Race is one of many factors that can affect our experiences. For example, in the United States there is vast economic inequality by race due to past and present racism and differences in opportunities (for example, the average White family has twice the income and 13 times the wealth as the average Black family).1 Socioeconomic status tends to be an inherited trait, with kids of wealthy parents being more likely to become wealthy themselves, and kids of impoverished parents being more likely to live in poverty themselves.2 Racism and economic inequality can also affect families’ access to and experience with banks and financial institutions.3 A combination of these and other factors could contribute to differences in how parents of different races teach their kids about money.
In a recent study,4 Dr. Kenneth White and colleagues explored how parents’ approach to financial teaching differed by race, and the impact this had on emerging adults’ financial outcomes. They found that “African American students received significantly fewer saving and banking messages and Hispanic students received fewer investing messages compared to other racial/ethnic groups.” While these differences in financial teaching may stem from a variety of factors, the researchers concluded that these differences were a strong predictor of financial behavior (e.g., saving, spending, investing, etc.), stress (e.g., the level of distress one feels due to one's finances), and optimism (e.g., the positive feelings, or lack thereof, towards one’s future management of money and future relation with money) among emerging adults. They found that direct financial instruction and children properly internalizing the lesson led to better financial outcomes. They measured direct financial instruction in three different message categories: save, bank, and invest. The results showed that while each helped increase financial management and decrease financial stress (investment discussions having the most significant impact), only investment discussions led to higher levels of financial optimism.
Based on this study, understanding how you were taught about money and what lessons you internalized, directly or indirectly, can help you identify the factors that have shaped your current financial situation (i.e., behavior, stress, or optimism). Furthermore, other scholars5,6,7 have also found that any financial education in the home, whether direct or indirect, intentional or unintentional, can influence a child’s economic future. For example, suppose a parent took the time to educate their child about interest through a family bank where their children could either put money in and receive interest or borrow from the bank and have to pay interest for their loans. Over time, the child would have opportunities in a safe environment to learn real-life economic lessons. Thus, being proactive with passing financial knowledge in innovative and safe ways to your children, regardless of how you were raised, is essential to help them develop a strong financial foundation.
Takeaways
1) The Power of Explicit Money Education. Results from the study showed that families with the most explicit teaching regarding saving, banking, and investing promoted better financial outcomes for emerging adults. Understanding how you were taught about money, such as having more explicit teaching compared to implicit teaching, can help you determine what parts of your upbringing positively or negatively influenced your current financial outcomes.
2) Prepare Your Child for a Healthy Financial Future. How you teach finances at home (intentionally or unintentionally) can significantly impact how your children navigate emerging adulthood and become financially healthy. As a parent, begin healthy financial practices early to create a pattern your children can grow up and follow. Then, during appropriate developmental milestones throughout your child’s life, teach them financial behaviors that lay foundational practices for their future. An old Chinese proverb says that the best time to plant a tree was twenty years ago; the second-best time is today. Begin today by laying the foundation so your children can have the financial knowledge they need to navigate this complex and challenging economic world.
3) Places to Turn for Financial Education or Financial Assistance. There are resources available to help people gain financial education and assistance. These include nonprofit organizations like United Way that offer financial education courses. There are also community action agencies in almost all cities across the country. Reaching out to your local agency is a great place to start for a more in-person experience. However, there are also free courses online and many apps that help with budgeting and finances. There are also government programs like SNAP, WIC, and TANF, university organizations, local credit unions and community banks, and other governmental assistance available, such as EITC and CTC, both of which are tax credits. It may feel overwhelming when you do not know where to start. I suggest picking one option that fits your financial goals and starting there, one step at a time.
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1Pew Research Center. (2016, June 27). Demographic trends and economic well-being. Pew Research Center’s Social & Demographic Trends Project. https://www.pewresearch.org/social-trends/2016/06/27/1-demographic-trends-and-economic-well-being/
2Erola, J., & Jalovaara, M. (2016). The replaceable: The inheritance of paternal and maternal socioeconomic statuses in non-standard families. Social Forces, 95(3). https://doi.org/10.1093/sf/sow089
3Goering, J., & Wienk, R. (2018). Mortgage lending, racial discrimination and federal policy. Routledge.
4White, K., Watkins, K., McCoy, M., Muruthi, B., & Byram, J. L. (2021). How financial socialization messages relate to financial management, optimism, and stress: Variations by race. Journal of Family and Economic Issues, 42, 237-250. https://doi.org/10.1007/s10834-020-09704-w
5Jorgensen, B. L., & Savla, J. (2010). Financial literacy of young adults: The importance of parental socialization. Family Relations, 59(4), 465-478. https://doi.org/10.1111/j.1741-3729.2010.00616.x
6LeBaron, A. B., Marks, L. D., Rosa, C. M., & Hill, E. J. (2020). Can we talk about money? Financial socialization through parent-child financial discussion. Emerging Adulthood, 8(6), 453–463. https://doi.org/10.1177/216769620902673
7LeBaron, A. B., & Kelley, H. H. (2021). Financial socialization: A decade in review. Journal of Family & Economic Issues, 42(S1), 195–206. https://dx.doi.org/10.1007/s10834-020-09736-2