Financial socialization's impact on investment orientation and household net worth

Abstract

This study investigates the role of financial socialization for investment orientation and household net worth. Combining consumer socialization literature with findings in the behavioural finance literature, survey data were analysed to (1) investigate the relationship among household net worth, financial socialization, indicators of investment orientation and socio-demographic investor characteristics; (2) examine the influence of sociodemographic investor characteristics and financial socialization on indicators of investment orientation; and (3) test whether financial socialization affects household wealth above and beyond socio-demographic and investment orientation factors. Parents emerged as a relevant socialization agent of investors, influencing investment regularity and household net worth above and beyond other factors. This result extends earlier findings about parents' role for a person's financial management and savings behaviour to the investment context. Based on our findings, educators may want to involve parents in their efforts. They may want to emphasize the importance of starting investing regularly at an early age and of continuing to increase involvement in investing over the years. Financial planners and financial counsellors may consider emphasizing these two practices for their clients and involve children of their clients when and where appropriate. Literature reviewSocialization is the process by which individuals acquire knowledge, skills and values to participate as members of a group and in society (McNeal, 1987;Moschis, 1987). It begins in childhood and continues, to some extent, throughout life. Applied to market behaviour, consumer socialization has been defined as the process 'by which young people acquire skills, knowledge and attitudes relevant to their functioning in the marketplace' (Ward, 1974, p. 2). Financial socialization, according to Danes (1993), is 'much more inclusive than learning to effectively function in the marketplace.

Childhood roots of financial literacy

“…They conclude that when it comes to different parental teaching strategies: "the more the better". Further, Hira et al (2013) establish that financial socialization by the parents is positively associated with household net wealth and the tendency to invest regularly.…”

Whats and Hows of Family Financial Socialization: Retrospective Reports of Emerging Adults, Parents, and Grandparents

“…Explicit financial teaching via discussion has also been found to be associated with children's financial learning and future behaviors . For example, compared with their counterparts, adults whose parents engaged in financial discussion when they were children tend to have less credit card debt (Grinstein-Weiss et al, 2011;Norvilitis & MacLean, 2010), less loan delinquency and a lower rate of home foreclosure (Grinstein-Weiss et al, 2012), higher credit scores (Grinstein-Weiss et al, 2011), and higher household net worth and rate of investing (Hira et al, 2013). Similarly, Bucciol and Veronesi (2014) found that adults whose parents taught them to save during childhood were 16% more likely to save, and their savings were 30% more than their counterparts who were not taught.…”

“…Parents have the greatest impact on children's financial learning (Clarke et al, 2005;Grinstein-Weiss et al, 2012;Jorgensen & Savla, 2010;Serido, Shim, Mishra, & Tang, 2010) and therefore on future financial capability and independence (Grinstein-Weiss, Spader, Yeo, Key, & Freeze, 2011;Hira, Sabri, & Loibl, 2013). In recent years, emerging and young adults have been struggling to achieve financial capability and independence (Clarke et al, 2005;Lusardi, Mitchell, & Curto, 2010).…”

The Economic Importance of Financial Literacy: Theory and Evidence

“… 28 Other studies discussing financial socialization of the young include Hira, Sabri, and Loibl (2013) and the references cited therein. …”