Measuring Family Financial Socialization

Abstract

The first paper in this dissertation describes the scale development and validation process of three new scales: the Parent Financial Modeling Scale (eight items), the Parent-Child Financial Discussion Scale (nine items), and the Experiential Learning of Finances Scale (three items). The scales may be treated as subscales of a multidimensional latent construct: the Family Financial Socialization Scale (20 items). The three scales measure the three primary methods of family financial socialization. The scales are designed to be retrospective, with target participants being U.S. emerging adults (age 18-30). During scale development, an initial pool of items was generated, expert assessments were collected, cognitive interviews were conducted, and (following preliminary data collection) preliminary item reduction analysis and confirmatory factor analysis were conducted. Final data was collected from a diverse (e.g., 51.7% female, 47.6% male, etc.; 31.6% White, 22.0% Black or African American, 19.8% Hispanic or Latinx, 14.6% Asian, etc.; 52.6% parent does not have college degree, 47.4% parent has college degree) sample of 4,182 U.S. emerging adults. During scale validation, item reduction analysis, confirmatory factor analysis, reliability tests, measurement invariance tests, and construct validity tests were conducted. The three scales were found to be both reliable and valid across various psychometric testing, as well as invariant across sex, race, and parents’ education level.In the second paper, we expand on family financial socialization theory and utilize these new, validated measures of family financial socialization for the first time. Using data from 4,182 U.S. emerging adults, we test how the three main methods of family financial socialization (i.e., parent financial modeling, parent-child financial discussion, and experiential learning of finances) are uniquely associated with outcomes related to financial wellbeing (i.e., financial distress, financial satisfaction, and financial independence), and whether financial self-efficacy and financial management behaviors mediate these associations. Overall, we found that 1) family financial socialization retrospectively recalled by emerging adults while they were growing up (until age 18) is associated with financial outcomes in emerging adulthood, and 2) financial self-efficacy and financial behaviors are mediators between family financial socialization and financial outcomes. More specifically, we found that 1) parent financial modeling was directly associated with financial behaviors and financial satisfaction and was indirectly associated with all three financial outcome variables through financial behaviors, 2) experiential learning of finances was directly associated with financial self-efficacy and was indirectly associated with all three financial outcome variables through financial self-efficacy, and 3) parent-child financial discussion had zero direct or indirect associations. Across the two studies, these findings have implications for efforts to improve the financial wellbeing of future emerging adults through improved financial socialization from parents before age 18. For example, parents (of children age 0-18) may consider 1) facilitating hands-on financial experiences for their children and 2) improving their own financial behaviors to set a positive example for their children. These efforts may benefit children’s future financial self-efficacy, financial behaviors, and financial wellbeing.