Homegrown finance: Tracing intergenerational financial literacy in Indonesia

This study is the first study related to the intergenerational transmission of financial literacy in Indonesia. Examining the financial literacy skills of fathers and mothers as the first generation influences the second generation, children. Using longitudinal data from the Indonesian Family Life Survey (IFLS) wave 4 (2007) and wave 5 (2014), with a fixed effect model, the results of the study indicate that there is a relationship between parents and children. Mothers influence children’s literacy skills more directly than fathers, who have an indirect effect through their profession and income. Financial activities carried out by mothers at home, including budgeting and managing expenses, affect children’s financial skills. The relationship between parents and children is not always positive; several variables are negatively related to children’s financial literacy development. Some levels of parental formal education show a negative relationship because they are associated with generational disparities in general and specifically in finance. This study also shows the importance of human capital development within the family framework. The results of this study suggest financial literacy should not be focused on being taught in formal education alone but can involve a communal way through family as the social institutions. Empowering parents, especially mothers, in financial literacy can enhance intergenerational transmission and strengthen homegrown finance resilience. In a family way, it will facilitate the passing down of the capability from generation to generation. This will be a significant implication for policies aimed at education and employment with family-oriented financial literacy initiatives.