April 10, 2014 by Lisa Brammer
A recent study The Financial Capability of Young Adults—A Generational View conducted by the FINRA Investor Education Foundation, revealed that Millennials displayed low levels of financial literacy, engaged in problematic financial behaviors, and expressed concerns regarding their debt.
At first glance, these reported findings don’t jump off the page as earth shattering or very news-worthy for that matter, but let’s look a little deeper and see what we find.
The Millennials, born between 1978 and 1994, are a significant force in the U.S. economy as they account for 31 percent of the adult workforce (Generation X accounts for 25 percent, Baby Boomers 33 percent, and Silent Generation 11 percent).
According to the study, 23 percent of Millennials reported spending more than their income compared to 19 percent of Generation X, 16 percent of Boomers, and 14 percent of the Silent Generation. Many Millennials began their careers in the middle of the Great Recession which has, unsurprisingly, left them with financial difficulties in a post-recession economy. Given their younger age and lower household income (65 percent have household incomes of less than $50,000/year) it is also not surprising that they are struggling a little more than other generations to pay their bills and make ends meet. However, despite these set-backs Millennials reported having higher levels of financial satisfaction than Generation X, with levels similar to Boomers. This may indicate they have lower expectations than the two previous generations.
Millennials differ demographically from previous generations. They are the most racially diverse with a minority rate of 47 percent (Boomers reported 26 percent and the Silent Generation 9 percent). Almost one-third of Millennials are married and nearly half have dependents. They also differ from previous generations in how they manage financial products. 12 percent reported being unbanked, meaning they had neither a checking account nor a savings account. This number is three-times higher than the 4 percent reported by Boomers and significantly larger than the 1 percent reported by the Silent Generation (Gen X’s unbanked rate was 7 percent).
Millennials also seem to use traditional banking services less than the generations before them and are more likely to use the new bill-pay options like pre-paid debit cards and paying with their mobile devices. Non-bank borrowing, utilizing generally costlier forms of borrowing such as payday loans, rent-to-own stores, pawn shops, auto title loans, and tax-refund services happens frequently with Millennials. Forty-three percent reported using at least one of these services within the past five years.
Twenty-five percent of Millennials have college degrees which is fairly equal to previous generations, but an additional 20 percent are either enrolled in a community college or a four-year program. If you combine those who have a degree with those pursuing one, Millennials will probably be the most educated of all generations, yet when given a five-question financial literacy quiz they scored the poorest of any generation—only 24 percent could answer 4 out of the 5 questions correctly.
Fewer Millennials have credit cards, yet those who do exhibit the same costly credit card behaviors as the generation before them. These include making only minimum payments, taking cash advances, carrying balances month to month, as well as being hit with late fees and over-the-credit-limit fees.
When it come to worries about paying off student loans, Baby Boomers, Generation Xers, and Millennials are all troubled by their debt levels, but Millennials and Generation Xers have the most concerns when it comes to their overall debt levels.
This young generation faces many financial challenges, however the data suggests they do not seem to possess the necessary knowledge and skills to make good financial decisions. Luckily more Millennials report they either have been offered or have participated in financial education programs compared to previous generations. It’s promising to know that their continued financial education along with age and experience will contribute to their overall financial capability.
If you would like to see how you score on the five-question financial literacy quiz go to http://www.usfinancialcapability.org/quiz.php.
Founded in 1950, United Credit Service, Inc. is a full service revenue cycle management and debt collection agency in Wisconsin providing highly effective, customized one on one management and recovery solutions for our business partners. We offer pre-service collection solutions as well as traditional back-end collections. Visit our website at http://www.unitedcreditservice.com or call 877-723-2902.