The Effects of Parental Advice and Financial Literacy on Asset Accumulation Among American Youth

Abstract

Financial literacy is an important body of knowledge and set of skills that consumers need to successfully navigate the 21st century economy. Prior research shows financial literacy bears a significant relationship, along with other factors, to the wealth outcomes of adults. While some of this research has examined how specific behaviors related to self-control affect wealth, few include the effects of parental socialization as measured through advice given from parents to children. This paper estimates an empirical relationship amongst wealth, literacy, and parental advice using data from the National Longitudinal Study of Youth’s 1997 Cohort (NLSY 97). I find financial literacy and parental advice are strongly related to wealth. I also find that women on average have lower wealth than men, even after controlling for literacy, advice, and other demographics. The source of the parental advice also proves statistically important.