Customize financial education to impact literacy for Millennials
One in four millennials owes more than $30,000 in student debt. It’s a problem that has reached record levels in the U.S., with more than $1.5 trillion in student loans outstanding according to the Federal Reserve.
The National Endowment for Financial Education (NEFE) reports that two-thirds of millennials have at least one source of long-term debt, including a student loan, home mortgage or car loan. 30% have more than one type of outstanding long-term debt and over half say they have too much debt.
This daunting debt is shaping how millennials interact with financial institutions, making it imperative to understand their perceptions, motivations, and tendencies.
Millennials aren’t happy with their current financial situation
When ranking satisfaction on a scale of 1-10, 34% of millennials are very unsatisfied and 18% are not at all satisfied (1) with their financial situation.
Many do not have the savings to manage through sudden economic shocks. When asked if they could come up with $2,000 in case of an emergency, 48% of millennials said they probably or definitely could not. Less than one-third had three months of household expenses set aside. More than 54% of millennials worry about their ability to repay their student loan debt.
In the past five years, 42% of Millennials have used higher risk Alternative Financial Services (AFS) products, such as payday loans, pawnshops, auto title loans, tax refund advances, or rent-to-own products.
Studies have shown the consequences and many millennials are putting off major purchases such as a car or home, milestones such as marriage or having children, and even health care.
Millennials have inadequate financial knowledge
Firmly unhappy with their financial situation, millennials are missing the knowledge to change it. Millennials are not the first or only generation to have limited education on personal finance. However, when tested on financial concepts, millennials score the lowest. Only 24% demonstrated basic financial knowledge and 8% demonstrating high literacy.
“True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.” While mutual funds often have fees that hurt long-term returns, 40% of millennials answered incorrectly selecting true, demonstrating the type of the knowledge gaps revealed by the NEFE’s National Financial Capability Study (NFCS), a state-by-state online survey commissioned by the FINRA Investor Education Foundation.
This lack of knowledge means “young adults may not understand the consequences of their actions, such as how taking money out of their retirement accounts now has an exponentially negative effect on account balances in the future,” says Ted Beck, President and CEO of NEFE.
This is even more concerning when you consider that NEFE has found nearly 30% of millennials have overdrawn their bank account and around 20% of those with a retirement account either took a loan or made a hardship withdrawal in the past year.
Millennials don’t seek professional financial help
Even with their dissatisfaction and inadequate knowledge, only 27% of millennials seek professional financial advice on savings and investment and 12% on debt management.
Rather, they are prioritizing other matters such as job security, relationships, and their living situation.
When millennials do have specific financial issues or questions they opt to use their own personal network. As a self-reliant, digital generation they ‘Google it’ or go to their friends to see what they would do or validate what they think is the answer.
With a better understanding of millennials perceptions and challenges, what can banks and credits unions do to help?
Steven Barr, PwC Consumer Markets Leader, shared 3 steps that financial industry leaders need to take to alleviate the gap.
- Expand 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.
- Look to industry to help fill gaps. PwC has a $190 million commitment to financial literacy. Through the Access Your Potential® program, they are providing resources to educators and students that may not otherwise have access to them.
- Provide tools—especially digital and mobile tools, which we know millennials are comfortable using—to help them learn concepts, manage budgets, and troubleshoot concerns.
At Voleo, we believe in providing hands-on opportunities to improve financial literacy. For the second year, we are partnering with Nasdaq to improve financial literacy through the Voleo Nasdaq Trading Competition, providing real investing experience to students across the United States. How is your organization supporting financial literacy? We’d love to share ideas. Share your thoughts by getting in touch at firstname.lastname@example.org.