Millennial Financial Literacy and Fin-tech Use: Executive Summary

Using an oversample of Gen Y in the 2018 wave of the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), this report examines the financial literacy of millennials and how they engage with fin-tech, i.e., use smartphones for financial purposes. 

There is a Gen Y financial literacy gap—on average, millennials answered 44% of the P-Fin Index questions correctly, while the U.S. adult population answered 50% correctly. But there is also a notable difference in financial knowledge between younger and older millennials. Older millennials answered 47% of the P-Fin Index questions correctly, on average, compared with 41% for younger millennials. 

Financial literacy among both younger and older millennials is lowest in the areas of comprehending risk and insuring. The former is troubling because risk and uncertainty are inherent in most financial decision making. The latter is also troubling because individuals face a range of insurance choices—from which events to insure to how to structure insurance coverage. Insuring is a point of weakness in particular for younger millennials; it is the area in which their gap in financial literacy is greatest compared to older millennials.

Overlaying millennial personal finances is the reality that Gen Y lives a technology-enabled existence. Over 90% of millennials own a smartphone, and smartphones offer ready access to money management capabilities. While smartphones are a tool of convenience—80% of millennial smartphone owners use their device to some degree for transactional fin-tech purposes and 90% for informational fin-tech purposes—it is not clear whether fin-tech use represents a net gain for better personal finance outcomes. 

We examine the use of smartphones for making payments and tracking expenses. These fin-tech activities are not linked to better financial management; those who use mobile payments are more likely to overdraw their checking account, and those who use their smartphone to track spending are not doing better in this regard than those who do not. 

Moreover, fin-tech users benefit from being financially literate, as those with higher levels of financial literacy are less likely to overdraw their checking account. It seems that fin-tech is most appropriately viewed as a complement to, not a substitute for, financial literacy.

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