Financial Literacy by Generation: Is It as Bad as the Statistics Suggest? | brand voice

The TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University (GW) School of Business released a report on levels of financial literacy among five generations in the United States. According to the report, financial literacy is low within each of five generations: the Silent Generation (55%), Baby Boomers (55%), Generation X (49%), Generation Y (48%) and Generation Z (43%). %), but is the lowest among Gen Z.

The end p-index questions totaled 28, spread across eight key areas including income, investments, consumption, risk and credit. It is an annual barometer of financial well-being and a measure of financial literacy among five generations.

Research has found that financial knowledge increases with age, but does not improve significantly across life stages. It further indicates that low levels of financial literacy correlate with future prospects for financial well-being. The statistics have sounded alarm bells and highlighted gaps in financial education to help individuals make wise financial decisions.

What is Financial Literacy?

According to the Financial Literacy and Education Commission of the United States Treasury, financial literacy is “the ability to use knowledge and skills to effectively manage financial resources over a lifetime of financial well-being”.

What are the 5 principles of financial literacy?

In order to become financially literate, there are five key elements that need to be managed: How much do I earn? ; how can i spend money? ; the best way to save and invest; access and use credit; and, finally, how can I protect my money.

Earning: how much do I earn?

  • Understand how much money you earn from your job (gross income), how much is deducted and what remains as net income.

Spend: allocate money to spend and save

  • Develop a personal budget to show how much to spend and how to reach your financial goals. By checking how you normally spend a month’s income, you’ll be able to decide where to cut and how much you have left to save.

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Saving: what do I want to achieve financially?

  • Savings is an important concept for everyone. However, most people need specific goals to focus on, whether it’s a retirement plan, buying a car and a house, a vacation abroad, or repayment of a personal debt.

Borrow: Credit cards, loans and your credit score

  • Even if you are a diligent saver, at some point you may need to borrow money to cover a major expense like a house or a car. Maybe you borrowed money as a student and are currently struggling with student loans or credit card debt. Borrowing isn’t necessarily a bad thing, as long as you know how to compare loans and maintain a good credit rating.

Protect: prevent fraud and take out insurance

  • Once you have a solid budget and investment strategy in place, it’s important to protect the money you’ve earned. This means regularly reviewing your bank accounts and credit card statements for any errors or suspicious activity; secure documents and passwords to prevent scams and identity theft, and carry the right kind of insurance to protect you in an emergency.

How does age affect financial literacy?

Financial literacy tends to be low within each of the five generations, but particularly among Gen Z. Two-thirds of Gen Z could only answer 50% or less of the index questions correctly.

Within Gen Z, financial literacy tends to be lowest among those who have never attended college. On average, this group answered only 39% of the index questions correctly.

Across generations, financial literacy tends to be highest in the areas of borrowing and saving. However, financial literacy in these areas tends to be lower earlier in the life cycle.

Gen Z is the generation most likely to have been offered and participated in a financial education course or program. However, the fact that they display the lowest financial literacy could be due to their lack of financial responsibility. They may not participate in the economy and likely depend on parental or government support of some kind.

Gen Xers reported significant financial hardship across the dimensions tested, with 28% saying they struggled to make ends meet in a typical month. This could be attributed to their jobs experiencing declines due to the economic uncertainty created by the pandemic, personal finances under pressure due to student debt repayments, and the fact that they lack financial literacy.

About twenty percent of Gen Z, Y and Baby Boomers report having trouble making ends meet.

Eleven percent of the Silent Generation report difficulty making ends meet. This indicates that the silent generation probably possesses higher functional knowledge in order to make important financial decisions. It can also be attributed to them accessing appropriate sources to help make better financial decisions. Using wise types of investments and managing expenses early likely resulted in effective personal finance management.

Does an individual’s financial literacy increase with age?

Financial literacy tends to be low within each of the five generations, but particularly among Gen Z. Two-thirds of Gen Z could only answer 50% or less of the index questions correctly. In comparison, about 40% of Baby Boomers and the Silent Generation did not answer more than 50% of the questions correctly.

These results indicate that individuals generally start adulthood with low financial literacy and, although it increases over time, functional knowledge peaks at just over half. This indicates a slight improvement with age and means that more educational interventions need to take place as the population matures.

Why is financial literacy important for Gen Z?

Financial literacy classes teach students the basics of money management: budgeting, saving, debt, investing, giving, and more. This knowledge lays the foundation for students to build strong financial habits early on and avoid many of the mistakes that lead to lifelong financial struggles.

Understanding uncertain financial outcomes is one of the main indicators of financial well-being. The greatest financial challenges for younger generations can be attributed to relatively low financial literacy.

Conclusion

Data collected by the Global Financial Literacy Excellence Center (GFLEC) is an important tool that measures knowledge about the intrinsic functioning of individuals in the area of ​​personal finance. Although Gen Z survey respondents reported the lowest financial literacy, it appears that this generation had access to some financial education in school or college as part of the life skills program.

It is possible to conclude that financial literacy nevertheless goes hand in hand with personal financial knowledge. In other words, when Gen Z has access to good job opportunities and Gen X is able to deal with their current financial challenges in a more normalized economic climate, financial education will have a big impact. more positive on the adult population.

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