Childhood roots of financial literacy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We use the concept of financial socialization and aim to represent three major agents of financial socialization: family, school and work. Thus we compile twelve relevant childhood characteristics in a new survey study and examine their relation to financial literacy, while controlling for established socio-demographic characteristics. We find in a mediation analysis that both family and school positively affect the financial literacy of adults. Moreover, financial literacy and school related variables also have a direct effect on financial behavior. This suggests that family factors and schooling work through complementary channels. Terms of use: Documents in EconStor may Childhood Roots of Financial Literacy 1 IntroductionMany economic decisions require basic knowledge of financial concepts, such as interest rates and inflation. However, many people lack this type of knowledge. The degree of this deficiency has been systematically researched using tests, which collect "financial literacy"scores. There is growing evidence that individuals who possess higher financial literacy have better economic outcomes as it improves financial decision making (e.g., Lusardi and Mitchell, 2014). At the same time, these studies also find that in many countries and many population groups, financial literacy levels are low. In the USA only 30.2% can answer all three of the standard financial literacy questions. This number is not much higher at 44.8% and 53.2% in the Netherlands and Germany respectively (Lusardi and Mitchell, 2014, BucherKoenen and Lusardi, 2011, van Rooij et al., 2011b Several variables have been found to be linked to a person's financial literacy. These factors include socio-demographic variables in the way that better education, higher age or higher incomes are related to higher financial literacy. Many of these factors seem to be at least partially shaped by childhood experiences of today's adults (see Lusardi et al., 2010).Indeed, several studies either look at the impact of some childhood experiences on financial behavior (e.g., Webley and Nyhus, 2013, Bucciol andVeronesi, 2014), or use a specific childhood variable as instrument for financial literacy (Behrman et al., 2010, 2012, van Rooij et al., 2011b. Thus many childhood variables have been considered in relation to financial literacy and financial behavior. What remains less clear is: what are the main channels through which childhood experiences affects financial literacy and financial be...

Financial Literacy and Self‐Employment

“…Other omitted factors that could be correlated to self‐employment, financial literacy, and our instrument, are devoted to the questions of how individuals have dealt with money during childhood and whether they learned to manage money at all. Jorgensen and Salva () and Grohmann, Kouwenberg, and Menkhoff () show that financial socialization by parents plays a major role in financial literacy. Fornero, Rossi, and Sansone () show that individuals who regularly received pocket money during their childhood are more financially confident adults.…”

Financial literacy, financial advice, and financial behavior

“…For example, Grohmann et al (2015) identify three potential channels of financial socialization: family, school and work and find that two of the three channels, i.e. family and school, indeed have a positive impact on the financial literacy of the adult subjects in their study.…”

Exploring the relationships between impatience, savings automation, and financial welfare

“…They write that "Rules like the debt ethic are learned from parents and other models, which suggests that there will be differences in the use of rules depending on social class, education, and age" (p. 398). Literature on financial socialization has explored such learning, finding that peoples' financial attitudes, skills, and behaviors are influenced by others including parents, co-workers, and the media (Grohmann, Kouwenberg, & Menkhoff, 2015; for a review, see Gudmunson & Danes, 2011). For instance, college students who report that their parents were influential regarding money are also more financially knowledgeable (Jorgensen & Savla, 2010), and parental teaching about savings habits is positively correlated with saving behavior over children's adult lives (Bucciol & Veronesi, 2014).…”