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San Diego State University

Fowler College of
Business Administration

Financial Literacy Education vs. Real-World Behavior:

money tree

What really influences spending and saving behaviors of young men and women?

Even though a 26-year-old female brokerage firm employee is keenly aware that she should put some money in her Roth IRA this month, she instead purchases a $400 pair of designer shoes online with a credit card. She reasons that the shoes were marked down by 30 percent and she can pay them off over a several month period so as not to break her budget. After all, this is what she watched her mother do many times when she wanted to “treat herself” to a small luxury.

Across town, a 24-year old man with a finance degree is offered the mid-level salaried banking position he applied for last month. To celebrate his new job, he goes on an extravagantly planned outing with his friends to Las Vegas. When his father asks him if he’s staying within his budget, he says “I’ll just figure out how to cut back on other expenses when I get back.”

Even though both the man and woman outlined in these examples may have significant financial literacy education, they may not behave in a manner that reflects their financial knowledge.

I’ll just figure out how to cut back on other expenses when I get back.

What Factors Influence Financial Behavior?

This hypothesis and the correlation between social/psychological forces and financial behaviors formed the basis of research conducted by three SDSU business professors. Their recent paper, published in the Journal of Consumer Affairs, concluded that while an understanding of financial management (financial knowledge) was important in determining the spending and saving activities of young adults, external and personality factors may also play a role and seem to affect men and women differently in their financial behaviors.

According to the research conducted by Drs. Ning Tang (finance), Andrew Baker (marketing) and Paula C. Peter (marketing), financial literacy programs and education had skyrocketed in number in the past two decades, but the actual execution of responsible financial behavior - good or bad - by young adults was impacted by parental influence, self-discipline and thoroughness (the ability to plan and be detail-oriented).

Influences Are Different for Men and Women

Furthermore, their findings indicated that men tended to be strongly influenced by psychological attributes, specifically thoroughness, while women were more inclined to be impacted by socialization, specifically, parental behaviors and advice. Women also seemed to be more likely to benefit from improved financial knowledge than men.

“Our findings indicated that socialization factors play a major role in the impact of financial behavior,” said Tang. “Involving the parents in youth-oriented financial literacy education programs may play a significant role in elevating the effectiveness of these programs. The objective of these programs would be to equip parents with the knowledge they need to offer their children formal financial guidance and to demonstrate good financial behavior that young people can imitate.”

Involving the parents in youth-oriented financial literacy education programs may play a significant role in elevating the effectiveness of these programs.
Dr. Ning Tang

Tang continued: “One-size-fits-all programs are unlikely to be successful in addressing the financial shortfalls among all members of society. For example, research has shown that women generally have lower levels of financial knowledge and that they tend to be more influenced by socialization factors in their financial behavior. So, increasing the financial knowledge of young women and their parents may be a means to promote responsible financial decision-making among females.”

In conclusion, the professors’ research found that to better keep young adults from spending money on an expensive pair of shoes or over-spending on vacation, they would be better served with financial literacy programs that improved socialization opportunities and enhanced specific psychological characteristics.