Financial education creates positive 'snowball effect'

Sep 01, 2011 By Jeff Harrison

(PhysOrg.com) -- According to a University of Arizona study, cumulative education leads to more financial knowledge and more positive financial behaviors.

New research from the University of Arizona shows that high school and who are exposed to cumulative financial education show an increase in financial knowledge, which in turn drives increasingly responsible financial behavior as they become

In fact, researchers at the UA Norton School of Family and Consumer Sciences documented a "snowball effect" that these early efforts exponentially increase the likelihood that students will pursue more financial education as time goes on, including informal learning through books, magazines and seminars.

Young adults also begin to display their own distinct financial identities that reflect varying degrees of parental influence and autonomy. The Norton School researchers have bundled them into three categories: pathfinders, followers and drifters.

Also, parents, more than any other factor, exert the most influence over their children when it comes to developing positive financial attitudes and behaviors – 1.5 times more than continuing financial education and more than twice as much as what young people hear from their friends.

These findings come from the third wave of a landmark study, Arizona Pathways for Life Success in University Students, or APLUS. In this latest round, researchers surveyed more than 1,500 students and drop-outs four years after they entered the UA in the fall of 2007.

"We are able to show causal linkages between repeated and higher levels of good financial behaviors such as tracking expenses, paying credit cards in full and saving money each month," said Soyeon Shim, director of the Norton School and the lead researcher on APLUS.

"Students also are smarter about finances in general compared to previous waves of the study. Objective knowledge measured by performance on a financial quiz rose five percent," she said.

APLUS researchers studied how individual financial styles developed in the cohort, including the degree to which young adults relied on parents or themselves to guide their financial decisions and how financial style affects financial capability. They discovered three clusters of emerging financial styles among the students:

Pathfinders (31 percent): The most promising group of young adults are those most engaged in defining their financial style and see themselves as having actively chosen their approach to managing their finances. Of the three groups, pathfinders exhibit more positive financial attitudes, feel much better about their efficacy and control and report the most positive financial behaviors.

Followers (39 percent): The largest group of young adults tends to follow their parents' guidance and imitate their parents' financial management style. Although they are exploring finances on their own, they also are the most unconcerned about the process of doing so. 

"This is not necessarily a negative financial style when parents are good at financial management," said Joyce Serido, an assistant research professor and co-principal investigator of the study.

Drifters (30 percent): These young adults are those least accepting of their parents' financial management style, but they have not yet established any approach of their own. They are not necessarily unconcerned about personal finance, but their financial behaviors tend to be worse than their peers. However, their financial knowledge and awareness overall are solidly average.

Researchers believe that some young adults will retain their financial identity, while others will continue to evolve and change places as they encounter new opportunities and unexpected financial demands on the path to financial self-sufficiency.

For Hannah Gomez, a recent UA graduate, the decision to stay close to home in Arizona, rather than attend a private school, came with an important safety net. By taking advantage of in-state tuition and a scholarship, Gomez graduated debt-free in an unsteady economy.

"Not only was the cost much lower than my first-choice private university, but it gave me the chance to learn to manage my finances at lower stakes, and now I can afford and understand my loans for graduate school," she said.

Although parents continue to be the most important factor in building financial capacity in children, the nature of their influence changes over time. Parental modeling declines slightly while children are in college – perhaps because students spend less time at home, or parents are stepping back to let their young adult children take more responsibility for their own finances.

The value of parental communication – the most significant influence – remained stable over the study's time frame, Serido said.

"As young adults mature, so do their conversations with their parents about money. Parents need to evolve their approach to fit their students' growing independence: treat the discussions as a dialogue between equals, adult to adult, and scale back on lecturing their children and flooding them with checklists and advice," she said.

Meanwhile, the reported influence of parental expectations for responsible financial behaviors, such as tracking expenses and sticking to a budget, increased 4 percent since their freshman year.

Explore further: Study looks at stock market performance of polarizing brands

More information: www.aplus.arizona.edu/

add to favorites email to friend print save as pdf

Related Stories

Mom and dad as financial advisors

Jul 27, 2009

Why are so many students deep in debt before they finish college, only to take on more debt as they begin their careers? The answer may be found by looking at the social forces that shape the attitudes and behaviors of today's ...

Financial literary bailout for the younger generation

Jun 02, 2010

In the aftermath of the global financial crisis, financial literacy is still low among young adults. According to a new study published in the Journal of Consumer Affairs, only twenty-seven percent of people aged 23-28 can an ...

The new adulthood: Extended parental support as a safety net

Mar 15, 2011

A new study from the Journal of Marriage and Family shows that contrary to popular anxieties about slacker young adults who refuse to grow up, or indulgent parents who stifle their adult children's development by continuing to sup ...

Recommended for you

Which foods may cost you more due to Calif. drought

9 hours ago

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 2

Adjust slider to filter visible comments by rank

Display comments: newest first

ArtflDgr
not rated yet Sep 01, 2011
is it really so hard to get that ignorance over time doesnt work?
elephants_are_soft_and_squishy
not rated yet Sep 01, 2011
Well, look at you! Out and about and typing up a storm.

More news stories

Newlyweds, be careful what you wish for

A statistical analysis of the gift "fulfillments" at several hundred online wedding gift registries suggests that wedding guests are caught between a rock and a hard place when it comes to buying an appropriate gift for the ...

Can new understanding avert tragedy?

As a boy growing up in Syracuse, NY, Sol Hsiang ran an experiment for a school project testing whether plants grow better sprinkled with water vs orange juice. Today, 20 years later, he applies complex statistical ...

Crowd-sourcing Britain's Bronze Age

A new joint project by the British Museum and the UCL Institute of Archaeology is seeking online contributions from members of the public to enhance a major British Bronze Age archive and artefact collection.

Turning off depression in the brain

Scientists have traced vulnerability to depression-like behaviors in mice to out-of-balance electrical activity inside neurons of the brain's reward circuit and experimentally reversed it – but there's ...

Is Parkinson's an autoimmune disease?

The cause of neuronal death in Parkinson's disease is still unknown, but a new study proposes that neurons may be mistaken for foreign invaders and killed by the person's own immune system, similar to the ...