Socio-Economic Inequality in Young People’s Financial Capabilities

Abstract

Previous research has shown that the UK has low levels of financial literacy by international standards, particularly among those in lower socio-economic groups. This may, in turn, have an impact upon young people, with social inequalities in financial attitudes, behaviours and skills perpetuating across generations. Yet there has been relatively little empirical research on this topic to date, including how such inequalities may be linked to the parents’ actions and financial education provided by schools. This paper provides new evidence on this issue for the UK. Using parent-child linked survey data from 3,745 families, we find sizeable socioeconomic inequalities in young people’s financial capabilities, aspects of their mindset, and their financial behaviours. 15-year-olds from disadvantaged backgrounds having similar financial skills to an 11-year-old from an affluent background. Sizeable differences are also observed in the financial education that socio-economically advantaged and disadvantaged children receive at school, and how they interact with their parents about money. Parental interactions can account for part of the socio-economic gap in money confidence, money management, financial connections, and financial behaviours, but less so in boosting financial abilities. However, we find no evidence of differences in financial education in schools driving differences in young people’s financial capabilities.