How are youth doing at balancing their books?

April 26, 2016

Researchers look at financial literacy beyond the numbers

Canadian households have been setting financial records over the last few years, but not the kind that spark swells of national pride. Compared to other G7 countries, Canadians now carry the highest debt-to-income load.

How are younger members of those families behaving in the wake of all that borrowing? Not well, says Albena Pergelova.

“Many organizations are investing more and more money to try to improve financial literacy among youth, but debt levels for youth between the ages of 18 and 25 are on the rise,” says the associate professor in the Bachelor of Commerce program. “Financial literacy programs are usually designed to increase financial knowledge, with the idea that if youth know more, they’ll be able to turn that knowledge into better behaviours. But that’s not what we’re seeing—even with $50 million each year spent on financial literacy, the problem is still there.”

So Albena and Fernando Angulo, also an associate professor in the School of Business, Department of International Business, Marketing, Strategy & Law, set out to look at how factors beyond knowing how to calculate an interest rate or how much money to save each month might empower youth to effectively manage their money matters.

“ Financial knowledge is important, but it’s not everything.” Fernando Angulo 

What the research duo found after reviewing the literature, combing through quantitative research and asking focus groups of Edmonton youth about their financial knowledge, could change traditional approaches to financial literacy.

Their study, published in the Journal of Consumer Affairs, focused not only on financial knowledge, but also looked at how parents taught youth about dealing with money, how parents modelled financial behaviours, whether youth perceived that their lives and decisions were in their own control or impacted by the decisions of others, and the influence of technology.

The results show that making good financial decisions isn’t just about what you know.

“Financial knowledge is important, but it’s not everything,” says Fernando. “When we looked at our sample as a whole, locus of control—the extent to which young people feel that their lives are in their own control, or depend on the actions and decisions of others—had the most crucial impact on healthy financial behaviour.”

But things changed when the researchers split their sample into two groups—one with a household income above $70,000 and one below.

“In the group with a lower household income, the results were different. For this group, the role of knowledge and feeling in control of their lives was less important to their financial decisions than the behaviour of their parents,” says Fernando.

This knowledge could change the way financial literacy programming is delivered—and ultimately make an impact on financial decision-making in groups that need the most help.

“We need to do more research to unravel other non-numerical factors that influence financial literacy and behaviour—especially in that lower income bracket,” says Fernando. “Financial knowledge is good, but there are other variables that we need to consider so we can help youth feel confident in applying that financial knowledge in their own lives.”

Borrowing by the numbers

Sobering statistics cited in the researchers' study "An Empowerment Model of Youth Financial Behavior":


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