If it isn’t broke, don’t fix it – evidence of financial socialisation of children

• Context
• The study
• Key findings
• Points to consider

Context

Although the United States has typically been one of the world’s most thriving economies, it faces significant debt, a trade deficit and relatively weak rankings in maths and science education. In the context of recent economic downturns, increasingly attention is being paid to the reoccurring tendency of the public to make poor financial decisions, which threaten the economy’s ability to recover. Rather than reacting after economic downturns, it could be helpful to investigate intergenerational effects, where financial behaviours are passed down through generations through a process of ‘socialisation’.

The study

The aim of this study was to examine the role of financial socialisation in low-income Hispanic households in the United States, to examine whether there was evidence of the transmission of values relating to behaviours such as saving or searching for the cheapest price, from parent to child. The study is a student’s thesis, which forms part of their Master of Economics degree. The methodology comprises a secondary data analysis of data from the US Bank and the Centre for Economic Education and Economic Empowerment at California State University, Fullerton conducted. The survey’s administrators conducted the survey as part of their work analysing the effects of Individual Development Accounts (IDAs) on post-secondary education for primarily Hispanic youth. An IDA is a savings account that is deisgned to enable families with modest means to save towards a targeted amount. These organisations conducted the survey over two phases in 2011 and 2012, respectively, and had 211 responses from eighth grade students and their corresponding parent residing in a predominately Hispanic community.

Key findings

Managing money:

• Respondents with one sibling were more likely to have a negative self-perception of their knowledge about money management, than a positive self-perception. In households with more than three siblings, attitudes toward managing money were more likely to be divergent amongst siblings. This suggests that socialisation decreases as the number of children increases.
• The study found that if a parent has a college degree, the probability that both a parent and child perceive themselves as possessing a higher degree of knowledge about money management increased by 36 percentage points.

Borrowing:

• The study found that increased grade-point averages correlated to the belief that it was not acceptable to borrow. A one point increase in grade point average decreased the probability of the respondent considering it ‘acceptable to borrow’ by 12 percentage points.

Spending:

• The study found that there was an increased likelihood of parents and children sharing a similar attitude toward spending if the parent respondent was a mother.
• Those who have a college degree are more likely to assign a higher value to saving as opposed to spending. Those without a diploma were less likely to assign a higher value to saving over spending.
• The results showed that parents and children were more likely to diverge in their perceptions of spending if the child was female.
• The results suggest that parents are more likely to have a child with a dissimilar attitude to them about spending, than share a pro-spending attitude with their child.

Finding a cheap price:

• The probability that a parent and child shared the same attitude towards seeking cheap product prices increased by nearly 27 percentage points for married households.
• The study found that in households with more children, there was an increase in the likelihood of the parent and the child placing the same value on finding a cheap price.
• The study also found that an increase in time socialisation was more effective for males, whereas an increase in time socialisation had the adverse effect for females.

Points to consider

• Methodological limitations: The analysis included a ‘time factor analysis’ and a ‘goods factor analysis’. These analyses were limited to retain one factor each (that is, time socialisation and goods socialisation), to enable easy interpretation of the empirical output, but it did limit the comprehensiveness of the analysis. Had the factor analysis not been limited to retain one factor, the researcher would have used four factors for time socialisation and five for goods socialisation.
• Generalisability/ transferability: The sample size was fairly small (n=211) which limited the interpretation of numerous models. Implementing a larger-scale study would enable greater generalisability of the findings.