The Dynamics of Family Financial Socialization: Impact on Financial Self-efficacy and Financial Behavior

Family Financial Socialization Theory

Characteristics of individuals and families that impact interactions and relationships within the family, as well as purposeful financial socialization, are included in the FFS theory. The outcome of this theory is a financial attitude, knowledge, and skills that affect FB and financial well-being. Financial attitude, knowledge, and capability play a mediating role between the financial process and socialization outcome (Kim & Torquati, 2020). The focus of this theory is more on the parent–child relationship (Gudmunson & Danes, 2011). Also, family members play an essential role in the socialization process, and adults learn habitual patterns from their parents (Shim et al., 2015; Zhu, 2019). This theory focuses both on the interaction among family members and family roles (Rea et al., 2019). According to the FFS model, children are taught to get used to money from their families, and it is the family that provides socially appropriate knowledge to children through their acts and behavior in noticeable social circumstances (Jurgenson, 2019). Before reaching the university level, the observation of parental behavior serves as a form of implicit learning for students, while direct teaching by parents represents explicit learning (Sirsch et al., 2020).

Relationship Between Family Financial Socialization and Financial Self-efficacy

“Self-efficacy is an individual’s sense of confidence in their ability to perform a certain skill or task to obtain specific outcomes” (Bandura, 2010). Individuals’ attitudes, beliefs, and self-reliance in creating financial decisions are referred to as FSE (Rothwell et al., 2016). Danes and Haberman (2007) undertook a comprehensive study to investigate the intricate nexus among self-efficacy, financial knowledge, and behavior within a substantial cohort of 5,329 secondary school students. The research delved into the realms of FSE and financial knowledge. It revealed that females were more inclined than males to assert that their financial decision-making capabilities were influenced by managing money. Conversely, males exhibited a greater sense of confidence when making financial judgments. Self-efficacy constitutes a widely embraced cornerstone within the framework of social cognition theory, although with pertinent implications (Leon, 2020).

A study on women only has been conducted by Farrell et al. (2016) to determine the relationship between FSE and FB of women, which revealed that women retain saving products as compared to debt-related products due to their high FSE. A recent study by LeBaron-Black et al. (2022) explores how three family FFS methods impact financial well-being in U.S. emerging adults, using data from 4,182 participants. It finds that parent financial modeling and experiential learning are crucial, with modeling influencing FB and satisfaction, and experiential learning enhancing FSE. These insights suggest that parents should emphasize modeling and experiential learning to foster better financial outcomes in their children, and educators should support these methods to enhance financial well-being. Hence, grounded on the previous studies, the following hypothesis is framed:

H₁: FFS positively influences FSE.

Relationship Between Financial Self-efficacy and Financial Behavior

The study of FB encompasses a multidisciplinary approach, drawing insights from economics, psychology, sociology, and other fields. Lusardi and Mitchell (2014) defined FB as an important dimension of FFS. FB is also one of the prominent outcomes in the field of FFS. According to various previous studies, there has been a vast increase in the publication of FB. Hence this increase provided many factors affecting FB.

Psychological factors, including financial attitudes, beliefs, and self-efficacy, have been identified as substantial determinants of FB. A favorable association between FSE and FB has been conclusively established (Lusardi & Mitchell, 2011), indicating that individuals who have confidence in their financial abilities are more likely to engage in reliable financial practices. Moreover, financial attitudes, plus risk tolerance and money management attitudes, can shape investment choices and savings behaviors. A quantitative study on 411 United kingdom adults by Dare et al. (2022) revealed that FSE had a strong positive relationship with financial well-being through the adoption of positive FB.

Recent studies highlight the significant role of FSE in shaping FB. Individuals with strong FSE tend to exhibit greater perseverance in financial goal pursuit, leading to improved financial outcomes over time (Lusardi & Mitchell, 2011). A recent study by Lone and Bhat (2024) investigates the impact of financial literacy on financial well-being among business school faculty in Jammu and Kashmir, revealing a significant positive relationship mediated by FSE. The findings suggest that enhancing financial literacy and self-efficacy can improve financial well-being, emphasizing the need for targeted educational programs to address long-term financial planning in regions with limited access to financial literacy resources. Furthermore, FSE has been linked to heightened engagement in retirement planning, investment endeavors, and various other long-term financial decision-making processes (Agnew et al., 2008). Therefore, drawing upon prior research, the study offers the following hypothesis:

H₂: FSE positively influences FB.

Relationship Between Family Financial Socialization and Financial Behavior

FFS encompasses the process through which individuals acquire financial knowledge, cultivate attitudes, and develop behaviors from their familial contexts. It serves as the cornerstone upon which individuals build their FB, laying the groundwork for their financial decision-making patterns (Lown, 2011). Early exposure to financial discussions, role modeling, and parental financial management practices can significantly influence an individual’s FB in adulthood. Various authors explored many components of FFS, like communication (Li et al., 2021), role modeling (Zhu, 2019) norms, and behavioral controls (Shim et al., 2010).

Communication within the family serves as a crucial channel for financial socialization. Studies in the field have provided empirical evidence indicating that the nature and regularity of financial dialogues occurring between parents and their offspring can play a pivotal role in molding financial attitudes and behaviors. Adolescents who are involved in regular conversations about money matters with their parents tend to develop higher levels of financial responsibility and exhibit better FB in adulthood (Kim & Torquati, 2019).

Research suggests that FB are often handed down from one generation to the next. Young adults who observe positive FB within their families, such as prudent budgeting and responsible credit management, are more likely to emulate similar behaviors in their own financial lives (Gudmunson & Danes, 2011). Conversely, negative FB, like overspending or financial procrastination, can also be perpetuated across generations (Roberts & Jones, 2001). Utilizing previous research as a foundation, this study puts forward the following hypothesis:

H₃: Financial FFS positively influences FB.

Mediating Role of Financial Self-efficacy

An increasing volume of academic literature has examined the function of FSE as a mediating factor in the relationship between FFS and FB. Contemporary research findings put forth the notion that family financial instruction exerts an influence not only through its direct impact on FB but also indirectly, mediated by its effect on an individual’s FSE (Riaz et al., 2022). Positive messages about money management within the family environment can contribute to the development of a stronger sense of FSE, subsequently, leading to the adoption of responsible financial actions.

Recent research highlights the practical implications of the mediating role of FSE. It suggests that interventions targeting FFS can play a pivotal role in fostering elevated levels of FSE among individuals. Parents and caregivers can empower young adults by offering positive financial guidance, bolstering their belief in their ability to navigate financial challenges effectively (Rudi et al., 2020).

Shim et al. (2015) in their longitudinal report measured the influence of financial socialization agents (parental modeling, parent communication, parent expectations, friend’s behaviors, class learning, and self-learning) on mental outcomes (financial attitude, financial controllability, and financial efficacy) on behavioral outcomes (healthy FB). The results show that there FB of students depends more on FSE and financial controllability. But this study didn’t measure the mediate effect of FSE. According to a relatively small body of research, FSE may moderate certain relationships between financial socialization and financial outcomes (Rea et al., 2019). Rothwell et al. (2016) aimed to ascertain the mediating influence of FSE within the context of the relationship between objective financial knowledge and the accumulation of savings for postsecondary education. Thus, building upon prior research, this study presents the following hypothesis:

H₄: FSE mediates the relationship between FFS and FB.

Data

The data collection procedure entailed the utilization of a self-administered questionnaire, through which data were gathered from a sample of 395 full-time university students hailing from Punjab. Punjab, being the 16th most populous state in India, boasts a diverse population encompassing various religions and communities (Census, 2011). Additionally, the high level of financial literacy and varied financial habits in Punjab, ranging from traditional saving practices to modern investment strategies, offers a comprehensive backdrop to examine the nuances of financial socialization among young adults (National Centre for Financial Education, 2019). According to the Ministry of Youth Affairs and Sports (2003), a young adult is between the age of 15 to 19 years. But later Ministry of Youth Affairs and Sports (2014) improved it and defined the youth between the age group of 15–29 years. Moreover, according to Mhavan et al. (2022), an 18+ year student "has critical thinking ability and enters in higher secondary education. Therefore, employing a convenient sampling technique, the questionnaire was distributed to students enrolled full-time in UGC-approved universities located in Punjab, including Chandigarh. These students were enrolled in programs related to commerce, economics, business, and management, and they belonged to the age group of 19 to 24 years.

The sample size exceeded the calculated minimum requirement utilizing G*Power software v. 3.1.9.6, developed by Faul et al. (2007). According to the criteria established by Cohen (1998) to compute the sample size, the study utilized an a priori sample size calculator, using a medium effect size of 0.2, a significance level (α) of 0.05, and a desired statistical power of 0.80, the analysis revealed a recommended minimum sample size of 191 participants. Therefore, the questionnaire was distributed to 450 students and received 413 completed responses, leading to an achieved response rate of 91.77%. Following a thorough review, a total of 395 responses were selected and considered for the purpose of data analysis in accordance with the study’s specific criteria.

Sample Description

Table 1 provides a comprehensive depiction of the demographic composition pertaining to the 395 study participants. In terms of gender, there is a fairly balanced representation, with 42.78% being male and 57.22% female. The age distribution shows that a significant portion of the participants falls within the 22–24 age range, comprising 60.76% of the sample, while 39.24% fall into the 19–21 age category. Family structure data reveal that 68.61% of the participants come from nuclear families, while 31.39% have joint family structures.

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Table 1.

Descriptive Statistics.

Demographics	Categories	N = 395	Percentage (%)
Gender	Male	169	42.78
	Female	226	57.22
Age (in years)	19–21	155	39.24
	22–24	240	60.76
Family structure	Joint	124	31.39
	Nuclear	271	68.61
Financial independence	Yes	41	10.38
	No	354	89.62
Qualification	Senior secondary	67	16.96
	Graduation	118	29.87
	Postgraduation	210	53.16
Family monthly income (per month)	Below 20,000	43	10.89
	20,000–40,000	194	49.11
	40,000–60,000	64	16.20
	60,000–80,000	59	14.94
	Above 80,000	35	8.86
Father’s education	PhD	21	5.32
	Postgraduation	49	12.41
	Graduation	112	28.35
	High school and lower	143	36.20
	No formal education	70	17.72
Mother’s education	PhD	5	1.27
	Postgraduation	35	8.86
	Graduation	95	24.05
	High school and lower	167	42.28
	No formal education	93	23.54

Regarding financial independence, only 10.38% of participants reported being financially independent, while the majority, 89.62%, indicated financial dependence. The majority of participants in the study have postgraduate qualifications (53.16%), followed by those with undergraduate degrees (29.87%), and a smaller proportion have completed only senior secondary education (16.96%). Family monthly income varies, with 49.11% falling within the ₹20,000–40,000 range, followed by 16.20% in the 40,000–60,000 range. The distribution of father’s education levels shows that a significant portion has completed high school and lower education (36.20%), followed by graduation (28.35%). Mother’s education follows a similar trend, with the highest percentage having high school and lower education (42.28%), and 24.05% having completed graduation. These demographic insights provide valuable context for understanding the characteristics of the study’s participants, which may be essential for interpreting the research findings.

Family Financial Socialization (FFS)

The questionnaire encompassed a total of 32 items adopted from Allen et al. (2007) and Shim et al. (2015). Items were allied to parental financial communication, parental financial role modeling, parental financial norms and financial relationship with parents. The scale included statements such as “My parents discuss family financial matters with me, I make financial decisions based on what my parent(s) have done in similar situations, My parents track monthly expenses, My relationship with parents is good because of money issues” were asked.

Financial Self-efficacy (FSE)

The measurement of young adults’ FSE employed a six-item scale established by Lown (2011). The items like “It is easy to stick to my spending plan when unexpected expenses arise” were asked.

Financial Behavior (FB)

Dew and Xiao (2011) scale comprising 12 distinct items to evaluate the FB of young adults. The items were asked for such as “paid all your bills on time, kept a written or electronic record of your monthly expenses.”

Data Preparation

In this research, Mardia’s test was utilized to evaluate multivariate normality, and this analysis was conducted through the Web Power online tool (https://webpower.psychstat.org/models/kurtosis/), which not only offers skewness and kurtosis coefficients but also their corresponding p-values, revealing that the data, indicated by p-values below 0.05 (Cain et al., 2017), deviated from normal distribution. To analyze the research model under nonparametric conditions. The investigation employed the methodological framework of partial least squares structural equation modeling (PLS-SEM). The study chose SmartPLS software (v. 4.0.9.1), known for its user-friendliness, diverse algorithms, and suitability with non-normality (Chin, 1998; Hair et al., 2018; Ringle et al., 2015). The researchers conducted an assessment of common method bias by utilizing Harman’s single-factor test, and this analysis was performed with the use of SPSS version 23, revealing that Harman’s single factor accounted for 24.151% of variance (below 50%). Since no singular method exists for common method bias (Podsakoff et al., 2012), a collinearity test followed, utilizing SmartPLS 4.0.9.1. VIF values (ranging from 1.330 to 4.201) were falling below the specified threshold of 5 (Ringle et al., 2015), signifying no multicollinearity or common method bias between constructs.

Evaluation of the Measurement Model

To ascertain the integrity of the measurement model, researchers conducted a comprehensive evaluation encompassing, internal consistency reliability indicator loadings, convergent validity, and discriminant validity (Hair et al., 2020). Loadings above 0.70 and 0.50 were retained (Figure 2). In accordance Hair et al. (2017) indicators exhibiting loadings equivalent to or surpassing 0.5 should be retained, provided that they meet the criteria for composite reliability (CR) and average variance extracted (AVE). Yet, low loadings (<0.50) were removed (FFS4, FFS5, FFS7, FFS9, FSE3, FSE4, FB5, FB6, FB7, FB12) as insignificant. In Table 2, all constructs exceeded 0.70 but remained below 0.95 for CR. Convergent validity was met, with AVE values surpassing 0.5 and each construct’s AVE being lower than its CR as exposed in Table 2.

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Measurement Model.

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Table 2.

Measurement Model Results.

Construct	Items	Factor Loadings	Cronbach’s Alpha	Composite Reliability	AVE
Family financial socialization (FFS)	FFS1	0.740	0.940	0.949	0.627
	FFS2	0.840
	FFS3	0.717
	FFS6	0.758
	FFS8	0.778
	FFS10	0.801
	FFS11	0.667
	FFS12	0.870
	FFS13	0.759
	FFS14	0.908
	FFS15	0.839
Financial self-efficacy (FSE)	FSE1	0.759	0.704	0.712	0.526
	FSE2	0.682
	FSE5	0.696
	FSE6	0.760
Financial behavior (FB)	FB1	0.794	0.935	0.940	0.691
	FB2	0.878
	FB3	0.857
	FB4	0.881
	FB8	0.768
	FB9	0.852
	FB10	0.880
	FB11	0.725

The researchers used the heterotrait-monotrait ratio (HTMT) to assess discriminant validity, all HTMT ratios below the 0.90 threshold (Henseler et al., 2015), and the Fornell–Lacker criterion confirmed. Both two criteria collectively confirmed sufficient discriminant validity (Ab Hamid et al., 2017; Fornell & Larcker, 1981; Sarstedt et al., 2019), as shown in Table 3.

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Table 3.

Discriminant Validity.

	HTMT			Fornell–Lacker
	FB	FFS	FSE	FB	FFS	FSE
FB				0.831
FFS	0.802			0.768	0.792
FSE	0.707	0.628		0.587	0.537	0.725

Evaluation of Structural Model

To assess the hypothesized model, the study conducted the bootstrapping technique with 5000 samples (Hair et al., 2020; Preacher & Hayes, 2008; Shrout & Bolger, 2002). In Table 4 and Figure 3, the study’s findings reveal a positive association between FFS and FSE (β = 0.537, t-value = 14.050, p < .001). Moreover, a positive relationship as hypothesized was also found among FSE and FB (β = 0.245, t-value = 6.074, p < .001), also FFS exhibits a positive relationship with FB (β = 0.637, t-value = 16.454, p < .001). Thus, H₁, H₂, and H₃ were supported based on empirical results.

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Table 4.

Hypothesis Testing.

Hypothesis	Path	β	t-Statistics	p-Value	VIF	Decision
	Direct effect
H 1	FFS ≥ FSE	0.537	14.05	.000	1.000	Supported
H 2	FSE ≥ FB	0.245	6.074	.000	1.405	Supported
H 3	FFS ≥ FB	0.637	16.454	.000	1.405	Supported
	Indirect effect
H 4	FFS ≥ FSE ≥ FB	0.132	5.912	.000		Supported

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Structural Model.

The significance of indirect relationships was examined by the method given by Preacher and Hayes (2008). The information in Table 4 demonstrates that the mediation of FSE is evident in the connection between FFS and FB (β = 0.132, t-value = 5.912, p < .001). Consequently, there is support for Hypothesis H₄.

Role of Demographic Factors on Financial Behavior

Table 5 examines the role of household monthly income and parental education on the FB of university students. The regression analysis results reveal significant findings for household income and mother’s education, but not for father’s education. Specifically, the negative regression coefficient for household monthly income (β = –0.112, p = .003) suggests an inverse relationship, indicating that higher household incomes are associated with less prudent FB among students due to greater financial security, lack of financial education, which reduces the perceived need for careful money management. Similarly, the positive coefficient for mother’s education (β = 0.172, p = .004) implies that higher levels of maternal education correspond to higher FB in students. These relationships are statistically significant, as indicated by their respective p-values being below the 0.05 threshold. In the Indian context, educated mothers are more likely to emphasize the importance of budgeting, saving, and prudent spending, significantly influencing their children’s financial habits. Studies have shown that parental education, particularly mothers’, leads to better academic and financial outcomes for children by improving the home learning environment and parental involvement in education (Banerji et al., 2017).

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Table 5.

Role of Demographics.

Factors	β	t-Statistics	p-Value
Household monthly income	–0.112	–3.051	.003
Father’s education	0.079	1.639	.106
Mother’s education	0.172	3.105	.004

In contrast, father’s education shows a positive but nonsignificant effect (β = 0.079, p = .106) on FB, suggesting no strong evidence of influence, this could be due to traditional family roles where fathers may focus more on external responsibilities, leaving a less direct influence on daily FB of their children. Additionally, the impact of paternal education might be diluted by other prevailing socio-economic and cultural factors within the family environment (Böhm et al., 2023).

Predictive Relevance

Table 6 presents evaluation metrics for FSE and FB. The Q² values assess their predictive ability, with FB having a higher value (0.585) than FB (0.283). According to the recommendations put forth by J. Cohen (1988), R² values pertaining to endogenous latent variables may be assessed at 0.02, signifying a relationship of weak magnitude; 0.13, indicative of a relationship of moderate magnitude; and 0.26, denoting a relationship of substantial magnitude. The R² values measure the proportion of variance explained by the models, with FB (0.633) outperforming FSE (0.288). Therefore, the findings indicate that all the endogenous constructs surpass a value of 0.26, demonstrating that the model possesses substantial explanatory power. Additionally, the adjusted R-square values, which consider model complexity, show similar trends, with FB (0.631) having a higher value compared to FSE (0.286). Overall, these metrics suggest that FB exhibits better predictive ability and explains more variance in the data compared to FSE.

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Table 6.

Predictive Relevance Result.

	Q-square	R-square	R-square Adjusted
FSE	0.283	0.288	0.286
FB	0.585	0.633	0.631

Positive Relationship Between Family Financial Socialization and Financial Self-efficacy

The findings derived from the study suggest a substantial and favorable link between FFS and FSE. This finding aligns with the hypothesis (H₁) and supports prior research that underscores. The crucial role of the family in molding an individual’s financial beliefs and self-confidence (Shim et al., 2009). The robust positive association (β = 0.537) observed between FFS and FSE demonstrates that individuals who experience greater exposure to positive financial discussions and role modeling within their families tend to foster increased levels of confidence in their capability to accomplish financial concerns. The findings support the study by Vijaykumar (2022), which demonstrates the positive relationship between both factors leads to the attachment relationship between parents and children.

Positive Relationships Between Financial Self-efficacy, Family Financial Socialization, and Financial Behavior

The outcome of the study further reinforces the hypothesized connections between FSE and FB (H₂), as well as among FFS and FB (H₃). The positive relationships established in these aspects (β = 0.245 and β = 0.637 respectively) highlight the significance of both individual beliefs in financial abilities and the influence of familial financial discussions on actual FB. This echoes the notion that an individual’s assurance in their financial capabilities can translate into tangible financial decisions and actions, supported by a foundation of early family teachings.

Mediating Role of Financial Self-efficacy

Previous studies validate that FSE mediates the association among various factors of FFS and its outcome, that is, FB (Gudmunson & Danes, 2011). Similarly, the present study also provided notable contributions in its examination of the mediating role of FSE (H₄). The results, as affirmed by the bootstrapping method, indicated a substantial indirect impact (β = 0.132) on FSE indicates that individuals who receive positive financial guidance within their families tend to develop higher FSE, leading to responsible FB. This suggests that interventions aimed at enhancing FB should consider targeting individuals’ self-confidence in their financial capabilities.