Millennials & Financial Literacy — The Struggle with Personal Finance
Millennials are exceptional in many ways. They are better educated than their predecessors, more ethnically diverse, and more economically active.
Yet they confront greater difficulties — including economic uncertainty and student debt — than those who came before them. As a generation carrying new personal financial responsibility, it is critically important for Millennials to be on a path leading toward financial security.
How Do Millennials Approach Personal Finances?
Eight Trends
- Have inadequate financial knowledge
When tested on financial concepts, only 24% demonstrated basic financial knowledge. - Aren’t happy with their current financial situation
When ranking satisfaction on a scale of 1–10, 34% were very unsatisfied. - Worry about student loans When asked about their ability to repay their student loan debt, more than 54% of Millennials expressed concern.
- Debt crosses economic and educational lines Among college-educated Millennials, a staggering 81% have at least one long-term debt.
- Are financially fragile
Nearly 30% of Millennials are overdrawing on their checking accounts. - Are heavy users of Alternative Financial Services (AFS)
In the past five years, 42% of Millennials used an AFS product, such as payday loans, pawn shops, auto title loans, tax refund advances, and rent-to-own products. - Sacrifice retirement accounts
More than 20% of Millennials with retirement accounts took loans or hardship withdrawals in the past year. - Don’t seek professional financial help
Even with inadequate knowledge, only 27% of Millennials are seeking professional financial advice on saving and investment.
That’s a large, systemic problem, Schooold is beginning to solve.
Millennials Have Inadequate Financial Knowledge
Among the overall population, Millennials are the age group with the lowest level of financial literacy.
- Only 24% demonstrated basic financial literacy
- Only 8% demonstrated high financial literacy When tested about basic concepts around numeracy and mortgages, Millennials scored better.
However, when it came to more complicated issues like basic asset pricing, inflation and risk diversification, Millennials fell flat.
Lack of financial knowledge may jeopardize Millennials’ financial success
Millennials Aren’t Happy with their Current Financial Situation
Many Millennials are not satisfied with their current financial condition. On a scale from 1 to 10, many reported very low levels of satisfaction.
- 34% are unsatisfied with their current financial situation (1–3)
- 18% were not at all satisfied (1)
Millennials are unhappy but 93% do not have the tools to change their situation
Millennials Worry About Student Loans
Student debt is common across demographic characteristics. Millennials are heavily leveraged on their educational investment, and many student-loan borrowers are troubled by this debt.
- 54% are concerned about their ability to repay their student loan debt
- 34% with annual household incomes above $75,000 are concerned they may not be able to repay their student loans
Debt obligations weigh on Millennials’ economic success.
Debt Crosses Economic and Educational Lines
Millennials are over-indebted regardless of education levels.
- 2/3 of all Millennials and 80% of college-educated Millennials carry at least one source of outstanding long-term debt
- 31% of all Millennials and 44% of college-educated Millennials carry more than one source of outstanding long-term debt
Liabilities are particularly common among Millennials who are college-educated. A college degree may no longer be a guarantee of a better financial future.
Millennials Are Financially Fragile
Millennials face a spectrum of financial challenges and fear that they have little maneuvering room in case of an emergency.
- Nearly 50% don’t believe they could come up with $2,000 if an unexpected need arose within the next month
- Nearly 30% are overdrawing on their checking accounts
- 53% carried over a credit card balance in the last 12 months
Millennials are financially fragile, meaning that they cannot cope with even midsize shocks.
Millennials Are Heavy Users of AFS
Millennials deal with short-term sources of debt including Alternative Financial Services (AFS), such as payday loans and pawnshops. In the past five years, a large number used AFS:
- 50% with a high school degree or less
- 28% with a college degree
- 39% who have a bank account
- 35% of credit-card users
AFS is widespread among this generation, common even for households generally referred to as “middle-class.”
Millennials Sacrifice Their Retirement Accounts
Millennials are at the start of their work lives, yet they are already tapping into their retirement accounts.
- Only 36% have a retirement account
- 17% with an account took a loan in the past 12 months
- 14% took a hardship withdrawal in the past 12 months
This trend is especially worrying because it can compromise Millennials’ future financial security. Spoiler Alert: There is none.
Millennials Can’t Afford to Seek Professional Financial Help
Although the majority of Millennials have inadequate financial knowledge, they are not consulting financial professionals to compensate for that deficit. Case in point:
- Only 27% had sought professional financial advice on savings and investments within the past five years
- Only 12% had sought professional advice on debt management
If Millennials don’t ask for help, their financial problems could extend or worsen in the future.
Conclusion
Millennials are a high-impact generation poised to shape the national and global economy in new and significant ways — and their economic influence is expected to grow over the next decade. But the platform from which they will wield this influence is a troubling one. Millennials carry too much debt.
They engage in expensive credit card behaviors, stand at the forefront of the growth of student loan debt, and many are already raiding their retirement accounts. Millennials’ financial practices are of concern because of the potential for these behaviors to become firmly established.
Indeed, the research has documented that the gap between the amount of financial responsibility given to young Americans and their demonstrated ability to manage financial decisions is rapidly widening.
Furthermore, their knowledge deficit could prove disastrous for them, the economy, and society.
How can we help overcome the gap between the amount of financial responsibility given to Millennials and their demonstrated ability to manage financial decisions is rapidly widening?
By expanding access to financial education with a forward-looking approach to financial literacy.
Starting in school provides an opportunity to shift future generations’ financial positions, giving them a solid base from which to make life’s important financial decisions.