Who is more financially literate — Gen Z, millennials, Gen X or boomers?
The U.S. population now spans five generations of adults, ranging from Gen Z adults born as recently as 2002, to those in the Silent Generation, born in 1945 or earlier – with millennials, Gen X, and boomers in between. Each generation exhibits varying degrees of financial literacy. So which generation is the most financially literate?
According to the 2021 TIAA Institute-GFLEC Personal Finance Index, “Unfortunately, low levels of financial literacy are common among each generation of U.S. adults. This is problematic across life stages since significant financial decision-making occurs across life stages.”
The survey covered eight components of personal finance: Earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk and go-to information sources. On average, U.S. adults consistently have answered only about half of the questions correctly over the first five years of the project.
Among the key findings:
1. Financial literatcy is lowest among Gen Z. Financial literacy tends to be low within each of the five generations but particularly so among Gen Z. Two-thirds of Gen Z could answer only 50 percent or less of the index questions correctly.
By comparison, approximately 40 percent of baby boomers and the Silent Generation correctly answered no more than 50 percent of the questions. These findings indicate that individuals typically begin adulthood with low financial literacy and while it increases over time, it nonetheless tends to remain low.
2. Lower for younger people who didn’t attend college. Within Gen Z, financial literacy tends to be lowest among those who have never attended college (currently or previously). On average, they correctly answered 39 percent of the index questions.
Current students and non-students who previously attended college tend to have the same level of financial literacy. The former correctly answered 43 percent of the questions, on average, and the latter, 45 percent.
Within Gen Z, financial challenges tend to be more common among those who have never attended college (currently or previously) than current students and non-students who previously attended college.
3. Greater literacy in areas of borrowing and saving, lower in insuring. Functional knowledge tends to be greatest across generations in the areas of borrowing and saving. With that said, financial literacy in those two areas tends to be lower earlier in the lifecycle, particularly among Gen Z.
At the other end of the spectrum, functional knowledge in the realm of insuring tends to be particularly low among Gen Z and Gen Y (aka millennials, born 1981–1996). For Gen Z, it is the area of lowest financial literacy.
4. Gen Z more likely to have been offered or taken class. Gen Z is most likely to have participated in a financial education class or program (40 percent), and it also is the generation most likely to have been offered a financial education class or program (48 percent).
Given that Gen Z adults are currently age 18 to 23, this indicates that financial education programs have become more common in secondary and higher education.
5. Gen X faces biggest challenges. Financial challenges along many dimensions tend to be most common among Gen X. For example, 28 percent of Gen X report difficulty making ends meet in a typical month.
The analogous figure is approximately 20 percent among Gen Z, Gen Y and baby boomers, and 11 percent among the Silent Generation.
6. Financial literacy affects financial wellness. Differences in financial wellness between those with relatively high and those with relatively low financial literacy tend to be most pronounced among Gen Y. “The data are clear — financial wellness across generations tends to be more compromised among those with lower levels of financial literacy,” according to the report.
7. Pandemic increased realization of the value of financial literacy. Although 39 percent of Americans say the economic uncertainty created by COVID-19 has motivated them to increase their financial literacy, this feeling is significantly more common among Gen Z (52 percent), Gen Y (48 percent) and Gen X (44 percent) compared with baby boomers (29 percent) and the Silent Generation (20 percent).
The silver lining is that many Americans appear to be focused on improving their financial knowledge.
“While the COVID-19 experience has been tragic, this nonetheless represents an opportunity for the financial services sector, the education sector and organizations focused on promoting financial wellness to leverage such intentions,” the report concluded. “This should involve, at least in part, initiatives, programming, and content that are life-stage specific in terms of content and delivery. One size does not fit all when it comes to promoting financial literacy and financial well-being.”