Exploring the Drivers of Family Financial Socialization: Evidence from the Youthsave Experiment

Background: Many families make concerted efforts to educate and train their children in finance and commerce as they grow due to an increased appreciation of the importance of teaching young people about these subjects at a young age. The increased importance attached to financial socialization has attracted more empirical investigation into the effects of financial socialization on children’s outcomes, but with limited focus on the antecedent of financial socialization. There remains an empirical gap in the rationale and factors that motivate parents’ decision to financially socialize their children and the factors that determine the level of financial socialization. Grounded in the family financial socialization theory, this study examines the factors within the family setting that determine adults’ decision to educate the young generation on financial issues.

Methods: The study used multilevel modeling (MLM) and a nested dataset from Ghana, with children (n=3678) nested in schools (n=100 ), and schools nested in administrative districts (n=41), to address the research questions. The outcome variable, financial socialization, was measured in different ways i.e binary outcome (parents were asked if they take their children with them when they visit banks and whether they engaged their children in financial decisions), and a continuous measure on a set of questions that to ascertain the levels at which parents discussed finances with their children. The independent variables included financial literacy, parent money management behavior, parents’ future orientation of themselves, and their relation to the child (i.e whether or not the child was their biological child or not).

Findings: We found that parents' future expectations/orientation of themselves was significantly
associated with the financial socialization of their children (ß=0.13, p<.001). We also found that parents’ money management behavior was associated with about a 10% increase in the propensity to engage children in financial decision-making (OR=1.09, p<.001). Money management behavior was associated with parents discussing money-related issues with their children (ß=0.16, p<.001) as well as about a 5% increase in the propensity of parents financially socialize their children through bank visits with their children (OR=1.05, p<.001). Financial literacy was not associated with parents talking about money to their children (ß=0.20, p=.09), engaging their children in financial decision-making (OR=1.10, p=.24), and visiting the bank with their children (OR=1.03, p=.08). We found that a parent’s relationship with the child was significantly associated with financial socialization. That is, being a biological child to a parent is associated with a 32% increase in the propensity of being involved with financial decision-making compared to non-biological parents (OR=1.32, p<.001). Also, being a biological child was associated with a 1.20 increase in the This result was consistent across two parent-reported models i.e talking to children about money (ß=1.20, p<.001) and involving children in financial decision-making (OR=1.32, p<.001).

Conclusions and Implications: For parents, the results suggest a need for planned and conscious financial socialization of their children as studies have shown that effective financial socialization of children leads to improved financial well-being, knowledge, literacy, and financial resilience in their adulthood.