Journal of Family and Economic Issues

https://doi.org/10.1007/s10834-018-9589-0

ORIGINAL PAPER

Financial Socialization, Financial Education, and Student Loan Debt

Lu Fan1 · Swarn Chatterjee2

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Abstract
This study examines the role of financial socialization, financial knowledge, and receiving financial education on student
loan repayment behaviors and related financial stress, as reported by the participants. From an analysis of the 2015 National
Financial Capability Study dataset, we find that individuals who received financial education in an academic or professional
setting were less likely to be late on student loan payments or worry about their student loan debt. Additionally, those who
received both financial education and learned about finances from their parents were even less likely to worry about their
student loan debt. The broader implications of the main findings for financial counselors, therapists, and planners are also
discussed.

Keywords Financial socialization · Financial education · Student loan debt · Financial behavior · Financial stress

Introduction 2017 is around 118%, which is lower than both public and
private 4-year schools’ tuition and fees increases. Further-
Student loans are used by many people to obtain a higher more, historical income data provided by the US Census
education. However, the increase in student loan debt is Bureau revealed that the household median income has risen
an important consumer debt category. Consequently, this from $26,061 in 1987 to $59,039 in 20161. The skyrocket-
debt increase has caught many researchers’ attention. As ing tuition and fees has caused affordability issues for most
the increase in higher education tuition has exceeded the individuals trying to borrow from different sources to meet
increase in inflation and the median income, student loans their college dreams.
have become an important source of financial support for However, a recent report by the US Federal Reserve
US households. More specifically, the average published tui- showed that, among those who borrowed student loans for
tion and fees for the 2017–2018 academic year was $34,740 college/university and graduate degrees, the debt repayment
for private nonprofit 4-year schools, up from $15,160 from issue was found to be critical for people of all age groups,
1987 to 1988, which is a 129% increase. The number for not just young adults (Federal Reserve 2016). This student
public 4-year schools in 2017–2018 was $9970, an increase loan burden has not only affected people across age groups,
of 213% from the average tuition and fees of $3190 from but has also created a huge accumulated wealth gap between
1987 to 1988 (College Board 2017). Meanwhile, accord- student loan debtors and non-debtors. In turn, student loan
ing to the US Bureau of Labor Statistics Consumer Price debtors were also more likely to carry other types of debts,
Index, the inflation during the 20-year period from 1987 to such as car loans and credit card debts (Fry 2012). Accord-
ing to a 2017 Consumer Financial Protection Bureau (CFPB)
(2017) report, more than 40% of student loan borrowers
* Lu Fan leave school owing $20,000 or more and more than half of
fanlu@missouri.edu the borrowers are older than 34 when they start their stu-
Swarn Chatterjee dent loan repayment, which may delay their mid- to later-life
swarn@uga.edu enjoyment and decrease their overall financial well-being.
1
Department of Personal Financial Planning, University
Lack of financial literacy, especially a lower level of
of Missouri, 239 Stanley Hall, Columbia, MO 65211, USA debt literacy (e.g., credit card debt, compound interest
2
Department of Financial Planning, Housing and Consumer
Economics, University of Georgia, 205 Dawson Hall, Athens,
1
GA 30602, USA All dollar values indicate US dollars.

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 Journal of Family and Economic Issues

knowledge), can lead to negative and irresponsible debt socialization agents, is known as the consumer socialization
behavior (Lusardi and Tufano 2009). Financial knowledge process. Using a life cycle model, Moschis and Churchill
that is actively learned, either from parents, educational insti- (1978) defined age and life cycle position as two antecedent
tutions, or the workplace, can powerfully guide and influence variables and examined the influence of the socialization
individual and household financial behavior and financial sat- process on the financial behaviors as learning outcomes.
isfaction (Fan 2017; Hilgert et al. 2003; Robb and Woodyard Their results revealed that family communication and par-
2011). Financial education was found to increase financial ents’ teachings significantly affected young people’s desired
literacy and improve debt repayment behavior (Brown et al. financial behaviors. Danes (1994) further defined financial
2016; Lusardi 2003); however, the sources of financial edu- socialization as a process in which individuals develop finan-
cation, whether learned from parents, obtained from schools cial attitudes and norms, financial management behaviors,
and/or employers, were not clarified in the literature. This and achieving financial well-being.
paper aims to identity these financial education sources and Several financial education resources were studied in the
their associations with student loan debt stress and behavior. literature in terms of their roles in the financial socializa-
Parental influence on children’s financial attitude develop- tion process. Both parental teaching and financial learning
ment and behavior is imperative. Using consumer socializa- in schools showed significant impacts. For example, Shim,
tion concepts, Danes (1994) and Bowen (2002) stated that par- et al. (2010) developed a hierarchical model in which the
ents, serving as non-formal socialization agents, significantly formal socialization process, gained from school, and the
influence children’s financial knowledge level. Similarly, Kim informal socialization process, gained from a parental influ-
and Chatterjee (2013) found that financial socialization expe- ence and work experience, both play prominent roles in a
riences (e.g., a childhood with parental warmth, monitored young adult’s financial knowledge. The effects of socializa-
spending, knowledge of donations), can shape one’s money tion agents (e.g., parents, schools) were further confirmed to
management behavior. Another study emphasized the signifi- be significant as predictors of individuals’ financial attitude,
cance that parents and the process of family financial sociali- self-efficacy, and financial capabilities to use the financial
zation can have on influencing one’s money beliefs, financial knowledge and of their financial behaviors (Shim et al.
attitudes, and savings behaviors (Solheim et al. 2011). Sol- 2013). Parental financial teachings had positive impacts
heim et al. (2011) also provided insights that can be used by on individuals’ financial attitudes towards borrowing and
educational institutions and workplaces to enhance financial money management behaviors (Jorgensen and Savla 2010;
education programs and help people to develop a comprehen- Kim and Chatterjee 2013).
sive understanding of financial knowledge. Among these socialization agents and financial educa-
The purpose of this study is to examine the relationships tional sources, parental influence is predominant and has
among student loan debt-related behavior, stress, financial long-term effects on what children believe and how they
socialization, education, and other demographic variables behave in the future. Various factors, such as family char-
for those who have taken out student loans for themselves. acteristics and family relationships, were found to influence
The findings from this study will benefit financial counselors the financial socialization process. This further shaped finan-
and educators in terms of generating new information about cial attitudes, built a financial knowledge base, and guided
potentially influential factors leading to student loan debt- financial behaviors (Gundmunson and Danes 2011). Parent-
related stress and debt repayment behaviors and attitudes. ing techniques and parental involvement in youth financial
The findings will also inform policy on financial education education programs were also significant in forging finan-
and student loans and help parents better understand the cial beliefs and attitudes among young adults (Campenhout
importance of a child’s financial education on their well- 2015). Tang et al. (2015) asserted that, without considering
being and debt management behavior later in life. the social and psychological impacts, the financial knowl-
edge acquired could hardly improve the financial behavior.
They found that parental influence was significantly asso-
Literature Review and Conceptual ciated with responsible financial behavior among young
Framework adults. In particular, they stated that women can benefit more
from a parental influence in terms of behaving in a more pos-
Financial socialization theories and parental financial influ- itive manner towards the financial decision making process.
ence have been examined in previous literature. Moschis and Parents and schools are not the only sources provid-
Churchill (1978) defined parents and schools as socializa- ing financial knowledge and influence, however. Working
tion agents who act as significant sources of norms, beliefs, adults need to take more responsibility towards their own
attitudes, and behaviors for young learners in households. retirement with the shift from the defined benefit to the
The learning and development of consumer-related skills, defined contribution system. Employers provide customized
knowledge, attitudes, and behaviors, under the influence of financial trainings and counseling covering topics such as

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Journal of Family and Economic Issues

retirement planning, tax planning, debt management, etc. to outweighed the disadvantages, if they had the chance to do
help employees make better financial decisions. Workplace it again, they would borrow less due to the unanticipated
financial education programs, also acting as a socialization financial hardship of borrowing student loans.
agent that provides peer pressure, were found to be effec- Financial literacy, especially knowledge and practice of
tive in terms of building realistic retirement goals, improv- student loan debt, has a significant influence on financial
ing financial knowledge, retirement planning behavior, and behaviors. Student loan literacy is defined as the knowledge
financial wellness (Prawitz and Cohart 2014). Previous stud- and ability to “identify, understand, interpret, and navigate
ies found that employees’ self-assessed financial knowledge, student loan options, principles, and practices associated
confidence, behaviors, and well-being were improved after with responsible borrowing and debt management” (Lee and
attending a one-time workplace financial education, includ- Mueller 2014, p. 714). Research results have suggested that
ing financial goal setting, cash management, risk manage- first-generation college students lacked fundamental student
ment, investment, and retirement planning, etc. (Kim 2007; loan literacy (Lee and Mueller 2014). Moreover, men tended
Kim et al. 2005). As a result, firms offering financial educa- to be more confident with their general money management
tion programs reported a larger number of employees par- knowledge and skills (Kim and Chatterjee 2013). Financial
ticipating in retirement plans and contributing higher sav- stressors (e.g., recent income shocks, other debts), which
ings rates (Bernheim and Garrett 2003). The frequency of cause financial difficulties, were positively associated with
the educational seminars also contributed to this influence negative financial behaviors. Debt not only caused financial
(Bayer et al. 2009). strain, but also triggered mental stress, affected well-being,
Student loan debt burden is defined as the level of stu- and was associated with more undesired financial behaviors
dent loan repayment difficulty (King and Bannon 2002). The for households, such as being late for debt payment and lack-
degree of the burden is determined by the percentage of the ing an emergency fund and retirement savings (Fan 2017;
before-tax monthly income used for student loan repayment. Kahn and Pearlin 2006).
Previous studies have also suggested that 8–10% is a man- Demographic and socioeconomic factors, such as income,
ageable student loan debt repayment percentage; whereas, if ethnicity/race, gender, education, and the presence of
the ratio increases to 12% or higher, it indicates an individual dependent children, showed significant influence on student
is under high student loan repayment burden (Baum and loan borrowing behavior. Household income was found to be
O’Malley 2003; Baum and Schwartz 2006; Greiner 1996). associated with student loan debt borrowing behavior (King
The average student loan debt-to-income ratio for those and Bannon 2002; Baum and O’Malley 2003; Fry 2012; Rat-
who graduated in 2007–2008 with college-level or higher cliffe and McKernan 2013, 2015). Students from low-income
degrees, was 9% in 2012. In particular, for those who were households were more likely to borrow for education and
employed but did not have additional postsecondary enroll- were more likely to face difficulties in paying off their debts.
ment, they used more than 10% of their monthly income as More than half of African-American and Hispanic students
student loan debt repayment. For borrowers who had addi- graduated with student loan debt burdens. The repayment
tional postsecondary enrollment after they graduated in the of these loans was valued at more than 8% of their monthly
2007–2008 academic year with a bachelor’s degree, the ratio income (King and Bannon 2002). Women were more likely
was 14.1%, a higher-than-manageable level of student loan than men to worry about paying off student loans. This might
repayment burden (Velez and Woo 2017). be a result of the lower financial confidence and increased
Borrowers’ perceptions and attitudes are formed and awareness of debt among women (Ratcliffe and McKernan
influenced in the financial socialization process. Perceptions 2013). Whites were also more likely to worry about finances;
and attitudes toward student loans are important because this worry may come from their financial futures expecta-
these perceptions and attitudes illustrate whether the con- tions (Kim and Chatterjee 2013). In addition, whether or not
sumer is willing to use the loan products and whether they people completed the college degree for which the loan was
would recommend the products to others (Greiner 1996). taken was found to be negatively associated with the variable
Using data from a 2012 National Financial Capability Study representing being worried about repaying the student loan
(NFCS), Ratcliffe and McKernan (2013) argued that 57% debt. That being said, parents with dependent children were
of people who had student loan debt were worried that more likely to experience the student loan burden (Ratcliffe
they would be unable to repay their debt. Those who were and McKernan 2013, 2015).
women, divorced, with a lower income, did not have full- Figure 1 presents the conceptual framework rooted
time jobs, and had financially dependent children at home in the theoretical and empirical research of financial
were more likely to have student loan stress. They also socialization and student loan debt attitudes and behaviors
found that the unmanageable student loan debt has led to (Moschis and Churchill 1978; Danes 1994; Gundmun-
a negative attitude towards student debt over time. In retro- son and Danes 2011; Shim et al. 2010, 2013; Kim and
spect, although people believed that the benefits of the loans Chatterjee 2013). In particular, parental influence and

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 Journal of Family and Economic Issues

Financial Knowledge and Socialization Agents

Informal Socialization, Parents

Formal Socialization, Financial Education
Financial Knowledge

Debt-Related Characteristics Financial Attitude & Behavior

Student Loan Types, Degree Completion Student Loan Stress

Other Debt, Income Shock Student Loan Repayment Behavior

Demographic & Socioeconomic Characteristics

Age, Income, Gender, Race/Ethnicity

Educational Attainment,
Employment Status, Marital Status, Dependent Children

Fig. 1  Conceptual framework of financial socialization and student loan attitudes and behaviors

financial education are the two types of financial sociali- Methods

zation agents suggested by Moschis and Churchill (1978)
and Danes (1994). Debt-related characteristics (e.g., stu- Data
dent loan types, degree completion, financial stressors)
and demographic and socioeconomic characteristics (e.g., This study aims to capture the indicators of financial capa-
age, gender, and income) are also included in the frame- bilities and behaviors as well as the demographic, behavio-
work as predictors of student loan stress and repayment ral, and attitudinal characteristics of US households using
behavior. data from the 2015 NFCS, funded and administered by the
Three hypotheses were developed to examine the rela- Financial Industry Regulatory Authority (FINRA) Inves-
tionships between the variables illustrated in the concep- tor Education Foundation. The NFCS was developed by
tual framework: FINRA in consultation with the US Department of Treas-
ury and President Bush’s Advisory Council on Financial
H1 Financial socialization, through financial knowledge Literacy (Mottola 2013). There were 27,564 respondents
learned from parents, is negatively associated with late stu- in the 2015 wave of this dataset. This study limited the
dent loan payments and worry about the student loan debt sample to respondents who indicated that they had taken
situation after controlling for various debt-related charac- out a student loan for themselves, were between the ages of
teristics and other demographic and socioeconomic factors. 24 and 65, were no longer a student, were employed, and
were the primary decision makers in their families. This
H2 Financial knowledge learned through a school- or col- reduced the sample size to 2662.
lege-based curriculum or the financial training offered by
an employer is negatively associated with late student loan
payments and worry about the student loan debt situation Empirical Model
after controlling for various debt-related characteristics and
other demographic and socioeconomic factors. In this study, the financial attitudes and behaviors of the
respondents were examined using the following two char-
H3 Financial knowledge is negatively associated with late acteristics: (1) student loan repayment behavior, and (2)
student loan payments and worry about the student loan debt student loan stress. To examine student loan repayment
situation after controlling for various debt-related charac- behavior, the following binary measure was constructed
teristics and other demographic and socioeconomic factors.

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Journal of Family and Economic Issues

based on a corresponding variable available in the NFCS The variable is coded as 1 if the respondent selected
dataset: being late for student loan debt payment (1 = Yes; “once” or “more than once” and as 0 otherwise. The “Don’t
0 = No); to examine student loan stress, the following know” and “Prefer not to say” responses were excluded from
binary measure was constructed using another correspond- the analyses of this study. The factors that determine γi*
ing variable in the NFCS dataset: being worried about and therefore γi are modeled by vectors ­Xi, ­Zi, and Φi. ­Xi
paying off their student loan debt (1 = Yes; 0 = No). Each includes financial knowledge and socialization related fac-
measure encapsulates a slightly different aspect of finan- tors; ­Zi includes debt-related characteristics; and Φi is the
cial attitude and behavior towards student loan debt. Being other socioeconomic and demographic related control vari-
late on student loan debt payment identifies respondents ables. The error term u­ i is distributed normally with mean
who are having difficulty managing student loan debt and zero and variance equal to 1. The probit model is used to
repayment of its balances, while being worried about pay- determine consistent estimates of Eq. 1. The probit model
ing off student loan debt identifies the level of stress or is also similarly used to determine the probability of being
worry that some respondents have regarding their ability worried about paying off student loan debt.
to pay off student loan debt.
The ordinary least squares (OLS) is a commonly used Yi ∗ = X�i β1 + Z�i β2 + Φ�i β3 + ui , where Yi = 1 if
tool for regression analysis. However, previous studies have (2)
Yi ∗ = 1 and 0 otherwise for i = {1, … I}.
found disadvantages to the use of OLS for binary dependent
variables (Jin et al. 2005; Kinsey and Lane 1983; Pindyck where ­Yi is the binary dependent variable that is equal to 1
and Rubinfeld 1988). This is because using OLS, or linear if the ith respondent reported being worried about paying
probability models (LPM), for binary dependent variables off student loan debt and 0 otherwise. This is determined by
can result in erroneous estimation of predicted probabilities ­ i*, which was constructed based on the
the latent variable Y
that are either greater than 1 or less than 0 (Kinsey and Lane following question included in the 2015 wave of the NFCS
1983). Burgess (1982) has suggested using probit models survey:
for empirical analyses using dependent variables. Similarly,
Are you concerned that you might not be able to pay
Pindyck and Rubinfeld (1976) have also suggested the use
off your student loans?
of either probit or logit models for empirical analyses of
binary variables. On the other hand, Hanna and Lindamood This variable was coded as 1 if the response was “Yes”
(1985) found no practical difference when they compared and 0 if “No.” The “Don’t know” and “Prefer not to say”
the estimates generated using OLS and logit models for a responses were removed from the analyses. The control vari-
binary dependent variable in their study on the probability ables used in both models are described in detail below:
of household home ownership. A number of previous studies
have used the probit model for examining the probability of
carrying either credit card or student loan debt, and borrow- Measures
ing behavior among households (Fan and Chatterjee 2017;
Lyons 2004; Robb and Sharpe 2009; Schwartz and Finnie Financial Knowledge and Socialization
2002). Similarly, this study also uses probit models to inves-
tigate the factors that affect the probability of being late for Objective financial knowledge was measured by an index
student loan payments and being worried about being able summing up the participants’ correct answers to six funda-
to pay off student loan debt. Probit models were estimated mental financial literacy questions (“Appendix”). Responses
for the two binary variables following Wooldridge (2010). to each of the six questions were coded as binary variables
The relationship is specified as follows for the first model: with 1 = correct answer and 0 = incorrect answer or don’t
know. The “Prefer not to say” responses were removed
γi ∗ = X�i β1 + Z�i β2 + Φ�i β3 + ui , where from the sample. The total number of correct answers were
(1) summed up to represent 6 = all correct responses through
γi = 1 if γi ∗ = 1 and 0 otherwise for i = {1, … I}.
0 = all incorrect responses.
where γi is the binary dependent variable that is equal to 1 if The first financial socialization predictor was financial
the ­ith respondent has been late for student loan debt payment education. Participants were asked if they participated in
and 0 otherwise. This is determined by the latent variable any financial education courses offered by their high school,
γi*, which was constructed based on the following question college, or employer (1 = if they participated in at least one
included in the 2015 wave of the NFCS survey: education; 0 = otherwise). The second financial socializa-
tion agent variable was parental influence. Participants were
How many times have you been late with a student asked whether their parents or guardians taught them how to
loan payment in the past 12 months? manage their own finances (1 = Yes; 0 = No).

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 Journal of Family and Economic Issues

Debt‑Related Characteristics Table 1  Descriptive statistics

Variable Mean Std. dev. Min Max
The other independent variables of interest were whether
the participants had student loans through federal (1 = Yes; Late on student loan payment 0.220 0 1
0 = No), private (1 = Yes; 0 = No), or a combination of fed- Worry about student loans 0.551 0 1
eral and private sources (1 = Yes; 0 = No); whether they had Student loan types
completed the program for which they had most recently Only federal loans 0.640 0 1
borrowed the money (1 = Yes; 0 = No); whether they had any Only private loans 0.101 0 1
other debt (credit card, auto loans, medical bills) (1 = Yes; Federal and private loans 0.260 0 1
0 = No); and whether they had experienced a recent income Financial education (HS, col, empl) 0.294 0 1
shock (1 = Yes; 0 = No). Financial socialization 0.470 0 1
Objective financial knowledge 3.294 1.667 0 6
Demographic and Socioeconomic Characteristics Other debt (CC, auto, medical) 0.801 0 1
Income shock 0.330 0 1
For the educational attainment variable, completion of col- Age
lege was used as the reference variable, and the binary vari- Age 25–34 0.486 0 1
ables for graduate school and attending some college were Age 35–44 0.299 0 1
used as the control variables. Other demographic and socio- Age 45–54 0.144 0 1
economic characteristics related control variables included Age 55–64 0.070 0 1
in this study were age, income, gender, race/ethnicity, edu- Income
cational attainment, marital status, number of dependent Less than $15,000 0.112 0 1
children, and employment status. $15,000–$25,000 0.102 0 1
$25,000–$35,000 0.116 0 1
$35,000–$50,000 0.161 0 1
Results $50,000–$75,000 0.214 0 1
$75,000–$100,000 0.148 0 1
The descriptive statistics are presented in Table 1. It was $100,000–$150,000 0.110 0 1
determined that 22% of respondents with student loans More than $150,000 0.037 0 1
reported that they were late on their student loan payments. Female 0.593 0 1
Over half (55%) of the respondents reported being wor- Married 0.494 0 1
ried about their student loans. Almost one-third (30%) of Number of financially dep children 1.068 1.208 0 4
the respondents reported receiving a financial education, White 0.633 0 1
either through their high schools, colleges, and/or employ- Education
ers’ financial education programs. Another 40% reported Some college 0.247 0 1
learning about finances from their parents or guardians College 0.331 0 1
through the financial socialization process. Overall, 64% of Grad school 0.215 0 1
the respondents took out federal student loans (64%), 26% Employed 0.779 0 1
took out both federal and private student loans, and 10% only Observations: 2662
took out private student loans. Among those student loan
borrowers, more than 61% completed the education program
for which they borrowed the money. In terms of financial Late Student Loan Payments
stressors, more than 80% reported having other types of debt
(e.g., credit card balance, auto loan debt, unpaid medical As stated previously, being late on student loan payments
bills). One-third (33%) of the respondents reported expe- was the dependent variable. The results of the probit anal-
riencing a large drop in income in the previous 12 months. ysis are illustrated in Table 2. These results indicate that
The respondents represented many age groups: 48.6% respondents who had both federal and private student loans
were aged 25–34, 29.9% were aged 35–44, 14.4% were (ME = 8.9%; p < 0.001) were more likely to be late on stu-
aged 45–54, and 7% were aged 55–64. Over half (59%) of dent loan payments as compared to the control group of
the respondents were women (59.3%), White (63.3%), and respondents with only federal loans in Model 1. This rela-
employed (77.9%). Over 33% of respondents reported hav- tionship was significant (ME = 7.4%; p < 0.001), even after
ing a college degree and having an income level between we included the interaction variables for financial educa-
$50,000 and $75,000 (21.4%). The average number of finan- tion and socialization by parents in Model 2. Among the
cially dependent children was 1.2 children per household. financial knowledge and socialization related characteristics,

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Journal of Family and Economic Issues

Table 2  Probit analysis of late Coef. St. error ME Sig Coef. St. error ME Sig
student loan payments
Student loans (ref: only fed)
Only private 0.121 0.109 0.031 0.074 0.107 0.021
Federal and private 0.338 0.075 0.089 *** 0.261 0.053 0.074 ***
Financial education (HS, col, empl) − 0.011 0.007 − 0.003 − 0.135 0.067 − 0.035 *
Financial socialization (parental) − 0.076 0.044 − 0.018 * − 0.098 0.054 − 0.026 *
Fin educ*fin social − 0.236 0.209 − 0.058
Objective financial knowledge − 0.060 0.022 − 0.015 *** − 0.053 0.014 − 0.013 ***
Other debt (CC, auto, medical) 0.303 0.096 0.065 *** 0.283 0.054 0.063 ***
Income shock 0.477 0.066 0.127 *** 0.314 0.043 0.080 ***
Age (ref: age 25–34)
Age 35–44 0.199 0.072 0.049 ** 0.283 0.052 0.073 ***
Age 45–54 0.254 0.096 0.067 *** 0.269 0.061 0.071 ***
Age 55–64 0.501 0.132 0.147 *** 0.405 0.074 0.113 ***
Income (ref: $150,000+)
Less than $15,000 0.472 0.225 0.138 ** 0.558 0.134 0.162 ***
$15,000–$25,000 0.637 0.192 0.194 *** 0.730 0.130 0.223 ***
$25,000–$35,000 0.552 0.181 0.163 *** 0.663 0.127 0.198 ***
$35,000–$50,000 0.419 0.167 0.116 ** 0.591 0.124 0.171 ***
$50,000–$75,000 0.266 0.158 0.068 * 0.393 0.120 0.105 ***
$75,000–$100,000 0.192 0.160 0.049 0.243 0.124 0.063 *
$100,000–$150,000 − 0.012 0.165 − 0.004 0.090 0.127 0.022
Female − 0.032 0.014 − 0.008 ** − 0.077 0.042 − 0.019 *
Married 0.112 0.078 0.029 0.002 0.049 0.000
Number of financially dep children 0.088 0.028 0.021 *** 0.097 0.019 0.023 ***
White − 0.242 0.066 − 0.061 *** − 0.097 0.046 − 0.026 ***
Education (ref: college)
Some college 0.259 0.082 0.067 *** 0.099 0.043 0.020 *
Graduate education − 0.159 0.078 0.037 ** − 0.229 0.066 − 0.025 ***
Intercept − 1.712 0.235 *** − 1.36 0.174 ***
N = 2662
Pseudo ­R2 = 0.1792

*p < 0.05; **p < 0.01; ***p < 0.001

receiving financial socialization through parents was Among the demographic and socioeconomic factors,
negatively associated with late student loan payments in compared to the reference group of respondents between 25
Models 1 (ME = − 1.8%; p < 0.05) and 2 (ME = − 2.6%; and 34 years of age, being 35 or older was positively associ-
p < 0.05). Receiving a financial education was also nega- ated with late student loan payments in both models. Com-
tively associated with late student loan payments in Model pared to the reference group of respondents with an income
2 (ME = − 3.5%; p < 0.05). Objective financial literacy was of $150,000 or more, the respondents with an income of
negatively associated with late student loan payments in both $75,000 or less were more likely to be late on student loan
Models 1 (ME = − 1.5%; p < 0.001) and 2 (ME = − 1.3%; payments in both Models 1 and 2. Additionally, respondents
p < 0.001). with an income of $75,000–$100,000 were also more likely
Having other types of debt was also positively associated to be late on student loan payments in Model 2.
with late student loan payments in Models 1 (ME = 6.5%; Being female and White was negatively associated with
p < 0.001) and 2 (ME = 6.3%; p < 0.001). Experiencing a late student loan payments in both models. The number of
large drop in income over the previous year was positively financially dependent children was positively associated
associated with late student loan payments over the previous with late student loan payments in both models. Compared
year in Models 1 (ME = 12.8%; p < 0.001) and 2 (ME = 8%; to the respondents who completed college, those who com-
p < 0.001). pleted some college were more likely to be late on student
loan payments in Models 1 (ME = 6.7%; p < 0.001) and 2

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 Journal of Family and Economic Issues

Table 3  Probit analysis of Coef. St. error ME Sig Coef. St. error ME Sig
worry about student loan debt
Student loans (ref: only fed)
Only private − 0.022 0.006 − 0.009 *** − 0.021 0.067 − 0.008 ***
Federal and private 0.464 0.040 0.198 *** 0.464 0.048 0.183 ***
Financial education (HS, col, empl) − 0.009 0.101 0.003 − 0.052 0.025 − 0.021 *
Financial socialization (parental) − 0.075 0.029 − 0.029 *** − 0.098 0.048 − 0.038 **
Fin educ*fin social − 0.085 0.011 − 0.031 ***
Objective financial knowledge − 0.138 0.016 − 0.054 *** − 0.098 0.009 − 0.037 ***
Other debt (CC, auto, medical) 0.261 0.049 0.101 *** 0.201 0.050 0.078 ***
Income shock 0.528 0.051 0.208 *** 0.528 0.045 0.208 ***
Age (ref: age 25–34)
Age 35–44 0.151 0.041 0.061 *** 0.083 0.045 0.033
Age 45–54 0.182 0.071 0.069 ** 0.115 0.069 0.035 *
Age 55–64 0.229 0.095 0.092 *** 0.201 0.073 0.081 ***
Income (ref: $150,000+)
Less than $15,000 1.145 0.152 0.491 *** 1.134 0.137 0.467 ***
$15,000–$25,000 1.092 0.151 0.409 *** 1.078 0.138 0.399 ***
$25,000–$35,000 1.021 0.146 0.378 *** 0.982 0.135 0.368 **
$35,000–$50,000 0.771 0.137 0.298 *** 0.726 0.132 0.282 ***
$50,000–$75,000 0.642 0.133 0.251 *** 0.641 0.129 0.251 ***
$75,000–$100,000 0.571 0.131 0.227 *** 0.543 0.131 0.212 ***
$100,000–$150,000 0.434 0.130 0.191 *** 0.415 0.135 0.164 ***
Female 0.093 0.030 0.053 *** 0.089 0.044 0.036 **
Married − 0.277 0.065 − 0.103 *** − 0.301 0.048 − 0.118 ***
Number of financially dep children 0.109 0.014 0.039 *** 0.083 0.019 0.032 ***
White − 0.123 0.027 − 0.053 *** − 0.108 0.042 − 0.043 **
Education (ref: college)
Some college 0.109 0.041 0.043 ** 0.205 0.054 0.081 ***
Graduate education − 0.001 0.059 0.001 0.012 0.049 0.007
Intercept − 2.616 0.120 *** − 1.264 0.148 ***
N = 2662
Pseudo ­R2 = 0.1848

*p < 0.05; **p < 0.01; ***p < 0.001

(ME = 2%; p < 0.05). Conversely, those who completed a financial knowledge and socialization related characteristics,
graduate degree were less likely to be late on student loan receiving a financial education was negatively associated
payments across both Models 1 (ME = − 3.7%; p < 0.01) and with student loan worry in Model 2 (ME = − 2.1%; p < 0.05).
2 (ME = − 2.5%; p < 0.001). Financial socialization through parents was significant and
negatively associated with student loan worry in Models 1
Worry About Student Loans (ME = − 2.9%; p < 0.001) and 2 (ME = − 3.8%; p < 0.01).
Similarly, the interaction term of receiving a financial edu-
As stated previously, being worried about student loan cation and learning about money from parents reduced the
payments was the dependent variable. The results of the probability of being worried about paying off student loans
probit analysis are illustrated in Table 3. In relation to the (ME = − 3.1%; p < 0.001). Objective financial literacy was
debt-related characteristics, having both federal and private found to be negatively associated with being worried about
student loans was found to be positively associated with student loans in Models 1 (ME = − 5.4%; p < 0.001) and 2
worrying about student loans in Models 1 (ME = 19.8%; (ME = − 3.7%; p < 0.001).
p < 0.001) and 2 (ME = 18.3%; p < 001). Conversely, having Having other types of debt was also positively associated
only private student loan debt was negatively associated with with student loan-related worry in Models 1 (ME = 10.1%;
worrying about student loans in Models 1 (ME = − 0.9%; p < 0.001) and 2 (ME = 7.8%; p < 0.001). Experienc-
p < 0.001) and 2 (ME = − 0.8%; p < 0.001). Among the ing an income shock in the previous period was also

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Journal of Family and Economic Issues

positively associated with student loan worry in Models 1 attitude and behavior related to student loan debt. The nega-
(ME = 20.8%; p < 0.001) and 2 (ME = 20.8%; p < 0.001). tive and significant association between receiving financial
Among the demographic and socioeconomic factors, com- education and financial knowledge with late student loan
pared to the reference age group of 25–34, those who were payments illustrates the importance of financial literacy in
45 and older were less likely to be worried about student the financial well-being of households. The significance of
loans in Models 1 and 2. Respondents who were 35–44 were the interaction between a formal financial education and
more likely to be worried about student loan debt in Model learning from parents and guardians also highlighted the
2. Compared to respondents with an income of $150,000 importance of the financial behavior and habits of parents
or higher, those with an income of less than $150,000 were and guardians who have an influence on their children’s
more likely to be worried about student loans. future student loan behavior and satisfaction.
Women were more likely to be worried about student Consistent with the findings of previous studies, debt-
loans than men. The variable for married respondents was related stressors, including experiencing a sudden drop in
found to be negatively associated with student loan worry. income, having both federal and private student loans, and
Conversely, the association between student loan worry having other types of loans (e.g., credit card debt, medical
and the number of dependent children was positive. Being debt, auto loans), were positively associated with being late
White was found to be negatively associated with worrying on student loan payments and worrying about student loan
about student loan debt. Compared to the reference group debt (Ratcliffe and McKernan 2015).
of respondents who completed college, the respondents who The associations between the demographic variables
did not complete college were more likely to be worried and student loan-related behavior and stress were consist-
about paying off student loan debt (ME = 4.3%; p < 0.01). ent with that of previous findings (Moschis and Churchill
1978; Danes 1994; King and Bannon 2002; Gundmunson
and Danes 2011; Kim and Chatterjee 2013). Interestingly,
Discussion and Implications our results were consistent with the findings in Ratcliffe and
McKernan (2013), who stated that women were more wor-
This study examined whether receiving financial educa- ried about student loan debt than men; in addition, we found
tion, parents providing financial socialization, and financial in this study that women were less likely to be late on their
knowledge reduced the probability of respondents being late student loan payments.
on student loan payments and worrying about student loan It is interesting that the income strain resulting from
debt. The findings from this study support H1 that financial a large drop in income over the previous year increased
socialization through financial knowledge learned from par- the probability of being late on student loan payments by
ents is negatively associated with late student loan payments approximately 10%. Even more concerning is the finding
and worry about student loan debt situations. The findings that it also increased the probability of being worried about
also partially support H2 that financial knowledge learned student loans. One well-known strategy to buffer against the
through school- and college-based curricula or financial financial strain of sudden income shocks is to have adequate
training offered by an employer are negatively associated emergency funds (Skinner 1988). The importance of emer-
with late student loan payments and worry about student gency funds and precautionary savings are included as a
loan debt situations. Although the financial education vari- topic in most basic financial education courses and textbooks
able was not significant in the first model, the financial (Anong and DeVaney 2010; Garman and Forgue 2011).
education variable was found to be negatively associated Since the findings from this study indicate that financial
with late student loan payments and student loan worry in knowledge and education are negatively associated with late
Model 2. Consistent with H3, the results indicate that finan- student loan payments or student loan debt worry, perhaps
cial knowledge was negatively associated with late student financial counselors, planners, and advisors should include
loan payments and student loan-related worry. The findings financial education when meeting with their clients.
supporting H1, H2, and H3 concurred with the results from Findings from this study have implications for financial
previous studies (Lusardi 2003; Jorgensen and Savla 2010; counselors, therapists, and planners. For example, women
Shim et al. 2010, 2013; Brown et al. 2016). were found to be less likely to be late on student loan pay-
Interestingly, the interaction of parents providing finan- ments but more likely to feel worried about their student
cial socialization, along with receiving a formal financial loans. On the contrary, men were less likely to be worried
education, further reduced the probability of being wor- even with a higher likelihood of being late on student loan
ried about student loan debt. The findings from this study repayments. It is recommended that more research be con-
indicate that all three financial knowledge and socializa- ducted in the future on this topic to better understand this
tion agents from the conceptual framework shown in Fig. 1 relationship. That being said, the results reveal that finan-
were significantly associated with the respondents’ financial cial practitioners should develop customized strategies

13
 Journal of Family and Economic Issues

depending on the borrowers’ gender and emphasize stress college education moderates the unwholesome consequences
management, financial therapy, and psychological interven- of student loan debt on the financial well-being of people or
tions when working with female borrowers while focusing vice-versa as young adults graduate from college and move
more on behavioral control and actual debt management through the wealth accumulation phase of their life cycle.
behavior for male borrowers. Another limitation of this study was that there was no
When working with older student loan borrowers (45+), information on the content and duration of the education ses-
especially those who are closer to retirement ages, financial sions. For example, it was not known if these education ses-
practitioners should also consider specific needs and finan- sions were a full class session, one-time education session of
cial constraints. Although the population of older borrowers a fixed duration, or a series of short programs. More research
who had student loan debt for themselves and still in repay- is needed in the future to examine whether the content and
ment status is relatively small, their suffering from student duration of the financial education programs have an effect
loan stress is a cause for concern, as debt-related stress could on the outcomes of the attendees over time.
lead to other health issues (Kahn and Pearlin 2006). On the
other hand, in order to prevent post-retirement income short-
age, most people decide to refinance and pay off their mort-
Conclusion
gages before retirement. Student loan borrowers are faced
with the dilemma that student loan repayments in later life,
This study used the 2015 state-by-state NFCS dataset to
if together with refinancing mortgages, would cause finan-
examine the relationships between financial knowledge and
cial difficulties and stress and risky financial behaviors. A
socialization agents and peoples’ financial attitudes and
study by Wrosch et al. (2000) suggested that counselors use
behaviors related to student loan debt. Key findings suggest
positive reappraisal strategies, where positively reframing
that financial influence and knowledge gained were nega-
the current financial situation to clients helps to reduce their
tively associated with student loan stress and risky student
stress, increase their subjective well-being, and helps them
loan repayment behavior. Additionally, types of student loan
to improve their financial behavior.
owed, financial knowledge levels, and other debt situations,
According to a recent report by the CFPB (2015),
along with demographic and socioeconomic characteris-
although the commonly used income-driven repayment
tics, also contributed to the variations of student loan stress
plans, such as Income-Contingent Repayment (ICR),
and behavior. Policymakers may find the information in
Income-Based Repayment (IBR), and Pay as You Earn
this study to be useful for developing financial educational
(PAYE), are available and can help to alleviate student loan
programs and debt management counseling programs for
borrowers’ financial strain, student loan borrowers have
a wide range of constituents (e.g., parents with financially
reported that they were either not informed by student loan
dependent children, young adults, women, households that
service providers of these repayment options or were pro-
recently experienced an income drop, etc.). The findings
vided with inconsistent information when they contacted
from this study also challenge Congress and the Department
the loan servicing agencies with questions. The complexity
of Education to take more steps to increase the adoption of
and duration of these income-driven repayment plan enroll-
income-driven repayment plans by the eligible student loan
ments have also caused many borrowers to pay high monthly
borrowers.
repayments. It is possible that adding a financial literacy
component to the student loan repayment program could
Compliance with Ethical Standards
help the borrowers in making more informed student loan
payment decisions in the future. Ethical Approval This article does not contain any studies with human
participants or animals performed by any of the authors.
Limitations

One of the limitations of this study was that the empirical

analyses were constrained by the cross-sectional nature of Appendix
the NFCS dataset. Future studies need to focus on examining
the effects of student loan debt on the financial well-being of See Table 4.
households across time using a longitudinal dataset. It will
be interesting to see whether the human capital gained from

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Journal of Family and Economic Issues

Table 4  Measure of objective financial knowledge

Question Coding

Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think 1 = Correct answer
you would have in the account if you left the money to grow? 0 = Otherwise
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how 1 = Correct answer
much would you be able to buy with the money in this account? 0 = Otherwise
If interest rates rise, what will typically happen to bond prices? 1 = Correct answer
0 = Otherwise
Suppose you owe $1000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn’t 1 = Correct answer
pay anything off, at this interest rate, how many years would it take for the amount you owe to double? 0 = Otherwise
A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over 1 = Correct answer
the life of the loan will be less 0 = Otherwise
Buying a single company’s stock usually provides a safer return than a stock mutual fund 1 = Correct answer
0 = Otherwise

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