Young Adults’ Financial Literacy
Young adults today are not financially literate, which studies describe differently (de Bassa Scheresberg, 2013; Lusardi et al., 2010; Pandey et al., 2020). Pandey et al. (2020) explain that low financial literacy is evident in low habits of saving in, for instance, funds, stocks, and bonds, while de Bassa Scheresberg (2013) highlights that it is shown in patterns of high-cost borrowing and low pension savings. Lusardi et al. (2010) underline that it is evident in high debt credit purchases or student loans. However, the studies agree that young adults have difficulties managing their finances and making independently sound financial decisions (de Bassa Scheresberg, 2013; Lusardi et al., 2010; Pandey et al., 2020).
For young adults, financial mistakes could have damaging outcomes, such as a lower standard of living and financial wealth (Widdowson & Hailwood, 2007). Thus, policymakers develop educational programs that are supposed to help young adults to become financially literate. However, academic programs have different outcomes for different individuals, which Huston (2010) argues makes the educational program inefficient as a one-size-fits-all approach to financial literacy. Additionally, many educational programs that focus on increasing individuals’ financial knowledge have a low impact on the individuals’ behaviors and attitudes towards finances (Johan et al., 2021). Huston (2010) argues that there is a big difference between financial knowledge and financial literacy. Thus, financial literacy is a combination of having financial knowledge and applying the information suitably (Huston, 2010).
Johan et al. (2021) argue that educational programs are insufficient when increasing young adults’ financial literacy. Thus, policymakers, educators, and scholars have difficulties reaching out to young adults and finding a practical approach to help young adults make sound financial decisions (Huston, 2010). Johan et al. (2021) argue that learning from the young adults’ surroundings and experiences is more effective than education programs to gain financial knowledge and changing behaviors and attitudes toward money which is beneficial for the individual’s financial situation. Additionally, young adults must feel comfortable actively seeking information and applying it to their financial context to increase their financial literacy (Anderson et al., 2000).
Attitude is a complex psychological concept formed by individuals’ personalities, beliefs, values, behavior, and motivations (Pickens, 2005). Anything that someone has an attitude towards is called an attitude object (Solomon et al., 2012). Numerous studies use the tripartite model of attitude to define attitudes, also called the ABC model in literature (Bakanauskas et al., 2020; Eagly & Chaiken, 2007). The tripartite model is a validated model used in many research studies (Solomon et al., 2012). The model divides attitudes into affective, behavioral, and cognitive (Breckler, 1984). Affective attitudes refer to the effects of different stimuli, such as emotions or feelings, on the attitude object (Bakanauskas et al., 2020). The behavioral component describes attitudes through others’ actions and how the individual responds and behaves to the attitude object (Breckler, 1984). The cognitive component is an attitude based on facts (Breckler, 1984). These facts are influenced by external environment stimuli such as knowledge, experiences, and the individuals’ memories (Bakanauskas et al., 2020). The components in the tripartite model shape a reaction to the attitude object (Solomon et al., 2012). Bakanauskas et al. (2020) describe that this reaction in the formation stage could further reflect behavior, which is explained in Figure 2.
Another theory that explains the formation of an attitude is the attitudes formation theory (Solomon et al., 2012). This theory focuses on understanding why attitudes exist and how they take shape and change (Katz,1960). Katz (1960) explains that the theory is based on the point of view that attitudes constantly change depending on the purpose that they serve for the individual. This means that two individuals can have the same attitude towards an object but for different reasons (Solomon et al., 2012). The theory is illustrated by four psychological functions: adjustment, ego-defensive, value-expressive, and knowledge function (Katz, 1960).
The adjustment function refers to attitudes developed because they are favorable or unfavorable for the individual; these could be attitudes developed to achieve a goal or avoid a plan or attitudes towards something that leads to the individual being satisfied or dissatisfied (Katz, 1960). Katz (1960) gives one example that individuals might develop favorable attitudes toward a political party that benefits them. The ego-defensive function refers to attitudes designed to protect the individual from the internal and external reality that defects the ego (Katz, 1960). One example could be individuals who have difficulties saving money and therefore develop an attitude that saving is unnecessary or boring (Katz, 1960). The value-expressive function refers to self-identity attitudes, such as whom the individual wants to be. One example is that religious individuals strengthen beliefs and values within the religion. The value-expressive attitudes are highly affected by the socialization surroundings (Katz, 1960). The knowledge function refers to attitudes developed to seek clarity on why things are as they are (Katz, 1960).
Examples of this type of attitude are stereotypes that individuals develop to categorize people into specific categories.
Attitude Towards Money
Argyriou and Melewar (2011) point out that attitudes are not formed by a single process but by several different processes. From a consumer perspective, these processes are based on evaluative judgments created and retrieved, which develop attitudes (Argyriou & Melewar, 2011). Attitudes impact how the individuals see a situation and why they behave in a specific way (Pickens, 2005). Therefore, the money attitude is essential because it affects how individuals see and act with money (Pandey et al., 2020; Roberts & Jones, 2001).
Several earlier studies have investigated young adults’ attitudes towards money by dividing them into positive and negative attitudes (Aydin & Selcuk, 2019; Pandey et al., 2020; Sohn et al., 2012). Positive attitudes toward money are described as attitudes that impact individuals to behave in a manner that would be to their financial benefit, including being careful with their money, investing and saving their money, and tracking their expenses (Pandey et al., 2020). Additionally, individuals with positive attitudes toward money tend to think and plan for their financial future (Aydin & Selcuk, 2019). People with a positive money attitude are more likely to seek knowledge to improve their finances (Sohn et al., 2012). On the other hand, negative money attitudes are described as attitudes that impact individuals to behave in a manner that defects the individuals’ financial situation (Pandey et al., 2020). Pandey et al. (2020) underline that individuals with negative attitudes toward money rarely keep track of their expenses and therefore are not careful with their money or do not save and invest for their future, while Sohn et al. (2012) describe these attitudes as perceptions that money is something to avoid or as an accomplishment and symbol of domination and power.
Money Attitude Scale
To understand the dimensions of an individual’s attitudes towards money, Yamauchi and Templer (1982) developed the MAS. The MAS is validated as a multi-dimensional scale (Durvasula & Lysonski, 2007) based on five factors that make up an individual’s attitudes towards money (Yamauchi & Templer, 1982). The five factors that MAS is based on are power prestige, retention time, distrust, anxiety, and quality, as presented in Figure 3 (Yamauchi & Templer, 1982).
The first factor in the MAS is power prestige. The power prestige factor indicates that money could be used as a tool for power (Yamauchi & Templer, 1982). This is either by impressing others and gaining status with the money or by using money as a tool to influence others (Yamauchi & Templer, 1982). The second factor in the MAS is retention time. According to Yamauchi and Templer (1982), the retention time factor indicates the attitudinal importance of preparing for the future. Hence, individuals who display a retention time attitude are careful with their money and plan and monitor their finances (Yamauchi & Templer, 1982). Individuals that act carefully with money have habits of saving and tracking their expenses and display a money attitude that can be seen as positive for the individual’s finances (Pandey et al., 2020).
Yamauchi and Templer (1982) describe the third factor, distrust, as attitudes that indicate low trust in money situations. Hence, these individuals mistrust situations when consuming money by being suspicious, hesitant, and doubtful (Yamauchi & Templer, 1982). One situation that Yamauchi and Templer (1982) use when describing distrust attitudes is when the individual feels suspicious over the price of a product or service or feels fooled by the seller. According to Roberts (1999), the distrust factor could be better labelled as consumer competency due to the distrust factor being affected by the consumer’s confidence when consuming. The fourth factor in the MAS is anxiety. This factor involves attitudes that indicate that money is a source of worry, either as a source of stress or to protect the individual against financial situations that cause anxiety (Yamauchi & Templer, 1982). The final factor in the MAS is quality. This factor involves attitudes that indicate that high quality is essential when purchasing a product (Yamauchi & Templer, 1982). However, this factor is sometimes included in the power prestige because it originally came from the power prestige factor and was better presented through that factor (Roberts, 1999).
Attitudes Towards Money Among Young Adults
Several studies have applied the MAS to young adults to understand their attitudes toward money (Atta, 2017; Masuo et al., 2004; Phau & Woo, 2008; Roberts, 1999; Roberts & Jones, 2001; Sharif et al., 2018). According to Roberts (1999), young adults score high on the factor of power-prestige, and hence young adults seem to use the money to impress and influence others (Roberts, 1999). Sharif et al. (2018) underline that the high score in power-prestige among young adults is due to young adults often seeing their self-worth in materialism. Hence, they also have a high score on the factor quality (Sharif et al., 2018). According to Masuo et al. (2004), young adults are a consumer group that values luxury goods to gain status. Additionally, young adults tend to associate money with having social power (Sharif et al., 2018). According to Roberts and Jones (2001), the attitude of power prestige significantly impacts young adults using credit cards and compulsive buying. Sharif et al. (2018) explain that the association of money with social power also makes young adults compete and compare, generating financial insecurity and anxiety. Furthermore, young adults with a high anxiety factor usually use consumption to reduce their anxiety (Sharif et al., 2018). Roberts and Jones (2001) agree with this assertion and proposed a positive relationship between compulsive buying and anxiety attitudes. However, Roberts (1999) points out that young people have less anxiety about money than older adults. This is because young people have fewer financial obligations and more time to improve their financial situation than older adults (Roberts, 1999).
According to Phau and Woo (2008), the long future that young adults still have ahead of them also leads them not to fully perceive the burden of financial responsibilities and therefore display low scores in the distrust factor (Sharif et al., 2018). Sharif et al. (2018) also point out that young adults have high access to comparison websites online, which could lower the distrust and feeling of being fooled by the seller.
Furthermore, Pandey et al. (2020) highlight that young adults do not save money for their future as much as older adults. In a study on young adults’ money attitudes concerning saving intention, Atta (2017) points out that young adults with high retention money attitudes have higher saving intentions. Young adults with a retention money attitude are conscientious when spending money, even on necessary things, and inherently motivated to save for the future (Atta, 2017). According to Masuo et al. (2004), young adults are less careful with their money and become more careful as they get older, which is demonstrated in budgeting behaviors.
Socialization Sources Influencing Attitude Towards Money
Attitudes toward money are affected by influences from demographic factors, such for instance gender (Johan et al., 2021), age, education (Furnham, 1984), and ethical background (Medina et al., 1996). There is a difference between individuals’ financial literacy depending on different subgroups like peers, family, and education (Lusardi et al., 2010). Individuals develop strong attitudes toward money through the adolescent phase, which is hard to change over time (Barry, 2016). During emerging adulthood, adaptation and learning from one’s surroundings is critical and young adults are initially influenced by primary socialization sources consisting of family, school, and peer clusters (Oetting & Donnermeyer, 1998). Hence, it is vital to explore what influences young adults to understand their way of interacting with money (Barry, 2016; Rai et al., 2019). When it comes to socialization sources influencing attitudes about money through providing financial information, Sohn et al. (2012) point out that education programs, parents, and media are principal socialization sources. Ward (1974) defines consumer socialization as a process of the skills, knowledge, and attitudes towards consumption that consumers acquire over their lifetime. With this description as a foundation, Lachance and Legault (2007) describe four socialization sources that influence young adults’ money attitudes: parents, peers, school, media, and socioeconomic circumstances. This study will be based on the socialization theory that includes family, school, and peer clusters (Oetting & Donnermeyer, 1998). Additionally, this study will consist of media and socio-economic circumstances due to both Sohn et al. (2012) and Lachance and Legault (2007) concluded that media influence young adults’ attitudes towards money and Lachance and Legault (2007) conclude that socio-economic circumstances influence young adults’ attitudes towards money.
According to Oetting and Donnermeyer (1998), the primary socialization theory states that the family is a primary socialization source. Lachance and Choquette‐Bernier (2004) underline that parents play the most critical role in young adults’ consumers’ socialization process. The authors ighlight that the parents’ role is both active and passive due to young adults being influenced by observing their parents and communicating with them. Support is critical in the adolescent phase, where many young independent adults start to take care of their finances (Lachance & Legault, 2007). Pandey et al. (2020) conclude that being taught by one’s parents also significantly affects financial literacy among young adults. Additionally, other sources in the family are possibly influencing the young adults, such as grandparents (Lachance & Legault, 2007) and siblings (Lachance & Choquette‐Bernier, 2004).
The primary socialization theory also identifies peers as a primary socialization source (Oetting & Donnermeyer, 1998). Lachance and Legault (2007) argue that similar to parents, peers influence each other through communication and observation. From the perspective of peer pressure and young adults want to be like their friends. Earlier studies have found that peers strongly influence young adults’ gambling behavior (Shim et al., 2010) and how much they save for their future (Duflo & Saez, 2001).
Sohn et al. (2012) argue that media, like newspapers, radio, television, and the internet, are socialization sources where young adults actively seek financial knowledge. However, media sources like social media are passive socialization sources that influence young adults to impulse buying and consumption (Sharif et al., 2018). Several studies have contradicting conclusions about the effects of media as a socialization source. Lachance and Legault (2007) emphasize that young adults who utilize media as a socialization source are more likely to have low critical attitudes towards consumption, while Sohn et al. (2012) highlight that young adults who utilize media as a socialization source are more financially literate.
School is a socialization source that Lachance and Legault (2007) underline influences young adults’ attitudes towards money. According to Oetting and Donnermeyer (1998), school is a primary socialization source due to taking a big part in young adults’ lives and teaching basic skills and social behaviors. Lachance and Legault (2007) argue that school is helping young adults to be critical of consumer behaviors and develop attitudes toward budgeting and comparing prices. However, how much the young adults take in from their education depends on their motivation and interest, and young adults often feel like their education does not apply to their own life (Ahava & Palojoki, 2004). Hence, school is a socialization source that is moderated by the interests of the young adult (Lachance & Legault, 2007). Sohn et al. (2012) point out that the influence of school education is not enough to improve financial literacy among young adults. The authors explain that information from the classroom has a gap with the real-life world, and thus the practical experience is not learned from education.
The last socialization source that Lachance and Legault (2007) mentioned is Socioeconomic circumstances. There is divided opinion on how socioeconomic variables such as gender influence attitudes about money. According to Lachance and Legault (2007), gender affects shopping behavior, whereas women have more compulsive buying behavior. That statement aligns with Lusardi et al. (2010) conclusions that men saved more money than women. Roberts (1999), on the other hand, argues that women are cautious and save more money while men are competitive and power-focused with their money. Another socioeconomic variable that has a significant impact is occupation; if employed, colleagues could resemble the influence students have on peers (Lachance & Legault, 2007). Additionally, culture is a socioeconomic variable that impacts the formation of attitudes toward money (Roberts, 1999).
Financial Literacy, Money Attitudes, and Socialization Sources
Several studies have highlighted the relationship between financial literacy, attitudes about money, and socialization sources (Goyal & Kumar, 2021) and proven that attitudes about money and socialization sources are interrelated with financial literacy as well as with each other (Isomidinova et al., 2017; Sohn et al., 2012). Table 1 provides an overview of research that has been done in the area of financial literacy, money attitude, socialization sources, and young adults, which will illustrate more specifically the gap that this research will address.
Table of contents :
1.2 Problem Definition
1.3 Research Purpose and Research Questions
2. Literature Review
2.1 Financial Literacy
2.1.1 Young Adults’ Financial Literacy
2.2 Attitude Formation
2.3 Attitude Towards Money
2.3.1 Money Attitude Scale
2.3.2 Attitudes Towards Money Among Young Adults
2.4 Socialization Sources Influencing Attitude Towards Money
2.5 Financial Literacy, Money Attitudes, and Socialization Sources
3.1 Research Design
3.2 Research Approach
3.3 Research Strategy
3.4 Literature Search
3.5 Data Collection
3.6 Sample Selection
3.7 Data Analysis
4. Analysis and Findings
4.1 Sources that Influence Attitudes About Money
4.1.1 Attitudes Shaped in Childhood
4.1.2 Attitudes Shaped Through Emerging Adulthood
4.2 The Attitudes Influence on Financial Literacy
4.2.1 Attitudes Towards Money that Influence Activity
4.2.1 Attitudes Towards Money that Influence Inactivity
5. Discussion, Conclusions and Implications
5.2.1 Conclusions: Research Question 1
5.2.2 Conclusions: Research Question 2
5.3 Overall Conclusions
5.6 Future Research