*The following is excerpted from an online article posted on PsychCentral.

Nearly one-third of young Americans ages 18 to 24 in a study sample were deemed “financially precarious,” or financially unstable, primarily because of poor financial literacy, a lack of money management skills and little income stability.

Lead author and graduate student Gaurav Sinha from the University of Illinois, along with co-authors Drs. Kevin Tan and Min Zhan, both social work professors at the university, examined the financial attributes and behavioral patterns of emerging adults. Based on these characteristics, the researchers classified them into four groups: financially precarious, at risk, striving or stable.

Only 22 percent of the young adults in the study sample were deemed to be financially stable. These individuals were more likely to be white males who were employed and college educated. Overall, they were better at planning and managing their finances, had checking or savings accounts in mainstream banks and were less likely to use costly alternative financial services such as payday lenders.

Approximately 36 percent of the people in the study were deemed to be “financially at risk” because they had experienced a significant, unexpected drop in income at some point during the previous year. They also had no savings with which to pay their living expenses for three months if needed and said they lacked the resources to come up with $2,000 in the event of an emergency.

The financially precarious group, which made up 32 percent of the sample, “had the poorest actual and perceived financial literacy,” Sinha said. “Because they lacked access to mainstream financial institutions, they were frequent users of alternative financial services, which tend to charge high interest rates and fees.”

Similarly, those in the financially striving category, which composed 10 percent of the sample, also struggled with money-management behaviors such as budgeting and credit card usage. People in this group tend to put their health at risk by skipping doctors’ visits, medical tests and prescriptions due to financial constraints.

What separated people in the financially precarious and at-risk groups from their peers was that they experienced much less “financial socialization,” which the researchers defined as formal or informal learning about financial concepts and prudent money-management behaviors.

The study sample involved 3,050 young adults who participated in the National Financial Capability Study (NFCS), a survey that assesses the financial knowledge and practices of American adults ages 18 and over. The NFCS measures participants’ financial aptitude, including their understanding of basic economic concepts such as interest rates and inflation, and assesses their use of credit cards, conventional financial institutions and alternative financial services.

Source: PsychCentral

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