It’s well recognised that financial literacy is an important component of healthy adulthood. Young people who understand credit, debt, insurance and other financial products, and those who ultimately achieve financial independence, tend to have higher levels of financial and overall well-being. As such, there is an abundance of research which has sought to understand how employment, education, and socio-economic status may influence possible pathways to financial literacy. However, less information exists around the process of financial socialisation, particularly in the context of families.
Kim and Chatterjee (2013) define financial socialisation as “how young adults develop their financial values, attitudes and behaviours.” The authors examined the predictors of financial attitudes and practices of 18-21-year-olds in the USA, including the extent to which family warmth; parental financial monitoring and communication; and youth and parent factors influence financial behaviours and attitudes in young adulthood.
Research from the literature suggests several factors can influence financial literacy in later years including the acquisition of maths and problem-solving abilities in childhood as well as part-time employment in adolescence. Students who undertake between 8-12 hours a week paid work may benefit from monetary competence, personal responsibility and exposure to adult financial roles, however excessive hours of employment can negatively impact academic and social development.
At the Family Peace Foundation, our focus is on cultivating healthy and peaceful family relationships and dynamics. While many factors including school, media and peers contribute to a child’s development and well-being, parents are considered the most salient socialisation influencers, which in financial arenas, may encompass modelling, directing, discussing and explaining a broad range of financial behaviours, standards, skills, norms, and attitudes, which collectively shape the financial literacy of young adults.
While pathways to financial literacy are complex, as busy and well-meaning parents, most of us are looking for simple, evidence-based strategies and tips to implement at home with our own children. The authors of the 2013 study provided the following 5 suggestions for parents and financial educators to help foster financial literacy in our children as they transition to young adults:
- Opening a childhood savings account is a useful financial educational tool for children
- Providing pocket money, no matter how small in value, is an effective learning tool with parent-child interactions such as communication and monitoring to support the value of money given by parents
- Teaching children about credit is important (however the study found that parental factors had little influence on credit card debt in young adulthood)
- Cultivating trust and a warm relationship between parents and children can facilitate appropriate communication and rules about financial matters, and yet an overly protective parent-child relationship may stifle opportunities for developmentally appropriate financial independence
- Parental socialisation is important in developing financial literary in young people, however for families who are ill-equipped to deliver financial socialisation strategies to their children; primary and secondary schooling, workplaces, communities and the internet can also be useful supplements to fill in the desired learning gaps
As is the case with all parent-to-child socialisation processes, a combination of talking and modelling influences a child’s development and understanding. Talking about financial matters with our children can feel forced, awkward or irrelevant; however discussing bank account options and pocket money, with even the smallest amounts of money, can serve as the catalyst for important learnings that can translate into healthy long-term financial behaviour, even when money is tight.
Kim, J. & Chatterjee, S. (2013). Childhood Financial Socialization and Young Adults’ Financial Management. Journal of Financial Counselling and Planning Vol 24, (1) 61-79.