Financial socialization and financial distress: The role of cognitive and noncognitive abilities

Abstract

This study investigated the influence of financial socialization on financial distress and demonstrated the importance of both cognitive and noncognitive ability channels through which this relation operates. Using data from a nationally representative sample of adult US residents, the results showed that adults in the bottom quintile of financial socialization are significantly more likely to experience financial distress than those in the top quintile. We also provide evidence that financial socialization is related to financial distress both directly and indirectly through cognitive ability measures of financial knowledge and financial skills, as well as the noncognitive ability measure of financial self-control. The findings highlight the importance of financial socialization in familial contexts. Implications for personal finance advocates, financial educators, children and family service providers, and policymakers are discussed.