Financial Literacy for Young Adults
If young adults learn about finances during adolescence, navigating their personal finances in adulthood becomes much easier. Young adults with some financial education have greater control over their spending and even have better mental health when they grow older.[1][2]
However, financial literacy is not always emphasized by educational establishments and policymakers, which often forces parents and caregivers to take up that role. Mental health conditions can make this process more challenging, as anxious or depressed young adults may find it harder to engage in financial matters.
Nevertheless, there are some easy ways to teach young adults about money that can slot into everyday life. This article will explore the topic of young adult financial literacy by discussing:
- Why it’s important to teach young adults about money.
- The financial skills that young adults should learn.
- Factors that impact young adult financial literacy, including mental health.
- Ways to support young adults with their financial education.
Benefits of Teaching Young Adults About Money
Research finds that having financial literacy is always associated with better mental health in adulthood.[1] Given this link, there are many emotional and psychological benefits to teaching young adults about money.[3][4] If they are made aware of how mental health conditions can affect their spending and attitudes to finances, this could help to mitigate financial risks.
The modern financial world is also more complex than it has been in previous decades. Young people today are growing up in a highly turbulent economy and could hugely benefit from being given the knowledge and skills to navigate it.[2]
And finally, when young adults are taught about finances, this can have a strong influence on their future attitudes towards and behaviors around money. However, when they lack knowledge about financial matters, young adults are more likely to overspend and spend impulsively. Yet, young adults have greater control over these behaviors when they’re more financially literate.[2]
What Are Financial Literacy Skills for Young Adults?
Financial literacy is the ability to understand and effectively apply financial skills, which include personal financial management, budgeting, and investing. However, financial literacy can also include things like understanding ethical investing and consumer rights.[2][5]
Evidently, financial literacy skills encompass a wide range of sub-skills that are necessary for making well-informed financial decisions.[2]
For example, young adults could learn ways to:[2][5]
- Compare prices of items they want to buy from different stores and websites.
- Monitor spending so that they don’t go over budgets.
- Have a sense of how much to spend on necessities vs. “nice-to-haves.”
- Know the difference between impulsive spending and well-thought-out purchases.
- Understand savings, investments, and wealth accumulation.
- Link finances to career and life planning.
- Understand ethical financial decisions, such as ethical investing, consumer rights, and the social impacts of financial decisions.
- Plan for tax payments and pensions.
- Understand credit and insurance.
As digital finance has become more prevalent, financial education for young adults should also include:[2]
- Navigating online financial services.
- Recognizing online scams.
- Understanding digital payment systems.
Even if caregivers and teachers know what financial skills they should teach young adults, this doesn’t mean the process will be simple. As we’ll explore next, there are several potential obstacles that can impact how young adults engage with finances.
Factors Influencing Money Management in Young Adults
Whether or not they receive some financial education, young adults will have different attitudes and understandings of money. Furthermore, emotions and mental health can influence the relationships they have with money. These factors will be important to understand when thinking about improving young adult financial literacy because caregivers can address them directly.
Experts find that the following factors commonly impact young adult financial literacy:[2][5]
- Coming from an economically disadvantaged background.
- Lack of family involvement in financial education.
- Lack of school emphasis on financial literacy.
- Gender (with boys outperforming girls in the US).
- Peer influence.
- Confidence, self-esteem, and motivation.
- Cultural preferences.
- Level of education.
In addition, experts suggest that emotional intelligence and regulation have a big influence on financial literacy, which we’ll explore further next.[2]
How Is Mental Health Linked to Financial Responsibility in Young Adults?
A young adult’s emotional life can influence both their financial attitudes and behaviors.[1] Experts find that emotions have a strong role in guiding financial decisions, such as whether a teen spends impulsively or not.[2]
Young people with mental health conditions tend to be less financially literate than their peers, and there are several possible reasons for this. It’s important to note that the relationship between mental health and financial hardship could be bidirectional, meaning that they influence each other and create a vicious cycle.[3]
For example, people in debt are five times more likely to have anxiety and depression.[3] This link could be explained by the stress of debt, resulting in symptoms of poor mental health. However, mental health can also affect the way young people manage money. For instance:[4]
- Feelings of sadness and depression may cause young adults to lack the motivation to manage their finances.
- Budgeting skills in young adults may be overlooked if buying things brings brief feelings of happiness. So, they may overspend in an effort to feel better.
- Mania (a symptom of bipolar disorder) and hypomania can cause people to make impulsive financial decisions.
- Having a mental health diagnosis may affect how much insurance costs, causing demotivation or overwhelming hardship.
- Young adults who feel shame may avoid seeking financial advice or support.
- Financially abusive relationships may cause both mental health issues and negative attitudes towards money.
- Certain addictions may cause young people to spend money, such as gambling or drug dependencies.
Given these many interactions between finances and mental health, young adults should be made aware of how psychological and emotional factors can influence their relationship with money. In addition, young people with mental health conditions should receive financial advice, as well as emotional support, to protect their future finances.
Social Media, Young Adult Banking, and Money Skills
Educators and caregivers should also be aware of the role social media plays in young adult financial education. Research in the US has found that 61% of investors under age 35 have made financial decisions based on social media influencers.[6]
Given that so many young people are using social media platforms, like TikTok, to learn about money, adult oversight is often needed to ensure what they’re learning is accurate. Parents and caregivers can ask young adults, especially during adolescence, what social media has taught them about money, and fact-check it accordingly.
Improving Money Habits in Young Adults
The family environment is the primary source of financial education for teens and young adults.[2] Caregivers typically act as mentors and models, passing on financial attitudes and behaviors whenever they interact with money in front of their children and young adults.[2]
Though schools, universities, and policymakers should mandate comprehensive financial education in curriculums, young adults are not currently being financially educated across the board.[2] As parents and caregivers can have such a significant hand in teaching young adults about money, they may have to compensate for a lack of school-based learning.
This may mean that they introduce budgeting exercises to young adults, as well as other creative strategies. Experts suggest some of the following approaches could be effective for teaching young people about finances:[2]
- Projects like managing a small budget for a school or community-based activity.
- Quizzes, tests, and online games.
- Savings challenges.
- Negotiation roleplays.
Even if you don’t consider yourself an expert in financial matters, you can play to your strengths when teaching a young adult about money management. You don’t have to teach them everything about finances, but if you’re particularly good at spotting good deals or budgeting, these skills should be relatively easy to share.[7]
Teaching young adults about finances also doesn’t have to be a formal conversation. It may come up naturally when:[8]
- Buying a pet.
- Moving.
- Paying a monthly bill.
These are good opportunities to talk about money and model good habits.[8]
And finally, remember that adolescence is a time to make mistakes. Giving your young adult a small amount of money to budget with can be a low-stakes exercise for them to practice. They may not go on to have an interest in the economy, but understanding basic financial principles gives them a reliable foundation.
Mission Connection is here to help you or your loved one take the next steps towards an improved mental well-being.
Gain Young Adult Life Skills With Mission Connection
Teaching personal finance basics to young adults can be harder if they have a mental health condition like depression, anxiety, or post-traumatic stress disorder (PTSD). Symptoms of these conditions can make it more difficult for young adults to engage in financial conversations and be motivated to learn new things. They can also distract from developing a wide range of other life skills.
Sometimes, young adults need professional mental health support so that they can get back on track with becoming more independent, such as when learning financial skills.
At Mission Connection, we provide comprehensive care that goes beyond traditional mental health treatment. While our licensed professionals offer a wide range of evidence-based psychological therapies, our services also provide group and family work, holistic support, and life skills training. These elements aim to promote young adult independence and well-being, placing their needs and preferences at the center.
We offer several options for effective outpatient treatment, including in-person programs at our locations in California, Virginia, and Washington, virtual telehealth, and a hybrid program that combines in-person and virtual care.
Mission Connection is Joint Commission-accredited. We also accept most major insurance providers, so that your recovery is not hindered due to financial issues. Reach out to us online or call us at 866-833-1822 to find out how we can support you or your family.
