Simon Cress
Each generation has its unique traits, characteristics, and quirks that set them aside from one another. Baby Boomers are known for their resilience and strong work ethic. Gen X is characterized by pragmatism, independence, and resourcefulness. Millennials are often labeled as progressive, driven, and self-centered. Finally, Gen Z, the youngest generation of adults, is all about connectivity, tech-savviness, diversity, inclusivity, and environmental consciousness.
Unfortunately, another distinguishing feature of Zoomers is their limited financial knowledge. Gen Zers may be up to date with the latest Ethereum price USD, but most don’t know much in the way of money management, investment strategies, budgeting, taxes, and other aspects that are key for building a financially healthy future.
It seems rather surprising for a generation often referred to as digital natives, with more access to information than any of their predecessors, to have such low levels of financial literacy. However, studies suggest that it’s precisely this dependency on digital technologies that might be partially responsible for their inability to grasp basic economic concepts, alongside the shortcomings of the education system.
What the data says about Gen Z’s financial literacy
A recent survey from WalletHub provides some interesting insights into Gen Z’s relationship with money and the world of finance, reflecting a concerning decline in financial literacy levels. The data shows that more than one-quarter of Gen Zers don’t feel confident about their financial abilities, which places them at the very end of the spectrum in terms of financial confidence among all generations.
Furthermore, 30% of Zoomers don’t have a budget to plan their monthly expenses, and almost 57% of them use savings accounts as their sole investment method, showing a reluctance to take financial risks. Those who don’t invest usually cite a lack of knowledge as the main reason for their hesitancy. By contrast, for 46% of Boomers, stocks represent the preferred investment vehicle.
Ironically, the 2022 Investopedia Financial Literacy Survey reveals that a quarter of Gen Zers own cryptocurrencies and one in ten hold NFTs, painting a rather contrasting picture of the investment preferences and behaviors of this particular age group.
An older study from 2021 by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) points in a similar direction. According to the report, less than half of adults between the ages of 18 and 27 have adequate levels of financial literacy. In a survey conducted by the Financial Industry Regulatory Authority (FINRA), only 24% of Gen Z respondents were able to provide a correct answer to four out of the five questions covering basic financial aspects.
What caused the decline?
It seems like the evolutionary expectation that every new generation is going to surpass earlier ones doesn’t apply in this specific area. So, one would naturally wonder how Gen Z came to have such low financial literacy rates.
Despite their technical proficiency and their intense use of digital devices, Zoomers seem to be more focused on the short-term and have a practical approach to research. Given the information overload of the digital age they were born into, Gen Zers have their attention pulled in many different directions, so they only conduct more in-depth research on a certain topic when it starts to affect them directly.
Moreover, with most of their financial interactions taking place in the virtual realm, they have fewer opportunities to gain practical experience with managing money, causing them to become somewhat disconnected from the financial realities of the world.
Beyond the impact of digital transformation on financial literacy, when trying to trace the issue back to its root cause, all signs point toward the same culprit – the education system. Traditional educational institutions don’t provide students with the basic knowledge and skills they require to navigate the intricacies of the current economic landscape and take charge of their financial lives.
During their formal education, the current Gen Zers never got to learn practical skills around money management that would help them build a strong financial foundation. So, now that they’ve reached adulthood, they have to manage with whatever information they’ve picked up along the way from their parents or peers, which is usually either inaccurate or insufficient.
The consequences of lacking basic knowledge about finances are wide-ranging. For individuals, this puts them in a vulnerable position and leads to an uncertain future, as they’re more likely to make poor financial decisions, struggle with poor credit or debt, and have a hard time when they have to pay their taxes. But having an entire generation of financially unprepared individuals is also bad for the economy as it can result in more bankruptcies, higher credit risks, loan defaults, and lower saving rates. Considering that Gen Z will make up 27% of the workforce in OECD countries by 2025, their financial decisions and habits are going to impact financial systems all over the world.
Addressing the issue
We know where Gen Z stands in terms of financial proficiency, so now we need to figure out what can be done to address the problem. The most effective solution is to take advantage of the easy access to information to educate themselves on basic financial concepts and principles. Even allocating a few hours a week to researching different money-related topics can help enhance their financial literacy considerably and fill the gaps that might become an obstacle to achieving financial freedom.
For younger Gen Zers, it could be helpful to have conversations about money with their parents and older relatives so they can feel more confident when the time comes to become financially independent. The earlier they start learning about finance, the easier it’s going to be for them to build money knowledge and develop good financial habits.
As for future generations, integrating financial education into school curriculums is paramount so that children and teenagers can learn about budget planning, taxes, mortgages, different investment venues, interest rates, and other similar issues they’re going to come across later in life.
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