Sound Finances in College and Adulting

When students make sound financial decisions during their final year of college, they more quickly develop their adult identity, researchers found in a University of Arizona study released Monday.

The study, conducted by Xiaomin Li, a doctoral student at the university who focuses on family studies and human development, asked participants to evaluate their own and their romantic partners’ financial habits during the span from their fourth year of college to five years after graduation, a period called “emerging adulthood.” Respondents also ranked their maturity levels and recalled if they thought others perceived them as adults.

The emerging-adult period is particularly unstable, Li said, as recent graduates are learning how to navigate adult life. Positive financial behavior and emergency funds can help offset stressful social changes, like newfound independence from one’s family.

“Emerging adults' development in financial, personal, relational domains are interrelated, with progress in financial domains predicting progress in personal and relational domains,” the study said.

Researchers, including Li and Melissa Curran, the study’s co-author and an associate professor in Arizona's Norton School of Family and Consumer Sciences in the College of Agriculture and Life Sciences, sought to analyze emerging adulthood during the 2007-09 Great Recession, which they thought could impact graduates’ financial stability, Li said. They began studying a group of more than 1,500 fourth-year students at UA in the spring of 2010.

"Adult identity formation has been greatly delayed, and finances are a big reason for that delay," Li said.

Students and graduates who displayed responsible financial behavior -- effective budgeting, spending and building credit -- during their fourth year of college and those who improved behaviors by the time they reached their late 20s to early 30s had fewer mental health conditions and felt stable while transitioning into the work force. This was consistent throughout the study, Li said, no matter whether the individuals were in relationships or not.

Researchers found that more financially stable college students had fewer symptoms of depression two years after graduation, along with more formed adult identity when they reached their 30s. As a result, the study suggests higher education officials should provide more financial guidance to students.

“Universities can require students to take a personal and family finance general education-level course in which emerging adults can acquire necessary financial knowledge and develop needed financial behaviors,” the researchers wrote.

Relationship satisfaction was an additional indicator of financial responsibility during and after college, according to the study, which was published in the Journal of Applied Developmental Psychology. Higher relationship satisfaction showed higher levels of commitment, which marked young people’s adult identity.

“Emerging adults are at a particular stage, and in this stage, people become independent of their family and more involved in close relationships,” Li said. “The participants were forming their own relationships and their own families.”

In that period, she said, “individuals not only need to rely on themselves, but on their partners to cope with challenging situations.”

The emerging-adult period can be even longer and more challenging for people who do not attend college, an issue Li said could be the subject of future university research on adult identity. This group likely would be analyzed during their final year of high school and the five years after, with the goal of comparing their financial stability and adult identity with that of college graduates.

“The relation may exist between the two groups, but there needs to be more research on the non-college-educated population,” Li said. “As prior researchers said, the non-college-educated population is the forgotten half.”