A new report, released by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, found there is a financial literacy gap among millennials. The report also found that while most millennials use their smartphones and payment processors to manage their personal finances, financial technology (fin-tech) does not necessarily improve their personal finance management practices.
The "Millennial Financial Literacy and Fin-Tech Use: Who Knows What in the Digital Era" study utilized the TIAA Institute-GFLEC 2018 Personal Finance Index (P‑Fin Index) to examine the personal finance knowledge of millennials. Millennials answered 44% of P‑Fin Index questions correctly, compared to 50% of the US adult population. Moreover, younger millennials (ages 18–27) answered 41% of P‑Fin Index questions correctly, compared to 47% of older millennials (ages 28–37).
Financial literacy among both older and younger millennials is lowest in the areas of comprehending risk and insuring. 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.
Payment Processors and Millennials
The report also examined how millennials use technology to manage their personal finances and the effect of financial technology on financial outcomes. Approximately 80% of millennials use payment processors on their smartphone for transactional purposes like paying bills and depositing checks, and 90% use their phones for informational activities like tracking their spending.
Of the 23.8% of U.S. adults who are Mobile Wallet Users, according to AudienceSCAN, 24.5% are ages 25 to 34. Payment processors aren’t the only things this audience is using their phones for. Most are active on social media. About 80% have a Facebook account, 60.6% actively watch YouTube videos, 44.7% participate on Instagram and 42.8% are active on Twitter. They're 22% more likely than other adults to share a good experience on social media, and 25.9% take action after seeing content on social media that isn't even an ad.
While fin-tech offers a convenient way to manage finances, users do not always make savvy financial decisions. Almost 30% of millennials who use payment processors on their smartphones to make mobile payments report overdrawing their checking account, compared with 20% who do not make mobile payments. Further, one-quarter of those who track spending with their smartphone report overdrawing their accounts, compared with 20% of those who do not track spending via their smartphone.
According to AudienceSCAN, 61.9% of Mobile Wallet Users also do their banking online. These businesses can easily fill the financial needs of these consumers who are in need of financial planning assistance by selling them more products to aid in tracking their spending.
Fin-tech users benefit from being financially literate; those with high levels of financial literacy are less likely to overdraw their checking accounts.
"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," 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."
Over the last year, Mobile Wallet Users have been targeted by advertisers through a number of digital media. According to AudienceSCAN, 63.6% of Mobile Wallet Users took action after receiving an email ad last year and they're 69% more likely than other adults to take action after seeing an ad during a directory search, both online and in print. Text link ads on websites also inspired 56.4% of this audience to take action within that time period. Don't write off traditional though. Last year, 71.4% took action after seeing a commercial on TV.
AudienceSCAN data is available for your applications and dashboards through the SalesFuel API. Media companies and agencies can access AudienceSCAN data through the AudienceSCAN Reports in AdMall.