Gen Z has the lowest financial literacy, study reveals | Media Relations | The George Washington University (2024)

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Gen Z has the lowest financial literacy, study reveals | Media Relations | The George Washington University? ›

WASHINGTON (October 19, 2021) – Financial literacy is low within each of the five generations—the Silent Generation, Baby Boomers, Gen X, Gen Y and Gen Z—but is the lowest among Gen Z, according to a new report by the TIAA

Whether it's investment strategies, spending habits or confidence in their financial knowledge, each generation differs from one another when it comes to their finances. However, among all of the generations, it's Gen Z that is proven to have the lowest financial literacy levels.

Greater financial literacy can lead to better money management and higher savings, a MarketWatch Guides study finds. But only about half of U.S. adults are financially literate, one study found – and few states require financial literacy courses to graduate from public schools.

Data from the 2024 index reveals how financial literacy in the US has hovered around 50% for eight consecutive years, with a 2% drop in the past two years.

Just 11% of millennials demonstrated a relatively high level of financial literacy by answering over 75% of the index questions correctly. However, 28% demonstrated very low financial literacy by answering 25% or less of the questions correctly.

Gen Z is spending more than millennials on housing and insurance. Gen Z has more debt than millennials did, even after accounting for inflation and higher incomes. Roughly 1 in 7 Gen Zers are maxed out on their credit cards, more than any other generation.

Gen Z Struggles With Mental Health

According to McKinsey, over half (55%) of Gen Zers report having either been diagnosed or receiving treatment for a mental health condition, compared to 31% of people aged 55 to 64, who have had decades longer to seek and get treatment.

According to recent data, New Mexico has the lowest literacy rate among US states, with only 70.9% of its adult population having basic or below basic literacy skills. California has the second lowest literacy rate in the US, with 71.6% of its adult population having basic or below basic literacy skills.

In fact, much of the downward trend in financial literacy can be traced back to respondents increasingly selecting “don't know” as their response option to the underlying questions. The rise in “don't know” responses accounts for 75 percent of the drop in financial knowledge from 2009 to 2021.

Here are some highlights from the PISA assessment: The U.S. ranked 9 out of 18 participating countries. The mean score on the PISA assessment for U.S. students was 492. The international average was a slightly higher 500.

What are the 5 principles of financial literacy? ›

Being financially illiterate can lead to many pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can lead to poor credit, bankruptcy, housing foreclosure, and other negative consequences.

Definitions of Financial Illiteracy from Organizations

“Lacking the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual's personal, family and global community goals” (National Financial Educators Council).

The low proficiency in financial literacy among Gen Z, as evidenced by only 24% of respondents being able to answer basic financial questions correctly in the FINRA survey, points to an urgent need for comprehensive financial education efforts aimed at young people.

“The reason that millennials don't save as much as Gen Z is likely because they have more financial responsibilities,” Adams said. “For instance, many are homeowners, have families and pay higher ongoing expenses, such as groceries, clothing, insurance and medical costs.”

1-in-5 of Gen Zers live with their parents to save money. Although Gen Zers are 12% less likely than older generations to invest in a 401(k), they are 11% more likely to invest in a Roth IRA. Gen Zers are 62% more likely than older generations to have no expectations of returns on their investments.

Interpersonal communication skills

Gen Z is the first to admit it. Many acknowledge their lack of interpersonal communication skills needed in the workplace.

Gen-Zers are more financially-savvy than their superiors believe, with less credit card debt than generations prior and a desire to plan and save. A recent study by StanCorp Financial Group entitled “Boost Financial Literacy, Build Gen Z Tenure” includes a survey about the financial priorities of Gen Z.

They are generally more pragmatic, with both complicated idealism and worries for the future. Gen Zers dream of personal career fulfillment but expect economic struggles. They have less positive life outlooks, with lower levels of emotional and social well-being than older generations.