Research Brief: On your own or still at home? The power of financial habits.

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New research from the University of Minnesota shows that for young adults starting their careers, it is not about how much money is earned but rather the choices made with how it is used that can make all the difference.

The research, published in the journal Emerging Adulthood, looked at the financial habits of young adults. Beginning when they were students in their fourth year of college, participants were surveyed three times over six years about their financial habits. Participants were asked about budgeting, saving, borrowing and paying.

After examining the data, researchers found these young adults exhibited three different behavioral patterns: planful, socially compliant and present focused.

The study found the planful group (11% of respondents):

  • consistently practiced responsible financial behaviors during college and two years after college;
  • reported being most self-sufficient: satisfied with their life, their career and their finances;
  • had parents who spoke to them about finances, modeled positive financial behaviors and, in turn, expected them to practice those behaviors.

Researchers found the socially compliant group (64% of respondents):

  • knew what to do with their finances, but did not successfully execute positive financial behaviors consistently;
  • learned from financial missteps in college and corrected them as they launched their careers.

“I think it is human nature to learn best by experience,” said Joyce Serido, the study’s lead author and professor in the College of Education and Human Development’s Department of Family Social Science. “It is not surprising that many emerging adults view finances as a ‘learn as you go’ or ‘wait as long as you can’ approach to dealing with financial responsibilities.”

The study identified the present focused group (25% of respondents) as:

  • struggling not only with their finances, but with being unsatisfied with their lives and careers;
  • having less parental support, less financial education and less self-control than participants associated with the planful group.

“When we looked more closely at the data, we found that a higher percentage of the present focused participants were either unemployed or underemployed,” said Serido. “I was surprised to find so many college-educated, emerging adults struggling. While the research points to the importance of making good choices, sometimes our circumstances limit those choices.”

Researchers suggest this study’s findings provide evidence that financial behaviors in emerging adulthood may signal a preferred pattern of behavior or approach that, over time, may become habitual and difficult to change even when life circumstances change. 

“While this study focused on college-educated individuals, it supports the overall idea of the importance of families in preparing children for adult life,” said Serido. “Parents can do this by setting expectations, talking about finances and modeling positive financial behavior.”

Research was supported by funding from the National Institute of Food and Agriculture: Hatch Grant #006781, the National Endowment for Financial Education and the Citi Foundation. This research is part of the APLUS initiative.

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