Believing is succeeding, according to a recent 10-year study that found financially confident young adults in college are also financially successful.
In fact, financial self-efficacy, the confidence in one’s ability to perform financial tasks, is a better predictor of financial well-being than race, gender and socioeconomic background, according to the Arizona Pathways to Life Success for University Students (APLUS) project.
Every measure of financial capability correlates with feelings of financial well-being, according to the research, which also considered well-being in terms of peer relationships, life satisfaction and psychology. As it turns out, financial efficacy had the strongest correlations with every aspect of well-being considered in the study.
APLUS followed more than 2,000 University of Arizona students from their freshman year in college in 2008 through young adulthood to explore the link between happiness and financial capability, surveying participants every two years on their financial well-being. As the participants approach 30, they show few differences in their achievement of milestones like leaving a parental home, finding work and completing their education.
“Despite growing up in a time of instability and change, most of the young adults are doing well,” wrote the study’s authors, Soyeon Shim, a professor of human ecology at the University of Wisconsin, and Joyce Serido, a professor of family social science at the University of Minnesota, in their latest update. “They’re well-educated and employed, living independently and forming relationships. They’re financially capable, confident and able to manage their finances. They’re making prudent financial choices in achieving life goals, often working more hours to make ends meet and saving before purchasing.”
Throughout the study, it's perceived, subjective self-confidence, or a belief in one's self, that correlates with well-being, rather than objective financial knowledge.
In the latest survey, fielded in 2016, financial efficacy had dropped across all study participants, but men continue to rate themselves more confidently than women.
Men and women take different steps when seeking financial information. While men are more likely to consult a website first, then their employers, and finally ask their parents as a last resort, women tend to take the opposite path, starting with parents, then employers, and only then turning to the internet. Men also tend to check more sources than women when researching financial information
In the latest survey, men did present a slightly higher objective financial knowledge, despite being equal with women in previous studies. Men’s self-assessed knowledge of retirement accounts was 19 percent higher than women’s, and the gap between the self-assessed knowledge of men and women has increased since the outset of the study.
A wage gap still exists among study participants, with 45 percent of the men responding said they earned more than $60,000 annually, compared to only 27 percent of women. But women were more likely to hold a second job and were also more likely to receive financial assistance from their families.