Life lessons: Leaving home and financial capability of young adults

Young adults today have access to an increasing range of financial products. However, evidence shows young adults generally have low financial capability, leading to poor financial choices with potentially severe and long-lasting consequences. Financial experience represents one proven channel by which people develop the knowledge and ability to make better financial decisions. A potentially pivotal life experience for young adults is moving out of home, which involves a wide range of financial experiences. We examine how leaving home impacts the financial capability of New Zealanders aged 18-25. Our results suggest leaving home is associated with a significant improvement in financial capability but not an increase in financial knowledge. Providing targeted guidance to home leavers may offer an effective opportunity to improve the financial capability of young adults and minimize costly mistakes.