Context

There has been fairly little research looking at social inequalities in financial capability among young people, and how this may in turn relate to actions by parents or financial education provided by schools. This is important because levels of financial capability among adults in the UK are low, particularly among adults from lower socio-economic groups, and this risks perpetuating financial distress through the generations.

Socio-economic status was defined in the study using an established definition of ‘low’, ‘average’ and ‘high’ based on a single scale combining six indicators (parental educational qualifications overall and in maths and English, occupation of the main earner, household income, and Index of Multiple Deprivation decile).

Financial capability was defined in the study in relation to three components: financial abilities (understanding of financial concepts, products and tasks); financial mindset (attitudes, self-efficacy, anxiety and confidence); and financial connections (interactions with a bank, and especially saving, account).

The study

The study set out to address four research questions which first sought to understand socio-economic differences, and second age-related differences, in:

1. Young people’s financial capabilities and behaviours;
2. Parental contributions to developing their children’s financial skills;
3. Quality and quantity of any financial education they received in school; and
4. Children’s financial capabilities after accounting for differences in their academic and socio-emotional skills, which might be accounted for by parenting behaviours and school-led financial education.

The study involved secondary analysis of the 2019 UK Children and Young People’s Financial Capability Survey, a national survey of children and parents undertaken on behalf of the Money and Pensions Service. The survey provides data from 3,745 families, linking parent responses to those of their children aged 7-17, using quota and booster samples that were weighted to be broadly representative of the UK population on key characteristics.

The authors set out a theoretical, intergenerational framework for how socio-economic differences in young people’s financial capabilities, mediated by parents and schools, were expected to result in socio-economic inequalities in financial behaviours. Analysis of the data was undertaken in (multivariate) regression models which included interactions between age and socio-economic status.

Key findings

• Young people’s financial capabilities and behaviours. Compared with their low socio-economic counterparts, young people from high socio-economic backgrounds scored higher for financial ability, a positive attitude towards saving and money confidence , and were more likely to have a bank account and shop around for value-for-money
  • The gaps broadly persisted with age, expect for having a bank account which was greater for younger children.
• Interactions with parents about money. Compared with their low socio-economic counterparts, high socio-economic parents were less likely to let their children decide how to spend/save their own money and gave £2.50 more pocket money to their children in absolute terms, but 4% less as a proportion of household income.
• In-school financial education. Compared with low socio-economic young people, those from high socio-economic backgrounds were more likely to say they had received financial education and were more likely to say they found money lessons useful (8% and 14% respectively) However., they were no more likely to say that money lessons had changed their money behaviour (40% and 43%)
• Accounting for differences: Parental interactions partly explained the socio-economic inequalities in most categories of financial capability and behaviour, and more so than cognitive and socio-emotional factors. There was no evidence that financial education in schools explained socio-economic differences in young people’s financial capabilities.

Points to consider

Methodological strengths or limitations:

• The authors note that the analysis provides evidence of conditional associations and does not establish cause and effect.
• While statistically significant, some of the observed effect sizes were small and may be limited in their practical significance.
• The authors note that the finding that school financial education did not reduce the socio-economic gap in financial capability and behavioural outcomes could be a real finding or an artefact of the available measures.
• The influences of parent interactions and financial education in schools on narrowing the socio-economic gaps in young people’s capability and behaviour were not explored statistically and were instead inferred from the observable change in the size (and significance) of the gap in successive models.

Applicability:

• The study should be of interest to policymakers, funders and practitioners who seek to understand and improve the financial capability of young people, including those who wish to support parents and those promoting school-based financial education.

Relevance:

• The findings are highly relevant given the financialisaton of everyday life, the implications for young people’s current and future financial wellbeing, and the potential, positive role that can be played by financial education at home and in school.