Loan Performance among Low-Income Households: Does Prior Parental Teaching of Money Management Matter?

Financial literacy and financial education play a central role in asset accumulation, shaping individuals' attitudes, behaviors, and decisions in ways that, ultimately, affect their financial and social well-being. The acquisition of financial skills begins with parental teaching and role modeling, which provides children with their first exposure to concepts of saving and money management. Because such parental instruction is crucial to children's later financial outcomes, children whose parents lack basic financial literacy may be further disadvantaged by the absence of financial instruction at home. This study uses a sample of low- and moderate-income homeowners to test the hypothesis that parental teaching of money management influences children's asset-building outcomes in adulthood. The empirical analysis examines the likelihood of delinquency and default among low- and moderate-income homeowners with mortgages purchased through the Community Advantage Program. The results are consistent with a long-term impact of parental teaching on children's later asset outcomes: greater parental teaching is found to be associated with reduced loan delinquency and foreclosure. Implications for intervention programs to close the financial literacy gap are discussed.