Patterns of Financial Attributes and Behaviors of Emerging Adults in the United States

Background: Financial independence is a major developmental milestone during the emerging adulthood. The period also exposes them legally to major financial systems, like savings or credit market (as they turn 18). However, limited exposure to complex financial interactions during childhood or adolescence poses significant challenges in later life. Research indicates that financial behaviors acquired during emerging adulthood are likely to persist.

Financial education programs are in some schools, however, studies show that emerging adults are less likely to take advantage of financial education opportunities. Experts attribute one-size-fits-all approach as the reason for lack of participation in these programs but individual customization has its cost and group-based customization requires greater knowledge about how individuals differ as a group. Mapping patterns of financial capabilities of emerging adults can be solution, but the existing literature on the topic is sparse. The present research study thus aimed at identifying groups of emerging adults with common characteristics based on a range of financial behaviors, perceptions of financial wellbeing, and financial socialization, all affecting financial wellness.

Methods: The sample consisted of data from 2015 National Financial Capability Study (NFCS). The study used 3,050 respondents in the 18-24 age group out of a total sample of 27, 564 respondents. Different questions from NFCS were used to develop 13 variables of interest, viz. – financial socialization, actual and perceived financial literacy, perception of financial wellbeing, financial planning, banking access, investment, spending, credit card, health risk financial behaviors, alternative financial service use, financial vulnerability, and risk tolerance. To identify patterns of financial capabilities of emerging adults, latent class analysis was used. Further, posterior probability chi-square test was to assess demographic differences across the patterns.

Results: Results indicate four different patterns. More than half of the emerging adults were found to be in financially precarious (32%) or financially at-risk (36%), who scored low on several financial attributes and behaviors. Financially striving (10%) and financially stable (22%) scored moderate to high on these indicators. There were more males in the financially striving group (0.767) or financially stable (0.573) group as compared to females. We found statistically significantly higher number of whites in the financially stable group than in the financially striving group (0.377). Married emerging adults were found to be in the financially striving (0.184) and in the financially at-risk groups (0.179). Similarly, more emerging adults with bachelor or higher degrees (0.205) were observed in the financially stable category. Emerging adults with low-income were found to be in financially precarious (0.737) and at-risk (0.733) categories.

Conclusions and Implications: Findings suggest designing appropriate interventions based on diverse patterns of financial behaviors and attributes, as they are more likely to achieve the desired results than offering universal programs. America’s present financial capability ecosystem is ripe with supportive structures and mechanisms to strengthen financial capabilities of the emerging adults and preparing them early on (since adolescence) for this transition might yield desirable results. Available resources from policymaking institutions require to be customized to increase and sustain participation of emerging adults in financial education programs.