Financial Identity Formation: The Role of Perceived Parental SES, Parental Financial Communication, Formal Education, Work Experience, Attitudes, Subjective Norms, and Perceived Behavioral Control

Abstract

Young adulthood is a crucial period for identity development, and an unclear sense of identity has been associated with deleterious psychological and social outcomes (Kroger & Marcia, 2011). Young adults have also identified self-sufficiency, including financial independence, as an essential aspect associated with attaining adulthood (Arnett, 2000). However, current realities such as global economic uncertainty and a shift toward greater personal responsibility for financial security may threaten the successful attainment of these essential goals (Furstenberg, Rumbaut, & Settersten, 2005). Hence, I explored identity formation (Erikson, 1950, 1968) in the domain of finance. Four socialization factors (perceived parental SES, parental financial communication, formal financial education, and high school work experience) and three beliefs (attitudes, subjective norms, and perceived behavioral control) were used to predict financial identity (achievement, foreclosure, moratorium, and diffusion) in a sample of college students (N = 2,098) who were surveyed at two time points approximately 2.5 years apart. Four models were tested using structural equation modeling (SEM). First, using crossectional data, I tested the extent to which socialization factors and financial beliefs predicted financial identity. I found support for 79% of the hypothesized associations between the variables. Second, using crossectional data, I examined the degree to which financial beliefs mediated the association between socialization factors and financial identity. Findings indicated that financial beliefs partially mediated the association between parental financial communication and financial identity. Third, using longitudinal data, Time 1 (T1) socialization factors and T1 beliefs were used to predict Time 2 (T2) financial identity. As expected, T1 financial identity was the most robust predictor of T2 financial identity. After controlling for T1 financial identity, T1 variables were most predictive of changes in T2 foreclosure: Increases in foreclosure were predicted by perceived parental SES, parental communication, formal education, and subjective norms. Finally, T1 financial beliefs were allowed to mediate the association between T1 socialization factors and T2 financial identity. I found no evidence of mediation using longitudinal data. Findings from this study suggest that identity formation within the financial domain is consistent with identity formation in other recognized identity domains.