The family financial socialization theory purports that the family, with parents and guardians serving as the primary socializing agent, transmit financial values, attitudes, knowledge, and behaviors through social interactions, explicitly or implicitly ([24]). While direct, explicit, and purposive messages are sent intentionally through overt communication and practices ([8]; [31]), financial socialization also takes place through indirect or implicit channels such as modeling and observation ([31]). In addition to the direct and indirect learning that occurs in family interactions and relationships, at times family members enact their socializing roles in conjunction with larger environments including media, neighborhoods, school, and the workplace ([24]). Similarly, non-familial agents such as school and work environment have been included in the conceptualization of financial socialization that also transmit unconscious or conscious learning of financial knowledge, skills, attitudes, particularly during adolescent stages ([39]). A detailed review of the family socialization theory and other relevant theories can be found at [24] and [30]. Over the decade, the family socialization theory has been evolved from solely focusing on familial system to a broader human environment that includes friends and social circles, school and work environments ([23]), although the broader environment is far less examined in the academic literature.

Empirically, literature has been documenting individual-level characteristics of financial socialization with a majority focusing on parent-child financial socialization. Overall, studies have found that parent-child financial socialization process differs by demographic and socioeconomic characteristics. For example, studies have indicated males received more financial discussion with their parents at earlier ages than females ([1]; [22]). Children from high socioeconomic backgrounds tend to receive more guidance, discussion, and experiential learning of finance ([39]; [34]; [29]). Additionally, age, household size, and family interaction have been found to play a role in financial socialization ([37]; [38]).

Overall, theories and empirical research often consider financial socialization as an isolated familial process that is disconnected from financial markets and economic environments. Only a couple of studies eluded the importance of economic environments in financial socialization process. [33], for example, suggested that low-income children had fewer financial socialization opportunities because their parents were less likely to participate in the mainstream financial system. Similarly, [28], as well as [12] implied that low-income youths were disadvantaged in the process of financial socialization by having less practice of managing money and not having opportunities to deal with financial institutions. Personal financial experience is one major socializing influence ([38]) that has a direct connection with financial resources and economic environments, however, this has not been explored fully in understanding financial socialization.

Notably, race/ethnicity is rarely explored in the literature. Only a couple of studies examined racial variation in financial socialization, indicating Black and Hispanic households had less discussion than white households ([44]), while one study observed White emerging adults were less likely than nonwhites to discuss personal finances with their parents ([26]). These studies either included race as white-nonwhite dichotomy category and failed to identify meaningful racial variations in financial socialization ([25]), or lacked consideration of racialized financial markets that differentiate racial minorities’ financial experience and socialization from White’s ([44]). Financial experiences such as using mainstream financial services (e.g., bank accounts and home mortgages) are stratified by race ([6]), and can be at least partly explained by the racialized economic environments ([19]). However, the current literature has not started addressing racial heterogeneity in financial socialization meaningfully and a large knowledge gap exists in understanding how racialized economic environment affects racial minorities’ financial socialization process and outcomes.

The consideration of economic environment is crucial to gain an accurate understanding of racial heterogeneity in financial socialization process and outcomes. This is because access to financial services and economic environments, a critical element in financial socialization process, are fundamentally different between Whites and racial minorities. Due to legacies of discriminative banking policies, financial markets have been largely segregated by race and income where racial minorities operate in alternative financial markets while middle-to-high income White households are catered by mainstream banking institutions ([4]; [15]; [36]; [40]). Compared to White households, Black and Latinx households were 10 times more likely to be unbanked and approximately 3 times more likely to be underbanked ([16]). Such racial gap in bank accounts remains after accounting for income and other socioeconomic factors ([7]). Research has suggested that the growth of high-cost alternative financial services has been concentrated in racial and ethnic minority communities ([20]), bank branches are more common in wealthier, White neighborhoods ([32]). Interactions with different financial institutions likely contribute to different processes of financial socialization, however, these racial variations are rarely examined in the financial socialization literature.

Economic environments not only situate daily money management but also long-term financial planning and wealth building. The crippling legacy of redlining and segregation policies left racial minorities with disproportionately lower levels of homeownership and wealth accumulation. It is well documented that racial minorities disproportionately use subprime mortgages, regardless of income, and the median net worth of White households is roughly 20 times of Black households (e.g., [14]). A stark racial difference is also found in investment product ownership: While about 61 - 65 percent of White households have investment products (retirement account and stock), only 42 percent of Black households and 28 percent of Hispanic households had retirement account, whereases a third of Blacks and a quarter of Hispanics had stock investments ([17]). A wide range of financial experiences (using a bank account, having a mortgage, accessing small-dollar loans) influence the process and outcome of financial socialization, and these financial experiences are highly racialized as a result of historical and current banking policies and practices ([4]; [20]). To accurately understand racial minorities’ financial socialization, it is critical to consider financial experiences and economic environments ([6]). However, extant literature has investigated financial socialization as a phenomenon isolated from financial markets and economic environments and rarely considered racial variations.

While racial variations in financial socialization remain understudied, a few studies have identified racial differences in the use of financial planners ([9]; [43]). Additionally, research on childhood financial experiences explored racial differences in having a savings account and found that White children and young adults were more likely to have a savings account than Black children and young adults ([25]; [29]). While no research has explored whether childhood allowance contributes to racial differences in financial socialization, studies have suggested that childhood allowance is a crucial informal vehicle for developing financial habits as well as for facilitating financial socialization via parents instructing children to budget and save ([5]; [41]).

The current study aims to address several critical knowledge gaps in the financial socialization literature. First, as discussed above, few studies have investigated racial differences in financial socialization. More importantly, no known study has attempted to understand racial heterogeneity in the context of racialized economic environments. This knowledge gap is critical to fill, as racial variation can only be accurately understood in the context of racialized financial experiences and economic environments. Second, existing studies relied heavily on college students as study samples. Thus, findings are limited in generalization power in terms of age, income, and racial representation. Lastly, although research has shown the importance of childhood financial experiences in family financial socialization, no study has examined these financial experiences from a racial perspective, neither have studies explored whether racial variations in financial experiences play a role in financial socialization.

Drawing data from a nationally representative data set, the current study investigates racial differences in financial socialization and whether childhood financial experiences contribute to such differences. We examine how Blacks and Hispanics differ from Whites on financial socialization, measured by a psychometrically sound 5-item scale. Further, we investigate the role of childhood financial experiences in affecting racial differences in financial socialization, adding nuanced understanding of the differential impact of having a savings account and allowance across racial groups. By setting childhood financial experiences in the context of racialized economic environments, this study adds a much-needed empirical understanding of racial heterogeneity in financial socialization and opens a new dialogue on racialized financial socialization.

The current study uses a cross-sectional research design and data were obtained from National Financial Well-Being Survey (NFWS) dataset. The NFWS was filed by the Consumer Financial Protection Bureau in 2016 with an overarching goal of understanding financial well-being issues among U.S. adults and households The survey is composed of mostly multiple-choice questions on financial well-being, savings and safety nets, financial experiences, behaviors, attitudes in addition to individual and household characteristics. A pre-test survey occurred in Oct, 2016, cases from the pre-test were not included in the final dataset. The survey was conducted in both English and Spanish; the survey was distributed between October and December of 2016. The median length of survey completion was 26 minutes ([35]).

The NFWS data were collected online via the GfK KnowledgePanel, a recruited sample using address-based sampling and dual-frame landline and cell phone random digit dialing methods. The GfK’s KnowledgePanel Latino was used to ensure adequate representation of the Latino population. More details on the sampling method can be found on CFPB’s published materials ([35]). The overall sample size of 6,394 was achieved, representing a 30.9% response rate among Black respondents, a 26.8% response rate among Hispanic respondents, a 51.4% response rate among White respondents. The GfK weighted the pool of active panel members to the geodemographic benchmark from the Current Population Survey 2016 March Supplement. The final sample matches the U.S. population on age, sex, race/ethnicity, poverty, and education.

The outcome variable of study interest is family financial socialization. Family financial socialization was measured by five items asking respondents while growing up whether their family had discussed with them 1) about family financial matters; 2) about the importance of saving, 3) establish a good credit rating, 4) how to shop smartly; and 5) actions that determine life success. Respondents were asked to answer yes or no to each item, which was coded 1 if it’s a positive response and 0 if it’s a negative response. A summative score of financial socialization was computed, ranging from 0 to 5 (Mean = 2.72, SD = 1.72). In [46] study, this scale was tested for reliability and validity indicating high internal consistency (Cronbach’s a = 0.78), adequate convergent validity (Composite Reliability = 0.78) and a satisfying discriminant validity (Average Variance Extracted = 0.42).

Since we aim in this study to find how racial groups differ in family financial socialization, race is the key independent variable and is measured as normal variable indicating respondents are either White, Black, Hispanic, and others. A dichotomous variable was created for Black (Black =1; others = 0), Hispanic (Hispanic =1; others = 0) and others (others = 1; all others = 0) to compare with White in multivariate analyses. The NFWS public use datasets combine those Asian, American Indian, Alaska Natives, Native Hawaiian, and Pacific Islanders householders with the “other” category. This catchall category represents a very diverse set of peoples, it is impossible to determine the cultural backgrounds of such households. Therefore, this study limits its focus to Hispanics, Blacks, and Whites. Financial experience is another focal independent variable of this study, and is measured by two items: had a regular allowance while growing up at home and had a savings account while growing up at home. Both variables were dichotomous (Yes = 1; No = 0).

Demographic and other variables previously found to have associations with family socialization were controlled in the study ([38]). Control variables of the study include respondent’s gender (female =1; male = 0), generation (millennial = 2; boomer or gen x = 1, pre-boomer = 0), and highest educational level of parents or guardians (college degree or more = 2; high school diploma, GED, or associated degree = 1; less than high school diploma = 0). Other sociodemographic variables were not included in the main analysis but reported as sample characteristics, they include household size, respondents’ education, and household income.

Descriptive statistics and bivariate analyses were used to describe the sample characteristics by race and ethnicity, along with financial socialization and experience characteristics. Hierarchical regression analysis models were estimated to examine racial difference in financial socialization, then with two sets of control variables including demographic and financial experience factors. We treated financial socialization as a continuous variable for the simplicity of interpretation; we performed robustness check with estimating other models (e.g., count model), results remain similar (results are available upon requests). Specifically, the first set con-trolled for respondent’s gender, generation, and parental education level. The second set controlled for financial experience, measured through whether respondents were provided a regular allowance and a savings account growing up. Both factors are related to financial socialization. Lastly, a series of OLS regression models with interaction terms were estimated to assess variations in the association between race and financial socialization by financial experiences. Interaction terms of being Black and having a savings account, as well as Black and having a regular allowance were added to estimate the joint effect compared to Whites on financialization. A sample weight variable was generated by the survey team and used in all model estimates.

Table 1 showed demographic as well as socioeconomic differences among four racial/ethnic groups, in addition to financial socialization and experiences. Results of descriptive statistics showed that all racial groups except Blacks were comprised of more than half male participants, whereas more than half of Blacks participants were females (55.91%). In terms of generation, Blacks and other groups shared similar distribution: pre-boomer groups were the smallest (10.80% Blacks, 13.10% Others), followed by gen X (22.92% Blacks, 24.40% Others) and Millennial (26.57% Blacks, 28.87% Others), and largest group was boomer (39.71% Blacks, 33.63% Others). Among Hispanic participants, millennial was the largest group (36.57%), followed by Gen X (30.04%) and boomer (25.60%), while pre-boomer was the smallest (7.43%). Among White participants, boomers were the largest group (36.55%) while the rest distributed rather evenly on three generations (20.65% were pre-boomers, 20.56% were Gen X, 22.23% were millennials). When it comes to the highest education level, Whites and others reported higher percentage of bachelor (17.66% and 22.19% respectively) and graduate degrees (16.97% and 22.19% respectively), while Blacks and Whites reported higher percentage of below high school (12.87%, 25.20% respectively).

Table 1 also showed difference among racial/ethnic groups in financial socialization and experiences. On average, respondents scored 2.72 (SD = 1.72) on the financial socialization scale, with Whites and others scoring higher than the average (Mean = 2.75, SD = 1.70; Mean = 2.75, SD = 1.66, respectively), while Blacks and Hispanics scored below the average (Mean = 2.70, SD = 1.78; Mean = 2.60, SD = 1.80, respectively). In terms of individual financial socialization item, similar percentages across all four racial groups gave positive response to the item of discussing financial matters; while a slightly higher portion of Whites and Other respondents gave positive response to the question of spoke importance of saving than Black and Hispanics respondents. A higher percentage of Blacks responded positively to the question of good credit rating discussion than the rest, while Hispanics had the smallest portion of respondents reported positive response to the question of being taught about smart shopping. Lastly, Blacks and Other races share similar percentage of positive response to the question of life success, while Hispanics had lowest percentage and Whites had the highest percentage. When it comes to financial experience, Black and Hispanic respondents had about 10% lower than White and Other groups to report being provided a regular allowance growing up. White and other race respondents reported highest portion of being provided a savings account growing up (46% and 45% respectively), while a third of Black respondents had been provided a savings account and 27% Hispanic respondents had a savings account growing up.

Table 1. Sample characteristics by race/ethnicity.

To explore how financial socialization compare across racial groups net of other factors, a linear probability model predicting financial socialization was estimated (See Table 2). Model 1 shows that in the absence of any control, Hispanics had significantly lower levels of financial socialization than Whites, while there is no significant difference between Blacks and Whites, as well as others and Whites in financial socialization. After controlling for gender, generation, and parental education level, the difference in financial socialization between Hispanics and Whites disappeared (Model 2). Results show that millennials had higher level of financial socialization than the older generations, and respondents raised by family members that had college or professional education had higher levels of financial socialization than those raised family members with less than college education. Model 3 shows results of the regression models after adding financial experience variables as the second set of control. It shows that Blacks and Hispanics were more likely to have higher levels of financial socialization than Whites, accounting for financial experiences, gender, generation, and parental education level. In this model, generation and parental education remains significant, while gender and other races remain nonsignificant. Changes in R² value were significant from model 1 to 3, indicating substantial model improvement as two sets of control variables were added. Among control variables, coefficients of being provided a savings account and a regular allowance were largest. Overall, we observe an association between childhood financial experience and financial socialization, racial difference in financial socialization varied by financial experience.

Table 3 shifted focus to variation in the association between race and financial socialization. We ran four models with the same set of control variables, except that each model included an interaction term to determine the effect of race and financial experience on financial socialization. We are particularly interested in the effect of race and having a regular allowance as well as having a savings account on financial socialization. Model 1 with interaction term of Black and a regular allowance showed that Black respondents with regular allowance were more likely to have higher levels of financial socialization than White respondents with regular allowance. Similarly, model 3 included an interaction term of being Hispanic and regular allowance, showed that Hispanics with a regular allowance were more likely to have higher levels of financial socialization than Whites with a regular allowance.

Table 2. Hierarchical regression analysis of predictors of financial socialization.

*p < 0.05, **p < 0.01, ***p < 0.001.

Model 2 interacted being Blacks with having a savings account and showed no significant difference in financial socialization between Blacks with a savings account and Whites with a savings account. Similar findings were found from Model 3, which interacts being Hispanics with having a savings account. Specifically, there is no joint effect of being Hispanics and having a savings account on financial socialization compared to Whites with a savings account. A sample weight variable was generated by the survey team and used in all model estimates. Across all four models with interaction terms, compared to Whites, Hispanics consistently showed higher levels of financial socialization, while Blacks were more likely to have higher levels of financial socialization in two models (Model 3 and 4). Being other races showed no significant difference in financial socialization compared to Whites in all models. Across all four models, both having a regular allowance and having a savings account were positively associated with financial socialization. Additionally, parental education, and generation were also positively associated with financial socialization. Specifically, millennials were more likely to have higher financial socialization than older generations. Respondents who had parents or guardians with college education tend to have higher levels of financial socialization.

Table 3. OLS regression analysis of predictors of financial socialization with interaction terms (N = 6333).

*p < 0.05, **p < 0.01, ***p < 0.001.

Findings from this study shed light on early financial experiences as key socialization agents for minority children and youth. The importance of experiential learning opportunities such as those offered through allowances were shown to be key to increased financial socialization. Financial practitioners and educators should pay attention to racial and ethnic differences in financial socialization and grow awareness of racialized financial markets. Specific issues such as credit rating can be a particular concern among minority groups, financial practitioners and community-based educators should provide tailored, culturally appropriate support that shows understanding and culture sensitivity to the legacy of and current-day discriminative banking policies and practices.

This study has several limitations. First, the use of the 5-item financial socialization scale may not accurately assess financial socialization, as the scale requires respondents to recall childhood financial experiences and findings are subject to recall bias. Second, only three covariates (gender, generation, and guardian’s education) were controlled in the multivariate analysis. The limited control variables are largely due to data availability. The datasets have three variables that accurately captured childhood circumstances that are relevant to financial socialization. Factors including household size and parent-child relationship are relevant to financial socialization but data not available. Future research should consider these factors in understanding parent-child financial socialization process and outcome. Lastly, data on racial minorities are available on Blacks and Hispanics only, the rest minority groups were lumped into one group and are not available to study. Because of this, results on others group are not meaningful to interpret.