Financial Socialization, Financial Planning, and Savings Outcomes Among Kenyan Youth: A Mediation Analysis

Background and Purpose:Technological and institutional advancements are increasing the financial inclusion of youth in sub-Saharan Africa (SSA). However, we still know fairly little about the financial information and tools accessible to youth in the region. Addressing this knowledge gap is especially salient given the region’s bourgeoning youthful population. This study uses data from Kenya to investigate the relationship between family financial socialization and children’s financial behaviors operationalized as savings. The study is guided by Assets Theory (Sherraden, 1991), which posits that financial assets develop human capital and transform social behavior in part by influencing one’s perceived possibilities. In addition, the study employs Bandura’s (1977) Social Learning Theory, which argues we learn through modeled behavior within a specific social context.

The following hypotheses are tested:

Ha 1: Youth who report higher rates of family financial socialization are more likely to be savers.

Ha 2: Financial planning mediates the relationship between financial socialization and savings.

Methods: We utilize baseline data from YouthSave-Kenya Impact Study (N=3965), a  longitudinal study that measures the long-term impacts of youth savings on developmental outcomes of youth aged 9-18 years (M=12.2, SD=1.1). Study participants were selected from 90 schools matched on several socio-economic students’ characteristics. The outcome variable, savings, is dichotomous, with youth who are savers coded 1. The mediator, financial planning, is operationalized as engaging in money management. Youth who report planning out monetary expenditures are coded 1, while those who never, seldom, or only occasionally make spending plans coded as 0. The independent variable, family financial socialization, is a composite measuring youth’s participation in household money matters. A series of logistic regression models were constructed to examine the relationships between financial socialization and financial planning and savings behaviors.  Tests of mediation were conducted as outlined by (Preacher & Hayes, 2008) using Stata’s binary-mediation analysis. Bootstrapping using 500 replicates produced the final coefficients’ standard errors and confidence intervals. 

Results:Findings support both hypotheses. Financial socialization was significantly associated with youth savings. Furthermore, the odds of saving for children from households where parents are savers were 1.7 times those of children from non-saving households. In support of the mediation hypothesis, the magnitude of the direct effect of financial socialization decreased when financial planning was introduced as a mediator (β = 0.27, 95% CI [0.22-0.31] vs β = 0.31, 95% CI [0.27-0.36]), and the indirect effect was statistically significant (β =0.05, 95% CI [0.04-0.06]). We conclude that financial planning partially mediated the relationship between financial socialization and savings behaviors.

Conclusions and Implications: These findings support the development of interventions that promote youth engagement with financial information. We also find that youth who are exposed to financial socialization at home are more likely to be savers, a relationship which is mediated by financial planning.  Because close to 69% of youth reported that family was their primary source of financial knowledge, the findings lend support to interventions that equip parents with strategies to create financially savvy youth.