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Many Americans believe that Gen Z is financially illiterate and uninformed. But the story is not that simple. Without proper social, historical, and economic context, it is impossible to understand Gen Z’s financial perspectives fully.
I was six in 2008. Growing up without the memory of the great financial crisis has shaped my view of the world. This sore spot in history, still fresh in the minds of adults over the age of 25, does not and cannot have the same influence on my thoughts as on others. And this is merely one unshared experience that separates Gen Z from other generations.
While members of Gen Z have much to learn, any stereotype of financial ignorance fails to capture the reality of the situation. Gen Z's financial behaviors and attitudes are shaped by an array of factors, including its experiences, economic obstacles, and evolving societal values – just like every generation before it.
A few contextual points
- No generation has a particularly impressive knowledge of personal finance, according to a study conducted by the TIAA Institute. Baby boomers and the silent generation scored the highest at 55% of personal finance questions answered correctly. Gen X, Y, and Z scored 49%, 48%, and 43%, respectively.
- The findings from the previously mentioned study show consistent deficiencies across generations in the understanding of risk and uncertainty (37% on average).
- The cost of buying a home has increased by 1,680% since 1970 (inflation was 644% for the same period), compared with an inflation-adjusted increase in median income of 84% since 1970 (see here and here)1. Further, the cost of goods in the U.S. has risen 67% since 2000, making it harder for younger generations to gain traction on their finances. This increase is unsustainable and has priced out older members of Gen Z looking to purchase their first home.
Many of my friends have discussed going on post-graduation trips to Europe or a tropical destination like the Bahamas, but they have no plans for saving for retirement or preparing for unexpected bills. Saving for retirement from a young age is something that has been ingrained in other generations, but the biggest shift in today’s generation is its focus on present experiences rather than future retirement. This may be a consequence of the COVID-19 pandemic, as many from Gen Z were at critical turning points such as graduating high school and starting college when the outbreak began.
Younger people do not care as much about having large sums of money in retirement and have instead shifted towards living their lives to the fullest before the milestone age of 57 (Gen Z’s desired retirement age). People are generally driven by the experiences/things they want, and many younger people are embodying this sentiment. The shift towards work-life balance and new expectations in the workplace in the wake of the pandemic is largely responsible for this ideology as Gen Z reaches the age of majority.
Gen Z and the influence of education
When I was in high school (2016-2020), the state of Virginia required a course on personal finance to be completed prior to graduation. This program began due to state legislation passed in 2010 aimed at increasing financial literacy among young people. We discussed everything from investing to debt and focused on some of the most important considerations, such as budgeting and credit literacy. But as of 2023, only 30 states require schools to offer these classes, with only 17 of them mandating personal finance classes as a requirement for graduation, according to research conducted by Ramsey Solutions. Further, only five states require a standalone semester-long personal finance class. This number has been increasing in recent years, but it is still not a requirement in some of the most populous areas of the country, such as California and Washington D.C. As the number of states requiring this education continues to increase, personal finance knowledge will inevitably improve.
The perception about Gen Z’s lack of financial literacy and personal finance is misleading. Some young adults have had more education on the topic than others, ensuring a broad spectrum of financial literacy across the generation.
Gen Z and debt
Some of the ads on Instagram and TikTok are promotions for new credit cards from industry leaders such as American Express and J.P. Morgan Chase. These are great options when used appropriately. Yet, the pitfall with credit cards is in their interest rates and psychological impact on spending.
Credit-card debt is notoriously hard to retire, with APRs generally above 20% or even 30%. This debt at a young age can deal a crushing blow to any person just beginning their career; unprecedented levels of student debt only compound the problem. The TIAA Institute reported that 40% of Gen Z have stated that debt constrains them from “adequately addressing other financial priorities.” In this sense, it may be that other generations mistakenly equate Gen Z’s reluctant and precarious use of debt with ignorance or financial illiteracy. Again, the realities of the times are inescapable for most, and Gen Z has been saddled with debt at levels that some would argue are unsustainable.
Investing and Gen Z
Gen Z has already begun investing and would like to retire at around 57, per the previously mentioned figure. This is good news and shows that financial literacy may be taking root in a generation rocked by COVID-19, high inflation, and other challenges.
Yet, in addition to the limited schooling mentioned above, Gen Z tends to get much of its investment-related information from online sources such as TikTok (30%) and YouTube (45%). Those online sources provide easily digestible information to many who would not otherwise be exposed to the material and who expect to get most of their information from a virtual world. Almost everyone I know my age uses social media to stay informed and connected. Platforms like Instagram and Twitter (X) allow information to easily reach younger, tech-savvy populations; streaming services like Spotify are producing content such as news podcasts for on-the-go learning for a generation that does not consistently listen to the radio.
Nevertheless, to say that these online sources are not always reliable is an understatement. Gen Z has in this sense effectively been bombarded with financial information that is overly simplistic, often biased, and sometimes wholly unreliable. Discerning fact from fiction is one of the great challenges facing this virtual generation, a challenge that must be met with access to better resources and professional assistance, not the disdain of others whose experiences have been different.
Gen Z's perspective on personal finance, informed by its unique experiences, is often misunderstood. Every generation has its challenges, and those challenges, as well as how they are faced, shape that generation. It is therefore far too early to declare that Gen Z is financially illiterate or uninformed. The state of financial education, sensitivity to excessive debt and other pitfalls, and the power of technology and online access, among other factors, may lead to a generation that stands above – or below – other generations.
Generalizations about this generation are premature. We’re still figuring it out!
Alex Peters is a 21-year-old finance student going into his senior year at James Madison University, in Harrisonburg, VA. He interned with The Colony Group, a registered investment advisor, providing support to teams working with high-net-worth individuals. Alex is passionate about personal finance education and aspires to help others through increasing the availability of resources on the topic.
1. Found by taking the sum of the increase from 1970-2007, and 2007-2020.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
