As a research construct within behavioural economics and behavioural finance, financial socialisation is distinct from other related constructs such as financial literacy and financial capability. This is because financial socialisation considers human financial decisions vis- à-vis human development over time. The theoretical framework of financial socialisation proposes that intra-human and inter-human diversities emanate from variations in human relationships and social interactions that are formed over time (Gudmunson et al., 2016).
Furthermore, financial socialisation research is constantly evolving based on environmental changes that are consistent with human development and behavioural dynamics. Much of the recent research in the field of financial decision making aims to provide clarity and in-depth understanding of the human behavioural interactions and dynamics applicable within financial contexts (Gudmunson et al., 2016) While several studies have assessed the relative influence of financial socialisation agents such as parents, peers, the media and school; they have also stressed the underlying notion and contributory role of social interactions and human relationships in the financial socialisation process (Alwi et al., 2015; Sundarasen et al., 2016).
The role of “financial parenting” and parental monitoring of children’s financial development and choices is emphasised. Several studies such as Serido and Deenanath (2016) have highlighted the particular role of the family and parents in the foundational development of positive financial behaviour and financial well-being later in life. Shim et al. (2015) explain the mediating effects of parents, peers and other social agents on individuals’ financial mentality, whilst Tang et al. (2015) note that parental influence is pivotal in enhancing positive financial behaviours among young adults.
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Financial socialisation also serves as an objective prerequisite for determining individuals’
financial behaviour and financial well-being (Drever et al., 2015; Gudmunson et al., 2016;
Brüggen et al., 2017). This is because financial behaviour and financial well-being are distal ends of financial socialisation. Although financial literacy as a general measure of financial behaviour and financial wellbeing has proven to be effective as a broad measurement of financial decisions; the shared contextual dependence of financial well- being and financial behaviour makes financial socialisation a better model to determine individuals’ financial behaviour and well-being (Gudmunson et al., 2016).
Financial socialisation via strong parenting practices creates opportunities for purposive learning experiences via both direct and indirect learning (Jorgensen and Savla, 2010;
Sundarasen et al., 2016). The direct learning experience entails consciously involving children in financial discussions, and inculcating financial responsibility and discipline among children via managing their allowances. On the other hand, the indirect learning experience involves the creation of a financial culture within the family. The financial culture could be indirect exposure of children to how finances and money management issues are handled in the home, and the idea of a family budget. Purposive learning experiences are necessary to develop financial responsibility, self-reliance and financial capability among young adults in later years (Serido and Deenanath, 2016).
Financial socialisation plays a role in individual financial practices and short-term financial management behaviours (Drever et al., 2015; Henager and Cude, 2016). Positively financially socialised individuals exhibit short-term financial practices that foster and enhance their financial well-being. These include keeping a budget to track and control spending behaviours, as well as having a nest egg for contingent and unplanned expenses. Being financially socialised can also reduce an individual’s vulnerability to poor financial decisions (Sherraden and Grinstein-Weiss, 2015; Kagotho et al., 2017). By constantly seeking accurate, relevant and comprehensive information concerning diverse financial products and services, financially socialised individuals are less prone to poor
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financial decisions such as scams, swindles and long-term detrimental financial commitments. Financial socialisation agents such as the media and peers often play an impactful role via interaction and provision of timely information for critical financial decisions (Sundarasen et al., 2016).
Financial socialisation is a key determinant of the financial and economic lifestyle of individuals (Gudmunson and Danes, 2011; Kim and Chatterjee, 2013; Payne et al., 2014), as is evident in materialistic taste, priorities and preferences. How an individual has been financially socialised and is being socialised financially, is evident in their financial choices via their materialistic values, preference, priorities, taste and choices. While individuals who have been or are being conservatively financially socialised tend to make conservative choices regardless of their financial buoyancy, those that have been or are being luxuriously financially socialised often tend to want to “keep up with the Joneses”
regardless of their financial buoyancy (Kim and Chatterjee, 2013; Payne et al., 2014).
Financial socialisation improves long-term financial well-being via financial planning, savings and asset accumulation (Lusardi and Mitchell, 2014; Drever et al., 2015). This stems from the development of financial awareness and consciousness among individuals via financial socialisation agents over a life time. Shim et al. (2015) stressed the importance and long-term benefits of inculcating a savings culture in children and young adults.
Exposure to positive financial practices from other socialisation agents such as friends, the media and educational institutions plays a significant role in individuals’ financial planning and long-term financial well-being.
From a national perspective, financial socialisation encourages savings and investment behaviours that help to enhance economic growth and prosperity (Hira et al., 2013).
Several studies have established positive links between savings and investment in financial assets, and economic growth (Jagadeesh, 2015; Hussein et al., 2017).
Socialisation of individuals via diverse socialisation agents plays a crucial role in
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encouraging young, future citizens to cultivate the habit of savings and to invest in the economy, facilitating economic prosperity and stability (Hussein et al., 2017).