

Our study does not assume any causality in explaining fi-nancial attitudes and behaviors. Further, the study is limit-ed to parental socialization, but other socialization agents, such as school, media, and peers, may also influence the fi-nancial socialization of young adults. Longitudinal studies with information about other financial socialization agents, such as peers and the media, would enable further under-standing of how individuals develop financial attitudes and behaviors over their lifetimes. Especially, the PSID

CDS did not have information about financial education at schools. As more states are establishing financial literacy standards and mandating personal finance classes, more young adults are receiving financial education programs in elementary, middle and high schools. Further studies are needed to include the effects of such formal education in the financial socialization process.

Notably, young adults who are not attending college could be more vulnerable, but limited research is available about this group. Typically, these young adults are from families with limited socioeconomic resources and have parents who may lack financial literacy to provide appropriate socialization. The effects of parental roles in financial so-cialization may be different. Additional studies are needed to provide more information about how those young adults who are not attending college manage their finances and the factors that determine such practices.

This study supports the importance of parental socializa-tion during childhood in the financial management of young adults. It is suggested that financial education starts early, especially in the family. The present study provides sev-eral specific suggestions for parents and financial educators. First, childhood savings accounts are likely to help financial asset ownership among young adults. Experts emphasize the importance of access to financial services and the benefits of childhood savings accounts (Elliott & Beverly, 2010; John-son & Sherraden, 2007; Peng et al., 2007). This study sup-ports savings accounts as an educational tool for children, which helps them into young adulthood with financial asset ownership. Further, children whose parents are unbanked themselves need to target additional opportunities, such as a school credit union or bank.

Second, an allowance by itself may not be an effective tool. Without substantial parent-child interaction such as com-munication, monitoring, and opening a savings account, giving allowances was not significant in establishing good financial practices. Monitoring how children spend their money can help children take responsibility and internal-ize the rules of money management. However, forgoing allowances may have emotional consequences, as children may develop anxiety about money that may influence their future financial behaviors in a negative way. Opening a sav-ings account could be a great practice for communication and monitoring when parents give children allowances.

Third, teaching about credit earlier may be important. With the Credit CARD Act of 2009, access to credit for young adults will be limited without parental approval. However,

Journal of Financial Counseling and Planning Volume 24, Issue 1 2013 75 the present study finds that parental factors and parental socialization have little influence on credit card debt. Yet, many young adults, whether they are in college or not, seem to carry credit card debt very early. Understanding of borrowing and the importance of savings can be taught at a very young age. With the growing debt of young adults, understanding credit and the principle of borrowing can be taught well before they are ready to apply for a credit card. Fourth, trust and warm relationships between parents and children can facilitate parental financial socialization, such as communication and rules, but must be appropri-ate for developmental stages. Financial independence may increase the financial risk of young adults (Lyons, 2004) but is also a milestone of adulthood. The overly close and protective parent-child relationship may limit opportunities for young adults to practice adult roles in financial man-agement and move toward financial independence.

Despite the importance of parental socialization, many young adults from disadvantaged families may not receive appropriate financial socialization in the family and need to supplement the deficiency. Formal financial education in elementary, middle, and high schools could complement financial socialization in the family. Providing financial education in public schools may be particularly beneficial to children from disadvantaged backgrounds (Lusardi et al., 2010). However, financial educators and policymakers must also understand that the substantial number of young adults that slip through the school system often lack need-ed financial literacy (Mandell, 2008). Young adults must be reached in a number of financial educational initiatives such as workplaces, communities, and the Internet.

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