Unpacking Financial (Dis)Engagement of Young Adults Transitioning into the Workforce: An Investigation of Financial Habit Clusters

Abstract

Research on the financial habits of young adults entering the full-time workforce is limited. We identify clusters of financial habits within this demographic, profile the financial outcomes associated with these habit clusters, and explore the association of clusters with cognitive, psychological, and socio-behavioral factors suggested in prior research. Specifically, we assess 12 financial habits associated with an individual’s investment activity, credit use, and savings ability through a survey of 519 young Australian adults. Inferential cluster analysis identified three distinct groups: Financial Explorers, who engage broadly with an array of financial habits; Habitual Savers, who report traditional saving practices but avoid investing and using debt; and the Disengaged, who show little engagement with their finances beyond comparison pricing. Results indicate that these groupings are associated with varying financial outcomes and are influenced by more than financial literacy alone. Drawing on the Theory of Planned Behavior, we find that normative beliefs and perceived behavioral control are important mediators between personality traits, financial stress, and financial habits. These findings suggest that financial interventions should be tailored to different profiles. Disengaged individuals may require low-cost interventions or incentivized financial education initiatives, such as emergency savings grants coupled with financial education modules. Traditional forms of financial education might focus on helping Habitual Savers to invest, while Financial Explorers might benefit from public campaigns to help them recognize and avoid financial exploitation. Our study contributes to understanding the complex interplay of cognitive, psychological, and socio-behavioral factors that shape financial behavior during this critical life transition.

Keywords: financial habits, young adults, Financial Literacy, financial socialization, financial outcomes, inferential clustering