A recent study released last week found despite the number of financial apps millennials are using, their personal finance management skills are severely lacking.
The report, released by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, examined the personal finance knowledge of millennials.
Titled “Millennial Financial Literacy and Fin-Tech Use: Who Knows What in the Digital Era,” the study utilized the TIAA Institute-GFLEC 2018 Personal Finance Index (P-Fin Index) to test millennials’ finance knowledge and found that 44 percent of millennials answered the P-Fin Index questions correctly, compared to 50 percent of the US adult population.
In addition, younger millennials (ages 18-27) answered 41 percent of P-Fin Index questions correctly, compared to 47 percent of older millennials (ages 28-37).
“The millennial oversample in this year’s P-Fin Index sheds a light on the use of mobile technology, and the impact that it has had on an increasingly influential generation,” said Stephanie Bell-Rose, Head of the TIAA Institute.
“As technology continues to develop ways to make our lives easier, it is clear that we cannot exclusively rely on it to guide us through our financial lives. Our research underscores the importance of financial literacy and its complementary relationship with fin-tech in producing good outcomes.”
Both older and younger millennials are hurting most in the areas of understanding risk and insuring, the study found. Understanding insurance, in particular, saw the greatest gap between younger and older millennials. Financial literacy is highest in the area of borrowing and debt management for both younger and older millennials.
The study also looked at how millennials use these apps to track their personal finances, as well as the effect of this fin-tech on financial outcomes.
About 80 percent of millennials use their smartphones to do things like pay bills and deposit checks, while 90 percent use their phones for things like tracking spending.
However, although apps make it easy to manage money, those who do via the technology don’t always make financially savvy decisions. Almost 30 percent of millennials who use their smartphone to make mobile payments report overdrawing their checking account, compared with 20 percent who do not make mobile payments.
In addition, one-quarter of those who track spending with their smartphone report overdrawing their accounts, compared with 20 percent of those who do not track spending via their smartphone.
“The low level of financial literacy among millennials speaks of the importance of equipping this large generation with the knowledge and skills that are needed to make financial decisions in the digital era,” said Annamaria Lusardi, Academic Director at GFLEC and the Denit Trust Chair of Economics and Accountancy at GW.
“This study shows that fin-tech users have different needs and characteristics, providing many opportunities for innovation for fin-tech developers.”