Received: 4 March 2022 Revised: 27 October 2022 Accepted: 18 January 2023

DOI: 10.1111/joca.12512

RESEARCH ARTICLE

Healthy financial habits in young adults: An

exploratory study of the relationship between
subjective financial literacy, engagement with
finances, and financial decision-making

Elisabeth Sinnewe | Gavin Nicholson

School of Accountancy, Queensland

University of Technology, Brisbane, Abstract
Australia This paper provides insights into young adults' financial
habits and decision-making considerations as they enter
Correspondence
Elisabeth Sinnewe, School of the workforce. We use 28 semi-structured interviews
Accountancy, Queensland University of with Australian university graduates to explore how their
Technology, Lvl 3, C Block, QUT
motivation to engage with personal finances and their
Gardens Point Campus, Brisbane 4000
QLD, Australia. subjective financial literacy, i.e., self-reported, support
Email: [Link]@[Link] healthy financial habits. Our findings show that a young
Funding information
adult's social context and exposure to financial hardship
Financial Planning Association of rather than their financial confidence determine the
Australia, Grant/Award Number: health of their financial habits. We observed research par-
2020 Financial Planning Education
Council Research ticipants in a romantic partnership as more focused on
their future. This future focus motivates them to engage
more with their finances and manifests as explicit goal
setting, formal budgeting, or adherence to strict bucket
systems. These insights might be useful for policymakers
and educators: social context matters when designing
financial health interventions, while financial education
programs predominately should aim at demystifying com-
plex long-term financial decision-making such as invest-
ments and retirement.

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits
use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or
adaptations are made.
© 2023 The Authors. Journal of Consumer Affairs published by Wiley Periodicals LLC on behalf of American Council on Consumer
Interests.

564 [Link]/journal/joca J Consum Aff. 2023;57:564–592.

SINNEWE and NICHOLSON 565

KEYWORDS
behavior change, financial behavior, financial habits, financial
literacy, financial socialization, savings and investment
behavior

“We are what we repeatedly do.”

- Will Durant

1 | INTRODUCTION

Just as sound consumption improves people's physical health, healthy financial habits can
affect individuals' mental health and well-being (Shim et al., 2009; Barbi
c et al., 2019). In partic-
ular, young adults need to be more financially capable, as they face increased non-discretionary
expenditure on health care and education coupled with rising housing unaffordability. For
example, in Australia saving for a 20% home loan deposit takes up to ten years for a typical
dwelling for an average household (Daley & Coates, 2018). In this article, we examine the rela-
tionships between financial habits and financial decision making with a particular focus on
engagement with personal finances and subjective financial literacy. We distinguish financial
habits from financial decision-making as a distinct form of financial behavior. This classifica-
tion allows us to focus on habits – a “pattern of actions over time such as earning, saving, spend-
ing, and gifting” (Gudmunson & Danes, 2011: 650). We are less concerned with the second type
of financial decision types that are more event-like in nature – for instance, entering a mortgage
contract or opening an investment account.
Patterns of financial behavior or “financial habits” are likely to have ongoing and often
unconscious effects on an individual's financial health. Our research is particularly interested in
how these financial habits form as young people transition to the full-time workforce. In the
field of psychology, habits are defined as “cue-response associations in memory that are acquired
slowly through repetition of an action in a stable circumstance” (Orbell & Verplanken, 2010;
Gardner, 2015; Wood & Rünger, 2016; as cited in Verplanken, 2018: 14). Evans and Stanovich
(2013) classify habits as a category of System 1 thinking, defined broadly as cognitive processing
that makes minimal demands on working memory. In contrast, System 2 thinking draws on
executive functions slowing down the faster, default, System 1 response. Habits are automated
processes that are cue prompted and require minimal cognitive load. As such, they exhibit two
defining features: goal independence and context dependence. Established habits will occur
regardless of an individual's pursuit of a specific goal if a cue arises in a stable setting. It follows
that if you remove the stable setting, individuals will revert to goal setting, and a shift in habits
can occur (Neal et al., 2011). Similar to Czar et al. (2021) who investigate financial capability in
young adults as they leave home, we are interested in gaining a more in-depth understanding
of the altered cue context that transitioning into the workforce offers to understand habit for-
mation in young adults. The transition into the workforce is a key life milestone. Access to
greater and more stable income offers greater financial stability but can also promote poor
spending habits.
Because habits are largely automated, it is unclear whether cognitive interventions such as
financial education affect these potentially important spending patterns. One strand of the
566 SINNEWE and NICHOLSON

literature proposes a need for financial education to improve financial behavior (see e.g.,
de Bassa Scheresberg, 2013; Henager & Cude, 2016; Xiao et al., 2011). Yet, there is growing
evidence that financial education may not improve financial behavior (see e.g., Fernandes
et al., 2014; Mandell & Klein, 2009; Santini et al., 2019; Stolper & Walter, 2017). Understanding
how habits form may help explain this paradox. Specifically, we use the Ajzen and Fishbein
(2005) Theory of Planned Behavior (TPB) and the conceptual framework of family financial
socialization (FFS) (Gudmunson & Danes, 2011) - two widely applied theoretical concepts in
the financial behavior literature - to examine these determinants of financial behavior.
Perhaps the most striking finding in our research was the association between participants
who had a committed romantic relationship (i.e., a “life partner”) and reported long-medium
term spending and saving behaviors. In retrospect, this is quite logical given the change in time
horizon associated with planning a family and building a life with another person. The salience
of large-scale savings for a home purchase and child-rearing would clearly influence people to
consider their spending in a different light. In contrast, those still single were more likely to focus
on shorter-term goals, such as a holiday, visa applications or further education. If they were
saving for other purposes, it was more about a moderate “rainy day” fund for emergency use,
which most reported they had done. This finding supports the dynamic nature of family financial
socialization as a major influence on financial behavior (Danes, 1994; Shim et al., 2009).
We also find that our measure of financial literacy does not appear to play a major role in
day-to-day engagement with finances for the young adults who participated in this research.1
Instead, we find that motivation rather than literacy is the primary driver of engagement with
finances in this cohort. Subjective financial literacy appears more relevant to event-like financial
transactions that require considered reasoning, for instance, engaging in a new investment vehi-
cle (e.g., entering the stock market). Tailoring a life-cycle, just-in-time approach to promote
healthy financial habits would appear to be an initiative that might allow young people to access
the knowledge they need when motivated to use it (Fernandes et al., 2014). Yet, there might be a
role for financial education courses offered at high school or university to raise general financial
awareness. The narrow framing of just-in-time education or interventions, such as initiatives
targeted at young adults who have moved out of home (Czar et al., 2021), may be “too late to
educate oneself in financial literacy” (Gerrans, 2021) ignoring the effects that financial education
may have on “long-term behavior with less timely feedback” (Wagner & Walstad, 2019).
Our paper offers interesting and relevant insights for policymakers interested in promoting
consumers' financial wellbeing. Government agencies around the world aim to improve finan-
cial capability by various measures. The US National Strategy for Financial Literacy recognizes
that effective financial education “capitalizes on people's motivation” (US Financial Literacy
and Education Commission, 2020: 20), while the UK Strategy for Financial Wellbeing
2020–2030 aims to promote regular savings and engagement with their long-term finances
(Money & Pensions Service, 2020). In Australia, the National Financial Capability Strategy (2022)
aims to improve people's engagement with financial decisions, motivation and confidence to
manage their money. All of these strategies acknowledge the role engagement and motivation
play in financial behavior. Yet, it is unclear how these factors may amplify or confound the effec-
tiveness of financial wellbeing initiatives. Our findings suggest that effectiveness will largely
depend on how well these initiatives capture the social context of their target audience.
This paper is structured as follows: Section 2 discusses the relevant literature in the field of
financial behavior and financial literacy and provides a brief discourse of the theoretical con-
cepts used in this research; we describe our research method in Section 3; followed by a sum-
mary of findings in Section 4; we present a discussion of how our findings contribute to the
SINNEWE and NICHOLSON 567

extant literature and offer practical implications in Section 5, before noting our concluding
remarks in Section 6.

2 | LITERATURE R EVIEW

A concerning aspect of young people's finances is their exposure to debt. In the US, for instance,
Brown et al. (2016: 2491) report that young adults are heavily reliant on debt: “Of twenty-five-year-
olds in the FRBNY Consumer Credit Panel (CCP) in 2012, 79% held consumer debt. The average
debt balance among all 2012 CCP twenty-five-year-olds was $22,911.” Apart from the financial
implications for the individual, financial debt in young adults is associated with criminal behavior
(Hoeve et al., 2014). The reliance on debt may indicate that young adults are prone to overspend-
ing. Yet, data shows that they are spending less on discretionary items and face higher non-
discretionary expenses, such as education and health, than previous generations. For example, in
the setting of our study, Australia, the higher education loan program almost doubled in the past
decade from AUD 35.5 billion in 2011/12 to AUD 104.2 billion in 2021/22 (Australian Taxation
Office, 2022). Therefore, it is unsurprising to learn that their net wealth is lower compared to
older generations (Lobaugh et al., 2019; Wood et al., 2019).
Young adults also seem to lack the financial skill to navigate higher debt levels and non-
discretionary expenditure. Financial literacy is low among young adults (Lusardi et al., 2010).
Low literacy is problematic as it might lead to errors in judgment (Anderson et al., 2017), risky
borrowing such as the use of payday loans (Harvey, 2019; Xiao et al., 2011), lower wealth accumu-
lation (van Rooij et al., 2012), and lower participation in the share market (Sivaramakrishnan
et al., 2017; van Rooij et al., 2011). Norvilitis et al. (2006), for instance, report that young US
college students' debt levels are associated with a lack of financial knowledge.
The co-occurrence of low financial literacy and poor financial outcomes has led to the
proliferation of financial education programs worldwide. In the UK alone, the FSA evaluated
over 70 financial education programs (Atkinson, 2008). In the US, 21 states mandate high
school students to complete a course in personal finance (Council for Economic Education,
2020). Financial literacy is thought to promote financial well-being (see e.g., Braunstein &
Welch, 2002; Remund, 2010) and while there is broad global evidence that financial literacy
correlates with financial behaviors and attitudes to finance (e.g., Atkinson & Messy, 2012), over-
all, the academic evidence that financial literacy stimulates changes in financial behavior is, at
best, mixed and casts doubt over the impact of financial literacy programs (see e.g., Agarwal
et al., 2011; Australian Securities & Investments Commission, 2011; Mandell & Klein, 2009;
Pahlevan Sharif et al., 2020). For instance, in a meta-analysis of 44 studies involving some
690 observed effect sizes, Santini et al. (2019) report no such relationship. Instead, they suggest
that while financial literacy is associated with positive aspects of financial well-being (such as
reduced credit card debt and better credit scores), it may be that behavior influences financial
literacy (see also Atkinson & Messy, 2012) rather than vice versa.
Similarly, Fernandes et al. (2014) report that in their meta-analysis of 168 papers covering
201 studies, financial literacy interventions were only associated with 0.1% of the variation in
financial behaviors, with that effect decreasing with income. Instead, measured financial liter-
acy2 had a much greater relationship, suggesting that education is not an effective predictor of
financial literacy; something else matters. From a theoretical perspective, the role of financial
literacy in changing financial behavior is also unclear. Among different theoretical approaches
that have been applied in the financial literacy/financial behavior literature, we discerned two
568 SINNEWE and NICHOLSON

theories relevant to our study: the Theory of Planned Behavior (TPB) and the Family Financial
Socialization Theory (FFS).
TPB posits that intention to perform a behavior correlates with three constructs: (1) attitude
towards the behavior; (2) perceived social norms; and (3) perceived behavioral control (Ajzen &
Fishbein, 2005). Together, the three constructs lead to behavioral intention formation. This
intention is expected to result in actual behavior (depending on incentives and barriers sur-
rounding an individual's perceived control over the behavior).
Substantial bodies of theory and research support the construct validity and predictive valid-
ity of the theory of planned behavior (see e.g., Armitage & Conner, 2001; Webb &
Sheeran, 2006). On average, the models explains an estimated 39% of the variance in intention
and 27% of the variance in behavior across various contexts (Armitage & Conner, 2001). While
that result is impressive, TPB has proven to be domain specific as each domain may be charac-
terized by substantially different attitudes, norms and control factor considerations. Thus, the
degree to which these constructs explain financial habits may diverge from, for example, prior
research in healthy eating habits.
The key link to our research agenda is provided by Danes et al. (2016) who suggest that
financial literacy indirectly changes financial behavior through changing the beliefs underlying
attitude, norms and control perceptions. Several studies have applied TPB to financial behavior:
in retirement planning (Croy et al., 2010b;Croy et al., 2010a;Croy et al., 2012;Croy et al., 2015),
in investing (Sivaramakrishnan et al., 2017) and financial well-being (Shim et al., 2009).
FFS theory provides an allied but different perspective. It extends TPB by proposing a con-
ceptual model in which fundamental beliefs underlying attitude and perception of social norms
and perceived control are integrated with demographic characteristics, family socialization pro-
cesses, and traditional financial outcomes Gudmunson and Danes (2011). According to
Danes (1994: 128), financial socialization is “the process of acquiring and developing values, atti-
tudes, standards, norms, knowledge, and behaviors that contribute to the financial viability and
well-being of the individual”. FFS theory explains why parental socialization has a direct yet
moderate effect on financial attitude and a mediated effect on young adults' saving strategies,
investments and insurance outcomes (Jorgensen & Savla, 2010; Shim et al., 2010). Financial
socialization at home and school positively affects the financial literacy of individuals in child-
hood and their financial behavior as adults (Grohmann et al., 2015; Sansone et al., 2019) provid-
ing a possible link between these socialization processes and financial literacy. We aim to gain
an in-depth understanding of young adults' financial behavior by examining the association of
social influences as proposed by FFS with the intrinsic constructs posited by TPB:
RQ1: What factors influence financial habits and behavior of young adults?
Even where financial literacy is associated with positive intentions, the practical implica-
tions are unclear. For instance, Santini et al. (2019) report that young adult financial literacy
was not associated with spending less money on ‘discretionary’ items such as eating out or
entertainment, nor were there any effects of literacy on other financial variables such as asset
ownership or savings. It would seem logical that the increase in income associated with enter-
ing the full-time workforce may increase immediate gratification behaviors (e.g., discretionary
spending) among young people rather than those associated with longer-term financial stability.
If this sets up a pattern of behavior (or habit) for the individual related to poor financial well-
being, the transition point becomes crucial to long-term financial health. Thus, we also seek to
understand how a change in the external cue context may alter the relationship between young
adults' intention to engage with finances, their financial confidence, and their financial
behavior:
SINNEWE and NICHOLSON 569

RQ2: What is the relationship between engagement with personal finances, subjective financial
literacy, and financial habits of young adults entering the workforce?

3 | METHOD

This exploratory study aims to offer broad insights into the formation of financial habits during
a significant life transition. Specifically, it seeks to explain how external influences can shape
individuals' perceptions about money and thereby impact financial outcomes facilitating or
inhibiting behaviors during this transition. We sought to achieve this aim by interviewing
28 young people (21–31 years) who had recently entered the workforce (i.e., within the last
5 years) in half-hour-long interviews.3
The interviews were conducted by the authors of the study. Both authors were present at
the first two interviews, while the remaining participants were independently interviewed by
either the lead or the co-author. The researchers are aware that they may suffer from biased
views on what constitutes healthy financial behavior, as they both are tenured academic staff,
homeowners, and in stable relationships. In contrast to the co-author, who has extensive experi-
ence in conducting qualitative research but is only broadly familiar with the research area, the
study forms part of the lead author's research areas in financial planning and behavioral
finance. Thus, her research background may have also influenced her views going into this
research. In an attempt to decouple the interpretation from any personal views that the authors
might have brought to the research, the researchers conducted debriefing sessions at various
stages during and after the data collection to exchange their impressions from the interviews
and critically reflect on their interpretation of the responses.

3.1 | Sample

Since we were primarily interested in the adoption of or change in financial habits, we sought
to understand better the life transition phase where a young person enters full-time employ-
ment. This transition is likely to be a fruitful period to research as it is associated with both sig-
nificantly higher levels and certainty of income along with additional financial burdens as the
individual takes on additional costs associated with establishing their complete independence.
We proceeded to construct a sample that reflected this transition period (Gliner et al., 2016;
Miles & Huberman, 1994; Patton, 1990) by including participants if they were: (1) working full-
time,4 (2) aged between 18 and 30, and (3) had entered the full-time workforce within the last
5 years. Participants were based in Australia and recruited from: (1) current undergraduate and
postgraduate students of the researchers, who also work full-time; (2) recently graduated
alumni, who have entered the workforce full-time; and (3) the crowd-sourcing platform
Prolific.
The sample comprises male (15) and female (13) respondents with an average age of 25.5
The educational background of our participant pool is homogenous compared to the average
Australian population: they are highly educated and have completed or were in the process of
completing a university degree. Compared to 44.5% of the Australian population aged 25 to
34, 71.8% of our sample hold a bachelor's degree (Australian Bureau of Statistics, 2021).
Eleven of our participants entered the workforce in the last 12 months, five respondents
reported work experience of one to 2 years. The remaining 12 participants had 3 to 5 years of
570 SINNEWE and NICHOLSON

work experience. Financial habits of recent full-time workers might be different from those
5 years into their careers. These differences are reflected in our sample with marked differences
in relationship status and living situation. For example, there are more singles and individuals
living at home at the start of their career compared to respondents who are further along. As
expected, financial challenges build up around this transition phase, which helps to provide
deeper insight into the angle of habit formation. A summary of the participants, including detail
of their differences in living situation and social ties are provided in Table 1.

3.2 | Interviews

Interviews were semi structured. There were 14 “mandatory” questions dealing with key
aspects of a participant's financial behavior including their key activities during the average
week, who they sought financial advice from, how they managed their finances and their cur-
rent financial habits.6 We could then probe into interesting responses and themes emerging
during the interview. This unstructured component of the interview allowed us to identify
important but unforeseen themes and to better understand both the nuance of specific themes
and the relationships between them. Each interview was conducted and digitally recorded via
Zoom and transcribed. The interviews took place between May to November 2021 during the
SARS-CoV-2 Delta/Omricon variant wave (third wave). All up, there were 16.1 h of interview
data from 28 interviews. Interview transcripts averaged 4929 words per transcript and totaled
252 pages.

3.3 | Coding

Our approach followed the grounded theory tradition (Glaser & Strauss, 1967; Glaser &
Strauss, 2017; Strauss & Corbin, 1997). Grounded theory is a systematic method for generating
theory from data that has been collected through qualitative methods such as interviews, obser-
vations, and document analysis. The key principle of grounded theory is that theory emerges
from data. Rather than commencing the research with a pre-existing theory to test, the
researcher allows the data to guide theory development through a method of constant compari-
son between theory and data (Glaser & Strauss, 1967). Given its roots concentrate on the inter-
pretation of the actors involved in the phenomena, it is particularly suited to developing theory
around issues such as financial literacy and individual motivations for financial decision
making when using multiple theories as we do here (Suddaby, 2006).
As Suddaby (2006: 634) notes, “A common misassumption is that grounded theory requires
a researcher to enter the field without any knowledge of prior research.” Instead, existing litera-
ture should inform the development of the theory along with the data, but not with a positivist
hypothesis testing method. Thus, we entered the field with broad concepts in mind from our
review of the literature (Suddaby, 2006). Codes were developed using an iterative process of
constant comparison between data and theory (Charmaz & Belgrave, 2012) as the themes from
our analysis emerged.
Coding had the dual objectives of (a) allowing coders to capture the most relevant features
of the phenomena by trading off completeness and manageability and (b) to allow coders to
reach a consensus. The coding was undertaken in several phases involving the authors and a
research assistant. First, an initial coding regime was developed based on key concepts in the
T A B L E 1 Overview of participants

PARTICIPANT GENDER AGE WORK EXPERIENCE EDUCATION RELATIONSHIP STATUS LIVING SITUATION
Ali M 24 <12 months Bachelor De facto Parents
Bahia F 23 <12 months Masters Single Rent
Christie F 25 3–5 years Bachelor Married Mortgaged home
SINNEWE and NICHOLSON

Dakota F 24 <12 months Bachelor Single Parents

Edward M 25 1–2 years Bachelor Engaged Mortgaged home
Finn M 23 <12 months Bachelor Single Parents
Gaby F 23 3–5 years High school De facto Rent with partner
Hayden* M 23 <12 months Bachelor De facto Rent with partner
Ian M 23 1–2 years Bachelor Single Parents
Jisoo F 30 3–5 years PhD Single Rent
Keith M 21 <12 months Bachelor Single Parents
Lehan M 25 3–5 years Bachelor Single Rent
Michael M 26 3–5 years Bachelor Single Mortgaged home
Nash M 26 3–5 years Bachelor Married Parents
Olive F 29 3–5 years Grad Dip De facto Mortgage home
Paku M 28 3–5 years Bachelor Single Rent
Quinn F 30 1–2 years PhD Single Rent
Rhoda F 30 1–2 years Masters De facto Rent with partner
Sadie F 25 1–2 years Bachelor De facto Rent with partner
Taylor F 23 <12 months Bachelor Single Parents
Udo M 26 <12 months Bachelor De facto Lives with extended family^
Vicky F 26 3–5 years PhD De facto Rent with partner
Will M 29 3–5 years Bachelor De facto Lives at partners' place^
Willow F 22 3–5 years Bachelor De facto Rents alone
571

(Continues)
T A B L E 1 (Continued)
572

PARTICIPANT GENDER AGE WORK EXPERIENCE EDUCATION RELATIONSHIP STATUS LIVING SITUATION
Yusuf M 24 <12 months Bachelor De facto Parents
Zaaba F 23 <12 months Masters Single Rent
Zack M 25 3–5 years Bachelor Single Parents
Zeke M 22 <12 months Bachelor De facto Parents

Note: Participant names changed to maintain anonymity. Online participants were able to identify as non-binary but none have elected to do so. *Hayden was the first participant to be
interviewed. We decided to retain the data from the researchers' notes related to Hayden even though the recording did not work at the time. ^ Two participants who lived with family or at
partners' place (Udo and Will) have both noted that they are currently transitioning into their own (mortgaged) home.
SINNEWE and NICHOLSON
SINNEWE and NICHOLSON 573

T A B L E 2 Overview of major themes

THEME OCCURRENCES EXPLANATION

Influence: Financial socialization
Follows advice from “parental” role 20 Parents are in most cases (16/20) the role
model model.
No or little discussion with friends 16 Most participants who discuss their finances
with friends would not seek advice from
their friends (8/12).
Partner influences financial 13 Frequent discussion with partners occurs in
decision-making all cases with only one case relying on the
partner for managing their finances. The
remaining two participants plan or at least
actively discuss their finances with their
partners. Eight participants have shared
accounts with their partners.
Relies on online forums and social media 12 The most frequent sources mentioned are:
Barefoot investor, Reddit forums, YouTube
and Fin Influencers on social media, e.g.,
“She is on the money”
Influence: Lived experience
Experience(d) financial hardship 9 Most of the nine participants experienced
financial hardship in childhood with only
two participants with more recent
experiences.
Relies on/access to family financial 17 Mostly participants living at home or home of
support partner, who rely on their parents to cover
living expenses. Seven participants that rely
on their family as financial safety net have
already moved out.
Perceived norms
Observe poor spending habits in friends, 17 Most respondents report unnecessary
family or themselves overspending in their circle of friends
including 4 participants who fail to identify
any of their own habits that they would like
to change. Only 2 identify their own bad
habits without consideration of others.
Consider credit cards and buy-now-pay- 7
later as “bad debt”
Put off by people's obsession with money 7 Most of the participants have some form of
financial security (5/7). One participant
takes into account ethical considerations,
because “money should be ethical and not
about getting rich quickly”.
Attitude towards money
Money is important to support lifestyle 13 Most of the participants are either single or
rely on family as financial safety net (10/13).
(Continues)
574 SINNEWE and NICHOLSON

T A B L E 2 (Continued)

THEME OCCURRENCES EXPLANATION

Money is important to fund “future self” 9 Four participants with serious romantic
partners, the remaining participants either
experienced significant financial hardship or
are heavily influenced by their parents' role
modeling. All (except of 2) in this category
use a formalized budget.
Perceived control
Perceive themselves as in control of 28 However, only 12 respondents can be
finances considered as truly autonomous without
any reliance on family support.
Average financial literacy score 6.4 out of 10 Only four participants consider themselves
below average. In all of the below average
cases, literacy is accurately assessed based
on the researcher's perception about the
individual's financial literacy and also
indicates low confidence in dealing with
finances.
Intentions
Financial goal setting 13 Only 4 participants with clearly specified goals
prefer money to support their current
lifestyle (i.e., no future focus).
Financial habits
Track expenses 26 Only two participants report that they do not
tracking their expenditure at all.
Bucket system with dedicated savings 16 All participants, who prefer money to fund
amount their future, use some sort of bucket system
with a dedicated savings amount transferred
across bank accounts
Formalized budget 10 All participants using a spreadsheet rate their
financial satisfaction as above average.
Self-imposed spending limits 8 Participants who do not use a budget or
bucket system manage their finances by
setting themselves a spending limit and
keeping track of their expenses via online
banking.
Spending described as “frugal” 14 Participants describe their spending habits as
frugal, “cheap” or “miserly” and often refer
to strategies such as meal prep or shopping
for the best deal.
Financial outcomes
Investment in shares and property 21 Twelve out of these 21 participants reported
non-trivial amounts invested in shares or
property. Only 7 individuals responded as
having no investments.
SINNEWE and NICHOLSON 575

T A B L E 2 (Continued)

THEME OCCURRENCES EXPLANATION

Average financial satisfaction rating 7.3 out of 10 Only 1 respondent has reported low financial
satisfaction. This respondent is currently
experiencing financial stress.

Note: Table 2 provides a summary of the major themes emerging from axial coding. Occurrences measure the number of
interviews in which the theme occurred. Average financial literacy and financial satisfaction across participants reported.
Explanations provide additional detail and/or researchers' observations pertaining to the theme.

literature (Suddaby, 2006): Observed habits and outcomes; attitude and perception towards
finances; influences of behavior. As part of this process, the lead author and a research assistant
coded an interview separately and compared their coding, coming to a consensus on the areas
of minor disagreement.
In the second phase, the research assistant coded the remaining 19 interviews iterating
between the coding regime and data, adding in additional codes as they emerged and refining
the detailed codes with the analysis of each transcript. This initial process produced 235 different
codes.
For the third phase, this coding was reviewed by the lead author who moved to axial coding
to reassemble the fractured data from the open coding (Williams & Moser, 2019) by connecting
codes and assigning abstract names more reflective of the essence of the data. These categories
and themes were further refined using a process of selective coding, whereby similar categories
were consolidated and single incidences or categories with minimal evidence were removed
from the analysis. For instance, the key code of “present vs future focus” emerged from the data
over this process and was added to the original coding regime and theory development.
As themes developed it became clear when theoretical saturation was reached. Once no
new insights were emerging, we determined that the information had been exhausted and that
the coding process had ended (Charmaz & Belgrave, 2012). During the coding process the
research assistant kept a self-reflexive journal where he described his main impressions of each
interview. These corresponded with the reflections of the lead author on reading each interview
and assessing the initial coding.
In the final phase of analysis, the authors aggregated codes and categories into overarching
themes that reflected the core themes of the study that provided the foundations for the results
and our conclusions.

4 | F IN D I NG S

We use the two-order approach (Kreiner et al., 2006; van Maanen, 1979) to present our findings.
We use both first-order data (textual references from interviewees) and second-order data (the
themes, constructs and relationships developed from the first-order data). This approach allows
us to convey the ideas behind the basic codes in the participants' own words as well as to
develop a holistic overview of the patterns discovered among the individual responses. By inter-
weaving first and second order data in this section, we provide both the structure to explain our
key implications while allowing for the thick description associated with qualitative work. In
the interests of clarity and parsimony, we next preview the underlying theoretical foundations
before moving to a more in-depth discussion.
576 SINNEWE and NICHOLSON

4.1 | Theoretical foundations of financial behavior

Using grounded theory (Glaser & Strauss, 1967; Glaser & Strauss, 2017; Strauss & Corbin, 1997;
Suddaby, 2006) allowed us to develop a conceptual understanding that answered our core
research questions in light of the collected data. We drew upon the Theory of Planned Behavior
(TPB) and Family Financial Socialization (FFS). TPB allows us to isolate any divergence
between cognitive aspect of financial behavior (e.g., the use of financial literacy and what par-
ticipants thought they should do) with the unconscious (or at least fewer conscious aspects)
aspects of behavior evident in terms of habits (and what participants actually did). FFS enables
us to integrate socio-demographic aspects and financial socialization aspects.

4.2 | Reported financial satisfaction

Perhaps surprisingly, twenty-one (21) of our participants in our research scored their financial
satisfaction above average including ten (10) participants considering their financial position
very satisfying with two (2) of the participants completely satisfied with their financial situation.
On closer examination, the 10 cases that reported a high satisfaction with their finances
appeared to share a sense of pride in the systematic way they manage their finances in all cases
associated with budgeting. This is best illustrated by Gaby who, when asked to rate her finan-
cial satisfaction on a scale from 0–10, responded:

“Yeah, I mean, honestly, at the moment, I'd have to give myself a nine because I've
somehow managed to save so much this this year, which has been amazing. I feel
completely in control.”

Other themes of satisfaction common among these participants are that they: “didn't really need to have
to think about it and don't have to stress about it” (Quinn); were satisfied with their level of spending
(frugality)7; had enough money sometimes expressed as being financially balanced or in control. Almost
all participants, except for two, would not score themselves as completely satisfied quoting that there is
“always room for improvement” (Taylor). Eleven participants responded that their dissatisfaction stems
from not earning enough income, with seven respondents wanting to change their financial habits to
improve their financial situation, e.g., setting up a budget, spending less on discretionary items or
investing more prudently. Some participants saw home ownership as key to financial satisfaction:

“So once I become a homeowner, I think I can confidently say that, you know, at that
point, I'm setting life and all I have to do is just, you know, save money and invest
and you know, retire early, hopefully” (Yusuf)

Yet, for some participants the goal of home ownership also caused some level of frustration:

“There's just that extra bit where it's like you're saving for a house and the house
prices are going up $100,000 every week, and you can't save $10,000 a week. So just
the deposit gets pushed more and more because of extraneous circumstances. And
obviously, I can't help. So, it's like we're saving as best as we can to have that stable
environment. And it just isn't here yet. So, I guess that's my like, only gripe about my
financial situation is that I can't save enough money to buy a house.” (Vicky)
SINNEWE and NICHOLSON 577

To better understand this general observation, we sought to uncover the actual behaviors asso-
ciated with this generally positive sense of financial satisfaction.

4.3 | Observed financial behaviors

Three quarters of the young people we interviewed were saving money (21/28) and just over
one third (10/28) used a budget to manage finances. In contrast, and just as interestingly, we
found that all participants had taken some steps to protect their financial future by having
sufficient funds to cover an emergency and most participants also have some experience with
investments in e.g., exchange traded funds and microfinancing (20/28). A surprising aspect of
our findings was that there is little use of personal loans, credit card debt, buy now pay later
services, and so on. A few cases reported some form of debt from personal loans or credit
cards, but these participants have either paid off the debt or were on the path of clearing the
debt at the time the interview was taken. Only one participant admitted to being late on buy
now pay later repayments in the past. This finding is potentially attributable to the difference
of our sample compared to the general Australian population. According to Statista (2022),
the national average personal debt is approximately AUD 45,000 for young adults aged 18 to
24. We also note a proportion of our participants have already purchased property (6/28)
which is twice the national average of 10.4% of young adults aged 18 to 24 (Australian Bureau
of Statistics, 2022).
While 17 participants we interviewed did not undertake traditional budgeting, they did
engage in expense tracking and spending control behaviors that allowed them to build up emer-
gency funds. All used some form of technology (online banking or an app) to monitor their
finances with several reporting the ease and convenience of this approach. For instance, Finn
used an “App […] you can see, like the breakdown of what you've spent and what you've saved for
like the month and things like that so yeah it's pretty easy.”
Eighteen participants monitor their bank balance at least weekly to regulate their finances.
Without a formalized budget, eight participants reported setting spending limits like Dakota
who was:

“trying to limit myself to $150 to $200 a fortnight […]. That's including my [public
transport card], because that expense is so low now. But just for you know, any eating
out or anything, I'm trying to limit myself.”

Another strategy was to manage expenses via the use of dedicated sub-accounts (bucket system)
for specific purposes or categories of spending. For Keith that meant that

“So often, when I get paid, [into] my main accounts, I transfer money into my second
halfway accounts. So that means I only have $1,000 in my [transaction] accounts,
such as money I can access immediately just in case and then pretty much most of it
goes to my savings accounts. So, anything above that $1,000 goes into there, so that I
try to keep $1,000 at all times just in case of any unforeseen expenditures.”

While these broad spending controls were widely reported, other more nuanced approaches
such as earmarking funds for dedicated future expenses and shopping around for deals were
also mentioned.
578 SINNEWE and NICHOLSON

4.4 | Influences of financial behaviors

While the participants reported that some form of peer pressure (fears of missing out and lifestyle
propaganda on social media, for instance) could derail financial activities, there appears to be lit-
tle (if any) active discussion of financial issues in peer groups (friends). Thus, Ali reported that “…
most of them, I think, are in the same boat, … So, we just don't really talk about it that much”. In
concurrence, Udo stated “Oh, no. They find it boring.” Why does little discussion occur? It seems
that money matters are a private issue only discussed with family and close friends. Mostly the
topic did not get much traction in the interviews, Paku revealed: “So just a couple of cool close fri-
ends. Yeah. Yeah, I want to maintain the my, you know, my social image, you know?” If anything,
most participants (20/28) used their peers as a reference point for anchoring their expenses or
investments rather than as a source of advice. Thus, Finn noted that “…sometimes we're talking
about it … like how much they're paying for rent and what's reasonable and things like that.” From
talking to our interviewees, we find that discussing finances with friends is not the social norm.
Yet, it is not perceived as “taboo” as Sadie clarifies: “…it's never really been like a taboo subject. I
think it's just something it doesn't really come up as often”. Interestingly, only participants who do
not systematically manage their finances are more open to discuss money matters with friends
potentially as a way to inform their financial behavior. For example, Willow suggests:

“So, my two very close friends, we are investing at a similar level. And we're all at uni
and we're all working. So, we're kind of on the same playing field. And so, we all joke
about like having to live on pasta and noodles and stuff. So, it's, you know, that kind
of camaraderie. So, we do talk about money.”

Family especially parents are a major influence on shaping the financial habits of our partici-
pants. Bahia, Hayden, Keith, Olive, and Taylor, for example, described their parents as “habit-
ual savers” instilling their saving habits “from a young age”. In other cases, where there appears
to be a loose relationship to parents (i.e., children growing up with grandparents) or in case of a
family breakdown, other members of their social network took up a role model function for our
participants. Zaaba reflects:

“…we grew up with Granny, I kind of have that mentality of the generation where
they're very careful as to what needs to be spent doesn't matter if it's emotional values
or financial values. I think I've got it from them, definitely from them.”

There were exceptions, however. Six respondents did not talk about money in the family. Rhoda
points out: “I'm just not very comfortable discussing my finances with my mom or my dad or any
family member.” No common financial habit or any similarities in the impact on their financial
position due to a lack of parental guidance could be discerned.
A major financial socialization theme emerged from speaking to those interviewees in com-
mitted romantic relationships. In every case where a participant reported a serious life-partner,
they also reported a much more intentional approach to managing their finances. Thus, Ali
spoke how he and his girlfriend had:

definitely talked about it. And I guess I shared with her what I've learned about it. She
has asked me to help her invest, like what like, essentially give advice on what to invest
in things. And I've taught her a lot.
SINNEWE and NICHOLSON 579

It seems that planning a future with someone else led to this change, with Gaby suggesting that
“I don't think if I was on my own, I would be thinking so far forward at all.” Similarly, Nash
responded when asked where his long-term financial goal of owning a house came from:

“I think it is more to do with my relationship. It's the housing market in Australia isn't
great. And so, I had accepted before I did get into a relationship that my prospects of
owning a home would be very slim. But now that I'm in a relationship, and […] we're
really looking to have that space that we can call our own.”

Delving deeper into the data, it seems that a committed relationship was associated with a fun-
damental change in participants' financial time horizons. Put simply, they started thinking
about long term goals such as saving for a home (5 out of 6 participants who have purchased a
dwelling are in a committed relationship). Single8 participants rarely reported a specific long-
term goal. Instead, they may have voiced loose aspirations, but they rarely specified time frames
or detailed plans for achieving financial goals associated with long-term financial commitments.
Most single participants (9/13) reported a relaxed attitude towards money with few articulated
financial goals.9 Thus, Bahia reported she “[has not] thought about this [financial goals] much”
and while Dakota thought that “the main sort of big one [i.e., goal] … it's looming is getting my
own place” at the moment she did not “have a deadline on that.”
Just as the presence of a committed relationship seemed to influence participants' approach
to managing their finances, so too did their experience of financial hardship. Gaby highlighted
how her focus on financial independence sprang from “a very long period of a lot of anxiety and
stress around money” but perhaps an exemplar of the relationship between financial hardship
and financial behaviors was provided by Christie:

I grew up where we had no money and you know, there were times that we, you know,
didn't have a roof over our head at sometimes, we were in between some shelters as
well. We didn't have, you know, there were points that we would go a few days without
food. So, growing up in that kind of environment, money and making sure I have
savings is key [emphasis added].

4.5 | Beliefs, attitudes and intentions

An important aspect of our research was to examine how observed influences can lead to the
observed behavioral outcomes through unobserved psychological processes: the participants'
personal beliefs, attitudes and intentions. In other words, we explore what motivates our sub-
jects to engage in certain financial habits and the resultant financial outcomes The theory of
planned behavior posits beliefs precede the intention to inform behavior. According to this the-
ory, beliefs manifest in attitudes, perceived norms and perceived control within individuals. We
explored these aspects of motivation when discussing the importance of money (attitude), evalu-
ation of ‘poor’ behavior or ‘bad’ habits (perceived norms) and self-reported financial literacy
(financial confidence). We also probed into the subjects' intentions by asking them about their
financial goals.
As we have covered, some participants' goal formation is more specific than others: the rela-
tionship between the intention of ‘saving for a specific goal’ may be related to the respondents'
relationship status. We find incidences of clearly specified goals, which were actively pursued
580 SINNEWE and NICHOLSON

by the respondents in nine cases. We suggest that this might have to do with a shift in financial
time horizon. Evidence of this shift is gleaned from the individuals' perceived utility of money,
or money attitude. When asked about the importance of money, respondents almost entirely
agreed that money is important (except for two instances). However, participants either
described the importance in terms of what we term ‘current utility’ or in terms of what we term
‘future utility’. In other words, the ability to fund current activities or lifestyles versus the abil-
ity to provide for one's future self.
Participants split evenly into two camps: nine participants preferred using money for
funding their current lifestyle, while nine participants preferred using money for their future.
For example, Yusuf clearly sees a current utility in money stating: “the only reason money is so
important is because I just needed to, you know, fund my hobbies, and, you know, live my life.”
Olive on the other hand described the future utility of money as follows: “I am a very future ori-
ented person. And I know that it's important for my future.”
What about the intention of avoiding poor habits? Apart for the intention to save up for a
specific financial goal, we also find indications of debt avoidance as an intention motivated by
what respondents perceived as ‘bad debt’ such as the use of credit cards or buy now pay later
services (7/28). Quinn replied when the interviewer probed here about her reluctance to use
buy-now-pay-later services: “No, absolutely. […] I believe that if I kind of looked like for me per-
sonally, if I can't afford something, I shouldn't be buying it.”. Keith shared a similar view: “No. So
yeah, so I sort of like, no, from how I've seen on [TV], that I'll never use a buy now pay later service
because if you can't afford it now, then you shouldn't be buying it, as well as compound interest
also works against you in terms of debt. So not doing that.”
Participants mostly did not report concerns with their discretionary spending habits, but
they observed what they perceived as “unnecessary” or “excessive” overspending in their peers.
Rarely, they admit to this form of spending in themselves and if so, it is only temporary as Nash
explained:

“I would say the first two months when I entered the workforce, it was almost an
extreme amount of spending, and then realizing I wasn't actually saving as much as I
thought. So, it then pivoted quite quickly into trying to maximize my savings.”

Gaby observed forms of negative norms (FOMO - Fear of Missing Out) and associated market-
ing strategies that exploit FOMO can lead to poor financial decision making. She reported that:

It seems like, there is the big FOMO culture when it comes to marketing. So, the Big
Pineapple Music Festival, we looked at going and there's just too much money, and
there was only like a couple of Acts that we would have actually enjoyed. But the prob-
lem is, you don't have a lot of time to make these decisions. Because first of all it gets
announced. Three days later, tickets are on sale, and three days and one hour later
tickets are sold out.

Poor spending behavior due to negative norms is perpetuated by ‘ideal lifestyles’ presented on
social media. Thus, Christie opined that:

I'm seeing people my age, they see these lifestyles that we all know it's crap on social
media, but they're more than happy to get a credit card, get loans to kind of look like
that […]. I just find [it] absolutely crazy. Like who gets a credit card just to buy
SINNEWE and NICHOLSON 581

designer clothes? Like that's crazy. […] And they'll eventually regret it when they're a
little bit older, I reckon.

We are somewhat cautious when interpreting the self-reports on spending behavior in our par-
ticipants due to inconsistencies in their recollection of spending behaviors might not represent
actual experienced spending behavior. For instance, they would observe significant poor spend-
ing decisions in others – for instance Taylor noted that she has:

“Friends that are like: “I've got no money, I'm so broke.” And I know they work a lot.
But I also know that they buy $1,800 bags, so like, like a Louis Vuitton bag or like, that
sort of thing. And I know for a fact, like they've worked a lot. But they also don't put any
of their money away or like friends that just seem to never have any money because they
just keep buying themselves things. And I know that they don't have money, because
then they're like: “Oh, I'm sorry, I can't do this.” But like I said, they'll buy themselves
some designer things or like, yeah, just constantly buying themselves new things.”

While they did not report similar patterns in their own behavior, upon probing they would
often identify poor financial habits such as impulse shopping, excess takeaway (incl. coffee) and
eating out; going out on the weekend; over-using Uber and consuming alcohol. This suggests
we should be conscious of self-serving bias and similar effects influencing responses.
When it comes to perceived control and financial autonomy, virtually all participants
responded of being in control of their finances. Perceived autonomy played a part in this evalu-
ation but cannot explain why all participants are confident in their ability to control their
finances, as there is evidence of dependencies on family support and outsourcing the managing
of finances to either the partner or a financial adviser. Trying to approach perceived control
from a confidence in one's financial knowledge angle, we asked our respondents to rate their
financial literacy on a scale of 1 very poor to 10 excellent. Most our participants reported their
financial literacy slight above average (i.e., 14 participants rated their financial literacy 6 or 7)
with nine participants considering themselves as very literate (8 and above). Only five partici-
pants admitted to none or little financial literacy (5 or below).10 Yet, this clustering of self-rated
financial literacy was not reflected in their reported habits or financial outcomes. We find var-
ied behaviors in all three literacy brackets.
Since our research interest lay in understanding the financial habits of young people enter-
ing the workforce, we sought to better understand how their behaviors had changed during this
transition. Given the variations in work experience present in our sample, environmental
changes (such as access to more disposable income) during this transitional period may be an
opportunity to examine the interplay between intentions and actual behavior. We asked partici-
pants to reflect on any changes in their behaviors during this period, as well as any intentions
they may have had to change their behaviors over time. As might be expected, participants
reported this period of life involved multiple major changes associated with growing indepen-
dence that catalyzed a change in financial behavior. These factors were often associated with
conflicting forces on the participants - for instance, the reported difficulty in saving when mov-
ing out of home versus the greater latitude associated with working full-time as Will put it:

“But when I moved out and started working, then all the expenses have sort of arisen.
So, with a bit more disposable income, I'm probably spending more money going and
eating out”
582 SINNEWE and NICHOLSON

While there was great variation in the timing and relative importance of the catalysts, a clear
trend emerged in that those respondents with full time work felt less constrained in spending.
As Edward reported:

When I was a student, I was extremely frugal with all purchase decisions. So, I think,
since starting full-time work, I've become a little bit more liberated in my purchase deci-
sions, just because I had a little more financial freedom, just because there's more cash
flow. So that would probably be the biggest change, it took a long time to sort of transi-
tion out of a mindset of scarcity into sort of a mindset where I could actually start to
start and still make considered choices. But I actually had those options available to
me. So, I could actually make use of various things that I previously just wouldn't have.

Participants recognized the importance of managing their finances and a gap between what
they needed to do and their actual behavior. Thus, several participants reported they regretted
“not being on top of income and expenses” (13/28), “not having any investments” (8/28) or “not
managing their investments better” (18/28). Eight of the 13 participants who admitted a desire to
better manage their income and expenses had identified a specific financial habit they wanted
to break. Participants who recognized they might need to improve their financial habits
appeared to lack impetus or faced countervailing motivations. Willow, for instance, tried to
break her “unfortunate relationship with Uber.”

“I deleted the app once for 24 hours. And don't worry, it was reinstalled straightaway.
So, look, I just, I'm really not a morning person.”

Importantly, these impediments to changing financial habits associated with spending and
income were not associated with perceived control or financial literacy. They were motivational
in character. Can an individual's sense of financial confidence affect financial behavior at all?
We find incidences of a lack of financial confidence credited to “knowing little about this space”
was the key reported reason for refraining from investing. Eight participants did not invest.
Participants said that “… there's so much to like, look into considering things. It's actually made
me a bit scared to even like, sort of step into it” (Ali).
Even those who had funds saved were not sure what to do with it. Bahia reflected that

“I just have this money in my account. And it's just, it's just there. Yeah, yeah.
Because, yeah, I feel like I could invest it. But I am not sure if I'm ready to take up that
risk that comes along with investing in stock markets.”

Even those actively planning to invest reported that a lack of knowledge was a crucial factor in
not moving forward. As Gaby stated:

“And so, I've been putting off more and more doing it like we haven't, we're talking
about investments in the new financial year using some of our tax return to add to
that to that investment portfolio. But the actual thought of purchasing the shares is
terrifying because I just don't understand that enough.”

In summary, while there was a substantial consistency in self-reported financial literacy, there
was a wide variability in the reported behaviors of our participants. Specifically, participants
SINNEWE and NICHOLSON 583

F I G U R E 1 Conceptual overview of findings.

(Figure 1 illustrates the relationships between the major themes that emerged from the analysis. The overview
shows how young adults' socialization context and lived experience influence money attitudes and perceived
financial norms, which are instrumental in financial habit formation. Subjective financial literacy instills a sense
of perceived financial control to enable event-like financial behavior)

reported a wide variability in their interest in longer-term financial goals based on their rela-
tionship status motivated by a shift from a present to a future preference for money. Similarly,
participants who had experienced financial stress (either individually or in their immediate
family) exhibited a preference for a future utility in money focused on building financial stabil-
ity or security in the future. In most instances, a combination of these factors was associated
with formalized budgets, which in turn led to evidence of non-trivial investments in the share
and property market. Participants who can rely on family for financial support e.g., to cover
expenses while living at home, or who have no romantic partner exhibit a preference for the
present utility of money resulting in a relaxed approach to money. They mainly track spending
rather than actively planning spending ahead without any experience in investing. Exceptions
exists but there are indications that in these instances parental influence plays a major determi-
nant in their more prudent approach to money.

5 | D I S C U S S I O N A N D I M PL I C A T I O N S

Perhaps the most insightful finding of our research relates to financial socialization. Our respon-
dents report two major financial socialization influences: their parents and their romantic part-
ners. Parents function as role models purveying socially acceptable financial behavior. In the
conceptual overview of our findings (Figure 1), we therefore propose a direct link from parents'
influence to perceived norms mediating financial behavior intentions and subsequent financial
behavior such as debt avoidance. This finding confirms prior research on parents' influence on
adolescents' and young adults' financial behavior (Danes et al., 2016; Shim et al., 2010). Contrary
to our expectations, changes in financial circumstance (i.e., access to stable income, increased
584 SINNEWE and NICHOLSON

financial autonomy) do not act as catalyst for changes in financial behavior. Rather, entering a
committed romantic partnership changes young adults' attitude towards money.
We observed that research participants in a romantic partnership as more focused on their
future. This future focus motivates them to engage more with their finances, which manifests
itself in the form of explicit goal setting, the use of formal budgets or adherence to strict bucket
systems. This insight aligns with Howlett et al. (2008) who find that future orientation leads to
greater likelihood of retirement planning. This finding can also offer interesting implications
about how policy makers might approach present bias, which is the tendency to focus more on
the present than the future (Ainslie, 2001; Gabaix & Laibson, 2006; Laibson, 1997;
Loewenstein & Elster, 1992) – associated with poor financial outcomes such as credit card debt
(Meier & Sprenger, 2010). In retirement planning, one potential solution to alleviate hyperbolic
discounting of future rewards is the presentation of personalized retirement income projections
(Dolls et al., 2018; Goda et al., 2014; Goldstein et al., 2016; Smyrnis et al., 2019).
Hershfield et al. (2011) speculates that present bias may stem from the inability to connect to
one's future self. They demonstrate that participants who interact with their future selves in a vir-
tual reality experiment have a greater propensity to forgo present monetary rewards in exchange for
future ones. Our conceptual path suggests that goal setting needs to be properly motivated to work:
interventions could tap into the anticipatory socialization process of young adults by asking them to
formalize goals while visualizing/narrating the financial needs of a shared future with their partner
in a way that translates future financial needs into present values (Goldstein et al., 2016). This can
be in form of a gap analysis to show how current spending affects future lifestyle outcomes. A lack
of motivation might explain why: (1) in a quasi-experiment, in which users of a FinTech app could
set themselves saving goals, only 30% of these goals were met (Gargano & Rossi, 2020); (2) in an
intervention designed to improve childcare cooks implementation of nutritional guidelines, a check-
list supplemented with educational materials was associated with an intention to use the guidelines,
but no change in the actual nutritional value of the food served (Yoong et al., 2016).
A major motivation for our study was the rise in debt-related services such as Afterpay. Only
a few participants reported encountered difficulties in relation to consumer debt in the form of:
(i) debt from a failed investment (Paku); (ii) large past credit card debt (Taylor); (iii) being late
on Afterpay payments (Sadie). Yet, regardless of having been exposed to debt or expressing
regret in not properly managing their finances, all participants reported feeling in financial con-
trol. Credit card debt or the use of Afterpay was perceived as undesirable - a norm instilled by
parents and the media. The lack of evidence of poor credit use may reflect the financial sociali-
zation effect parents had on their upbringing. Given that our sample potentially suffers from
self-selection bias, we cannot draw any major conclusion from this insight.
While none of our participants exhibited any signs of financial stress at the time of the inter-
view, past experience of financial hardship was a second major influence on engagement with
finances participants reported. Participants who had personally experienced financial hardship
(either personally or as part of their childhood) reported exercising greater control over their
finances. Our study points out that experienced financial hardship might lead to greater finan-
cial self-efficacy.11 Indeed, financial self-efficacy has been shown to fully mediated the relation-
ship between objective financial knowledge and retirement and emergency savings behavior
(Rothwell et al., 2016). Perhaps financial coaching programs like the Boston Youth Credit
Building Initiative studied in Modestino et al. (2019) hold the greatest value for young adults
from low socio-economic backgrounds – as the lived experience of financial hardship will act as
strong motivator. However, such programs might prove costly and less effective compared to
incentivizing behavior through monetary rewards (Cole et al., 2011).
SINNEWE and NICHOLSON 585

Most strikingly subjective financial literacy does not appear to play a major role in day-to-
day engagement with finances for the young adults who participated in this research. Instead,
our key insight is that motivation rather than literacy is the main driver of engagement with
finances in this cohort. Translating motivation into action, however, might be impeded by lack
of subjective financial literacy in event-like financial transactions such as entering the stock
market or taking on debt. For example, our participants reported that a lack of knowledge
about investing inhibited their willingness to engage in investing. A lack of confidence in per-
ceived knowledge may inhibit financial behavior, but financial confidence by itself will not
enable financial behavior without motivation.
These findings may reconcile why studies find mixed evidence of the effectiveness of finan-
cial education programs (see e.g., Fernandes et al., 2014; Hastings et al., 2013; Mandell &
Klein, 2009). Extensive reviews of the field, for example, suggest that the relationship between
financial education and financial outcomes from randomized or natural experiments, “[…] is at
best mixed … [and there] is even less evidence on whether financial education is cost-effective”
(Hastings et al., 2013: 361). Specifically, we find evidence that individuals with a preference for
future utility are willing to invest more time and effort in engaging with their finances com-
pared to impatient individuals with lower discount rates, who see less benefit in delayed returns
(Meier & Sprenger, 2010; Meier & Sprenger, 2013).
Our findings suggest that financial habits are, to an extent, externally cued by the transition
into the workforce, as access to more income may promote more spending. However, we also
observe effective spending restraints in place, where young adults are motivated to focus on
long-term outcomes as a result of being in a committed romantic relationship, i.e., they experi-
ence a change to their social context.
“Nudges” or low-cost interventions such Save More Tomorrow (Smart) program trialed by
Thaler and Benartzi (2004)12 that promote automatic saving plans or spending limits will work
well for single young individuals, whose money attitude have not yet shifted from a present to a
future focus. The effectiveness of such interventions is further supported by the fact that partici-
pants are already using basic approaches to managing their finances that could be considered
established financial habits that afford little to no cognitive load: expense tracking and transfer-
ring money across accounts in the form of a bucket system.
In contrast, young adults in serious romantic relationships or who experienced financial
hardship are likely to be more receptive to financial education. For example, young couples
could be a prime target group for literacy education or coaching programs as envisaged by the
US Financial Literacy and Education Commission (2020). Alternatively, targeted financial
health promotion campaigns can achieve an “attitudinal change towards long-term savings”
(Money & Pensions Service, 2020:, p. 32). Policymakers could leverage existing platforms such
as [Link] or [Link] to assist young adults in navigating financial chal-
lenges that may arise during this dynamic stage of their lives thereby promoting good financial
habits such as regular savings to achieve their long-term financial goals. These campaigns could
also be effective in raising awareness of the risks and benefits of engaging in financial innova-
tions such as buy-now-pay-later services, cryptocurrencies, and micro-investing.

6 | C ON C L U S I ON

To promote financial security for young adults, we examined their engagement with their
finances and explored the role of financial socialization, motivation and financial literacy in
586 SINNEWE and NICHOLSON

affecting their behavior in semi-structured interviews. Perhaps the major limitation of this study
is the purposeful sampling approach and consequent participant pool in this research. We were
surprised that few participants reported using personal debt in the results, particularly in light
of other reports of high credit card usage in student populations (see e.g., Brown et al., 2016). It
may indicate a lack of willingness or interest for those with debt or poor habits to engage in this
kind of research. Our recruitment through a university setting and using on-line methods may
have further exacerbated the limited representation issue present in our study. Care should be
taken in generalizing our findings to a broader context. Future research may explore how atti-
tudes, intentions and beliefs differ for individuals with poor financial habits or large outstand-
ing debt. Nonetheless, our findings reveal that the attitude towards money of young adults
shifts when entering a committed relationship attesting to the dynamic nature of financial
socialization. Future evidence is required to validate this relationship and then build on under-
standing how to develop interventions that leverage this relationship.
Policymakers and consumer advocate groups might consider public financial health com-
munication campaigns to promote healthy financial behavior and raise financial awareness.
Often, planners of public health communication campaigns must consider pre-existing beliefs
and attitudes as well as barriers to change in guiding the development of message content
(Snyder, 2007). Our paper could help inform a public financial health communication cam-
paign designed to demystify long-term financial decisions for young couples.
While there was no apparent relationship between subjective financial literacy and spending
behavior, our participants, who lack confidence to invest their money expressed their frustration
with the complexity of financial investments suggesting a lack of comprehension. Thus, a finan-
cial health communication campaign may be relevant in improving confidence in deliberate
financial decision-making contexts. Yet, a key question remains: does an increase in financial con-
fidence stimulate the financial behavior, or is it motivation to save/invest that stimulates both?

ACK NO WLE DGE MEN TS

We gratefully acknowledge the assistance of Mr Kaleb Marrow, who helped us with the coding
of the data. This work was supported by the Financial Planning Association of Australia via a
Financial Planning Education Council 2020 Grant. This research project meets the require-
ments of the National Statement on Ethical Conduct in Human Research (2007) with approval
granted by the QUT Human Ethics Committee (Ethics Approval No: 2000001068). Open access
publishing facilitated by Queensland University of Technology, as part of the Wiley - Queens-
land University of Technology agreement via the Council of Australian University Librarians.

ORCID
Elisabeth Sinnewe [Link]
Gavin Nicholson [Link]

E N D N O T ES
1
Our measure of financial literacy is self-assessed. We acknowledge that the correlation between self-assessed
and objective measures of financial literacy is modest at best (Gignac, 2022; Parker et al., 2012). As such,
it might be reflective of the subject's financial knowledge and their financial confidence (Lind et al., 2020). Research
has shown that subjective financial literacy can be a better predictor of financial behavior (see e.g., Anderson
et al., 2017; Lind et al., 2020; Robb & Woodyard, 2011; Xiao et al., 2011; Xiao et al., 2014)
2
Measured financial literacy here refers to the use of financial literacy scores (subjective or objective) in associ-
ation studies, such as cross-sectional or longitudinal surveys.
SINNEWE and NICHOLSON 587

3
This research project meets the requirements of the National Statement on Ethical Conduct in Human
Research (2007) and has been granted ethics approval by the authors' institution.
4
There were five participants who worked across multiple jobs. We chose to retain these participants as their
working hours totaled 40+ across the different jobs.
5
Ages ranged from 21 to 31. We decided to retain the one participant over the age of 30 as the age difference
was not substantial.
6
The complete interview protocol is viewable in online Appendix A.
7
We note that a surprisingly large proportion of participants consider their spending to be frugal (14/28).
A potential driver for this observation could be that their spending was affected by the Covid pandemic
limiting their discretionary spending. For example, Dakota and Michael noted that they spent less on trans-
portation costs, because they were mostly working from home. Lehan and Puteri reported lower discretionary
spending because of the pandemic. Lehan was going out less often compared to before the lockdown, while
Puteri used to travel quite frequently for leisure pre-COVID.
8
By single we mean participants without an identified committed partner.
9
Only five of our participants, who were in a relationship, displayed a relaxed attitude towards money. These
participants were younger compared to the group average and/or in a less committed relationship. For exam-
ple, they have not yet moved in with their partners. This observation may indicate that money attitudes evolve
with the maturation of individuals and their relationships.
10
Subjective financial literacy for men (Δ = 6.8) is slightly higher than for women (Δ = 6.0). However, the
difference is not statistically significant (t = 1.1614; p = 0.2565). This finding contradicts prior research docu-
menting gender differences in (subjective or objective) financial literacy (see e.g., Bucher-Koenen et al., 2017;
Chen & Volpe, 2002; de Bassa Scheresberg, 2013; Lind et al., 2020). Our failure to detect a significant
difference could be due to several reasons. First, because our study is qualitative in nature our sample size is
small compared to previous studies in the field. Second, our participant pool is homogenous (i.e., university
graduates with a maximum working experience of 5 years). Our finding, however, offers prefatory support for
the proposition by Fonseca et al. (2012): gender differences in financial literacy may disappear with equal edu-
cation achievements as financial decision-making should be approximately equal by gender. However, further
research is required to validate this point.
11
Self-efficacy is defined as a sense of self agency, the ability to succeed at a given task. Self-efficacy has been
related to motivation, self-confidence and general life optimism (Bandura, 1994, 2006).
12
The program, which ran at three different corporations across the US, allowed employees to commit a propor-
tion of their future salary after receiving a pay increase towards their retirement savings with the option to
withdraw at any time. The program was effective with 80% of the participants remaining the program.

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S UP PO RT ING IN FOR MAT ION

Additional supporting information can be found online in the Supporting Information section
at the end of this article.

How to cite this article: Sinnewe, E., & Nicholson, G. (2023). Healthy financial habits
in young adults: An exploratory study of the relationship between subjective financial
literacy, engagement with finances, and financial decision-making. Journal of Consumer
Affairs, 57(1), 564–592. [Link]
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