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For emerging adults, navigating today's financial economy is growing increasingly difficult as they enter a more challenging economic environment than what their parents experienced [1]. A large amount of emerging adults have not received substantial financial education at school or at home [2]. Without the proper tools to succeed young adults can be led further away from financial independence and towards debt, leading to a diminished financial and personal well-being [3; 4].
What did we want to know?
Researchers wanted to examine the long-term effects of parental financial socialization, or how parents teach their children about and expose them to finances, on children’s financial outcomes using the framework of Family Financial Socialization Theory. Family Financial Socialization Theory proposes that doing well financially as an emerging adult is primarily predicted by child-parent interactions and observations in formative years.
What did we do?
Researchers took data from two waves of the Flourishing Families Project, a 10 year study of inner family life. Participants were made up of 462 families composed of both two-parent and single-parent families and a selected child. Time 1 responses were taken from wave 5 (2012) and time 2 responses were taken from wave 10 (2017). At Wave 5, median combined couple income per year was $107,500. Children were aged 13-17 at time 1 and 18-22 at time 2.
What did we find?
Two major findings of the study were that parental financial behavior and parental financial distress at time 1 were associated with various financial child outcomes at time 2.
1. Parent Financial Behavior
When parents have healthier financial behaviors children learn from parents and are better off financially
Emphasizes the importance of parents engaging in healthy financial behaviors so that children adopt stable financial processes to help them later in life
2. Parental Financial Distress
The perpetuation of financial distress is consistent with Family Financial Socialization Theory, or the family environment in which a child develops influences their attitudes toward finances
When observing their parents’ financial distress during adolescence, emerging adults may come to believe that managing finances is stressful and may also feel unable to reach out to their parents for financial support
What does this mean?
This study shows there are a variety of different things that can help emerging adults to thrive financially during difficult times. Both parents should be involved and take equal responsibility when teaching children about finances and parents should act as role models for healthy financial behaviors as well as teach their children how to manage financial distress. By understanding these findings, we can help emerging adults experience financial success as the norm rather than the exception.
