Friends of the Behavioral Economics Blog, this week we present the paper “Let’s Talk About It: Discussing Retirement with Multiple Sources is Associated with Retirement Preparation in Young Adults” by Treger, S. (2021), in which the author carries out an investigation to know what is the main source of information of young people about retirement and their general beliefs about it.

Managing personal finances can be overwhelming for young people but also grown-ups. With so many financial laws and terms, learning and keeping track of one’s finances can be complex and anxiety-provoking.

It can be an especially daunting topic for young adults who are approaching or transitioning into working life, as many are likely to have had little or no exposure to financial education.

The result is that young adults often have a poor understanding of finances.

Despite this, young adults seem to recognize that it is a very important topic and are interested in learning about it.

There are not many formal financial education programs in schools and institutes and, furthermore, according to the research, the ones used for that purpose seem to produce very small or almost insignificant effects. It looks like financial education from school does not have much impact on young people.

However, and although it is paradoxical, not having this financial education at school leads young people to look for different sources of information. The most common: parents. In fact, parental financial socialization has a stronger effect on healthy financial practices in young adults than school classes.

With the arrival of the internet age, it has never been easier for people of any age to interact with the economy. Now, young people who have not had much financial socialization can have their money to spend in a click. For this reason, this topic seems to take on special relevance.

Recent qualitative research suggests that young adults have mixed feelings about retirement. Using a sample of members of the millennial generation and generation Z, in a 2020 study, participants were asked to draw and write their idea of ​​what retirement and old age were, and found that they tended to have negative associations with aging but positive regarding retirement.

Interestingly, the concept of old age itself can affect the retirement preparation of young people. In a 2011 study, it was found that young adults’ attitudes toward retirement increased after they viewed a photo of themselves aging.

Young adults’ motivation to learn about retirement may lead them to look for multiple sources of information. The purpose of this article was to know whether young adults actively talk about retirement with various sources in their environment, which are these sources, and how these discussions prepare them for the process.

To do this, data was taken from interviews that belonged to another study, carried out with people born between 1995 and 2010. Only those of young people over 18 years of age were collected, reaching the figure of 1311 participants.

Parents were indeed the most common source of conversations about retirement in the sample. Participants who talked to their parents about the topic generally felt it was more important to learn about retirement, anticipated a greater likelihood of retiring, and believed they had gained interesting new knowledge about the topic from their parents. 

Of all the potential sources, parents are probably the ones young adults will interact with the most, in fact, during this study, approximately 51% of Americans ages 18-29 lived with their parents.

Still, parents are not the only source. The opinion of friends and close people was also taken into account. It seems that although we are in the Internet age, young people prefer to discuss these issues with people who know them and have experience. The couple’s source also appeared.

A series of doors open for future research. For example, researchers could explore whether the sources of retirement conversations, as well as attitudes and behaviors towards retirement, would change as the world recovers from Covid-19. That work would provide very useful information on how global economic downturns affect the financial habits of young adults.

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