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How Financially Literate is Gen Z?

Which generation is the most financially savvy? Which one is the least financially literate? If you answered Gen Z to either question, you would be correct. A study by George Washington University found Gen Z to be the most financially illiterate compared to other generations. And yet, further research found that Generation Z adults—individuals between 18 and 25 years old—are more financially sophisticated than any previous generation was at their age. In fact, 54% of Gen Z are already investing, but only one in three (31%) feel confident that they can explain how the stock market works to a friend.

So, why the contradictions? How can a generation that is already investing also be the least financially literate? Our Money Matters, a free platform dedicated to increasing financial wellness, offers insights on the factors that influence Gen Z’s attitudes towards money.

1. Age – Gen Z is a young generation born between the mid to late 90s and the early 2010s. So, it's not hard to understand why this generation would be concerned about money (having lived through the pandemic) and yet not know exactly where to go for financial advice. After all, the oldest of that generation is in their mid-20s, and the youngest is 12! But, having lived through the pandemic, 52% of Gen Z are determined to focus on their financial well-being —the highest percentage of any generation. And they are comfortable acknowledging what they don't know, with nearly one-third admitting they have just a beginner's knowledge of financial management basics like paying taxes and borrowing/managing debt. Fortunately, they also understand they are only at the beginning of their journey to financial independence and are anxious to learn more.

2. Too Much Information – Gen Z is the first generation to have grown up with smartphones and social media as part of their daily life. They are bombarded with information available in numerous places like YouTube, Facebook, podcasts, and Tik Tok just to name a few. According to digital education company Pearson, YouTube, and video, in general, are Gen Z's preferred learning platforms, ranking second only to teachers as a learning tool. The amount of information and the fact that everyone (qualified or not) has a platform to offer advice can make it overwhelming. Where do you even begin with so many sources available?

84% of Gen Z individuals also rely on parents and family for financial information. But in some cases, they aren't qualified to teach them. Parents grew up with less sophisticated options relating to savings, retirement, mortgage, and loans and may need help understanding the choices themselves. So, Gen Z needs to take advantage of professional financial wellness sources for credible third-party information.

3. Debt – Many Gen Z individuals are averse to taking on any debt, having watched their parents struggle to pay off credit cards and make their mortgage payments, and witnessing Millennials trying to keep up with student loans. However, some debt is necessary to build credit to be able to buy a house or take out a small business loan. Gen Z needs more education on the difference between good and bad debt.

4. The Gig Economy – Having seen corporate layoffs and the shrinking middle class, many individuals in this generation, are entrepreneurial in nature. They are unwilling to work for minimum wage and let someone else control their fate, so they start their own businesses. Many earn significant incomes through social media and other online pursuits such as E-Gaming. However, since they are independent, taxes can be more complicated. According to an Investopedia survey, paying taxes ranks as their second biggest concern and the number one skill they'd like to learn.

Summary – So while Gen Z’s approach to money can seem contradictory, their behavior can be explained by their exposure to social media, the breadth of information available, and even the global pandemic. This generation was among the most impacted, according to research. Seventy-eight percent of Gen Z’ers found their personal lives were affected, while 39% say they lost their jobs, were furloughed, or faced a temporary layoff. However, the positive characteristics that define this generation, such as being self-driven, highly collaborative, and social, also affect their approach to money. Gen Z may currently be the least financially literate, but they have plenty of time to catch up. They just may end up being the generation that invests more, consumes less, and avoids unmanageable debt.

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