What shapes the financial capabilities of young adults in the US and Asia-Pacific region? A systematic literature review

REVIEW ARTICLE https://doi.org/10.1057/s41599-023-02588-9 OPEN What shapes the financial capabilities of young adults in the US and Asia-Pacific region? A systematic literature review 1234567890():,; Susnaningsih Muat 1,2, Nurul Shahnaz Mahdzan 2 ✉ & Mohd Edil Abd Sukor2 Young adults today face greater financial difficulties than previous generations as they transition from financial dependence to financial independence and require sufficient financial capabilities to overcome financial setbacks. Few studies, however, have conducted a detailed analysis of the literature on young adults’ financial capabilities in the Asia-Pacific region, home to over 1.1 billion young adults, and the US. Thus, this study systematically reviewed the literature addressing the factors affecting young adults’ financial capabilities in the US and the Asia-Pacific region, in accordance with the RepOrting standards for Systematic Evidence Syntheses (ROSES) publication standard and employing multiple research designs. The articles for this study were selected from two authoritative databases, Scopus and Web of Science, and a supplementary database, Google Scholar. Twenty-four articles were included for quality appraisal and qualitative synthesis based on predetermined criteria, including articles with empirical evidence published in English, with the US and Asia-Pacific countries as context and published after 2006. This review was divided into six major themes: (1) financial knowledge/literacy and education, (2) financial behaviour, (3) financial attitude, (4) financial inclusion, (5) financial socialisation, and (6) demographic characteristics. Eleven sub-themes were developed from the six major themes. The findings of this review identify three approaches to enhance the financial capability of young adults: (1) early financial education with practical simulations, which can promote positive financial attitudes and healthy financial behaviour; (2) assisting parents with adequate financial education given their role as the primary financial socialisation agents for young adults; and (3) coupling financial education with access to formal financial institutions. Additionally, this study provides insight into the directions that should be taken by future research endeavours. Y Introduction oung adults are expected to become financially independent during the transitional years of young adulthood, lasting from ages 18–26, through their engagements in romantic relationships, becoming parents, and taking on responsible duties as productive members of society during the transitional years of young adulthood (Bonnie and Stroud, 2015). Previous 1 Department of Management, State Islamic University Sultan Syarif Kasim Riau, Indonesia, JL H.R Soebrantas KM 155 Panam, Pekanbaru Riau 28299, Indonesia. 2 Department of Finance, Faculty of Business and Economics, Universiti Malaya, 50603 Kuala Lumpur, Malaysia. ✉email: HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2024)11:83 | https://doi.org/10.1057/s41599-023-02588-9 1 REVIEW ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-02588-9 studies have shown that a growing number of young adults aged between 18 and 29 are having financial difficulties (Brüggen et al., 2017; Williams and Oumlil, 2015). Their problems can be attributed to their shift from financial dependency to financial independence (Gutter and Copur, 2011; Sorgente and Lanz, 2017). Growing student debt (Brüggen et al., 2017; Elliott and Lewis, 2015; Shim et al., 2009; Williams and Oumlil, 2015), lack of adequate information to make critical financial decisions (Lusardi et al., 2010; O’Connor et al., 2019; Williams and Oumlil, 2015), and low financial literacy, which would negatively influence their savings rate (Ergün, 2018), may all contribute to these difficulties. The 2018 National Financial Capability Study conducted in the US painted a disturbing picture, finding that younger Americans have had a lower rate of growth in their ability to cover monthly expenses and bills compared to other age groups (Lin et al., 2019). The study also reported that a large number of Americans, primarily young adults aged 18–34, thought that personal finance was their primary source of anxiety and most students with college debt felt worried that they would not be able to pay off their student loans. According to a recent OECD survey, vulnerable populations in the Asia-Pacific, such as micro, small, and medium enterprises, migrants and their families, women, and young people, have suffered a greater impact from the global economic downturn resulting from the COVID-19 pandemic (OECD, 2021). Vulnerable groups had lower savings, more difficulties making ends meet, no financial cushion to handle unforeseen deficits, increased financial stress, and a higher likelihood of being victims of financial fraud. Approximately 1.1 billion young people aged 15–29 live in Asia and the Pacific region, representing 60% of young people globally, making the Asia-Pacific the most youthful area (Morris, 2019). According to recent data from the US, the total number of young adults aged 15–29 was 65.47 million (STATISTA, 2021). Young adults in the US and Asia-Pacific region face similar financial difficulties transitioning from financial dependence to financial independence. In the US, young American adults find it difficult to buy a house, save for the future, and pay for college (Sechopoulos, 2022), indicating that financial capability is still out of reach for many. A survey on financial literacy in Asia revealed that South Asia has some of the lowest financial literacy scores, as only a quarter of adults are financially literate (Xiao, 2020). The conditions faced by young adults in these regions underscore the importance of enhancing the financial capability of young adults to make sound financial decisions. Given the growing need for sound financial decision-making due to today’s consumer financial challenges, assessing individuals’ financial capabilities, particularly in young adults, has become critical. Achieving financial capability is a crucial developmental challenge for this population (Arnett, 2000), and young adults must have excellent financial capabilities early on to achieve financial success (Sherraden and Grinstein-Weiss, 2015). Financial capability is a multidimensional concept incorporating many behavioural facets related to how individuals handle their resources and make financial decisions. According to Sherraden (2013), financial capability is a concept that bridges economics, psychology, and sociology, combining a person’s ability to act with their opportunity to act. Other scholars also defined financial capability as a combined skill, describing it as a combination of financial literacy and financial behaviour to achieve financial well-being (Xiao, 2016). Financial capability is a mixture of the financial knowledge, skills, attitudes, and behaviours required to make sound financial decisions based on personal circumstances, (...truncated)