Rise From the Ashes: The Modeling–Compensation Hypothesis Applied to Parent Financial Socialization.

According to family financial socialization theory and previous research, parent financial modeling (i.e., children learning financial matters by observing parental behavior) is positively associated with emerging adults' financial behaviors and financial outcomes. However, qualitative evidence and the modeling–compensation hypothesis suggest that emerging adults can intentionally compensate for negative modeling (i.e., those whose parents performed bad financial behaviors can intentionally enact good behaviors themselves). Using a diverse sample of 4,182 U.S. emerging adults, this study is the first to quantitatively explore the modeling–compensation hypothesis in the context of parent financial modeling. We identified four groups: Intergenerational Financial Flourishers (received positive modeling and were good money managers; 56.6%), Financial Phoenixes (received negative modeling and were good money managers; 21.6%), Socialization Squanderers (received positive modeling and were bad money managers; 15.9%), and Intergenerational Financial Flounderers (received negative modeling and were bad money managers; 5.9%). In terms of financial outcomes (financial independence, financial satisfaction, and financial distress), the Intergenerational Financial Flourishers were the best off, followed by the Financial Phoenixes. Thus, while high-quality parent financial modeling is ideal, there is hope for those who received negative modeling, and financial educators and practitioners can help. [ABSTRACT FROM AUTHOR]