At a time when the world of finance is more accessible than ever before, financial literacy takes on a newfound importance. Knowing how to navigate this world is crucial, but do young people in the UK feel prepared to make their own financial decisions despite having the world at their fingertips? It is one thing to have the tools but another to know how to use them. Here, we look at UK findings for Generation Z – often considered to be people born from 1997 to 2012, who are now aged between nine and 24.
Is Gen Z financially literate?
A 2021 study commissioned by the Financial Times suggests that people between the ages of 16 and 24 were the least likely to be financially literate out of all age groups surveyed. Gen Z falls squarely into this category, suggesting a problem with financial literacy among young people in general.
According to a survey conducted by the Money and Pensions Service in 2019, just 38% of children and young people remembered learning about finance management at school, while fewer than half (44%) of those polled felt confident about how to manage their money.
While a lack of financial literacy is unlikely to be specific to the current age in which we live, Gen Z does face specific challenges as a result. Being the so-called ‘zoomer’ generation, not having known a reality without technology and the internet, those in the 16 to 24 age bracket have the financial world at their fingertips, which is likely to be both a thrilling and daunting prospect.
Despite being known for their tech-savvy credentials, younger people are more likely to be victims of online banking scams compared to their parents. In 2021, Barclays found that older members of Gen Z (aged 21 to 30) make up 28.8% of all scam victims. Although the outlook was brighter for those aged 11 to 20, who accounted for only 8% of scams, it appears that children and young people are not developing financial literacy while at school. This means they could be more vulnerable to money troubles later on in life, which are arguably bigger, or at least riskier, for the next generation.
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Why is Gen Z more at risk?
Gen Z is used to having access to everything at the touch of a button. The internet has put the world of finance into easy reach for many, allowing 24/7 spending, saving and investing. However, this instant-access world could threaten young people if they are not equipped with the right skills to navigate it.
Many challenger banks favoured by Gen Z (54% of the 18-24 age group are prepared to have only a digital bank, according to NerdWallet research into ‘faceless banking’) provide real-time transaction notifications and online budgeting methods, making it easier than ever to track spending. However, without the literacy to use these effectively, young people cannot take advantage of the tools the digital world has to offer to manage their finances.
Moreover, banking online can leave users more vulnerable to scams. If those in their twenties are already more likely to fall for online scams than their parents, faceless banking could be a further threat to their finances unless they learn ways to combat this.
Financial advice on social media also poses a risk to Gen Z. A recent study from debt management company Lowell found that 20% of 16- to 24-year-olds rely on social media for financial advice. This is not inherently bad, as some influencers do have justified clout and experience, but young people should already be financially literate before going to influencers for financial tips. Otherwise, they could misinterpret one individual’s experience as a one-size-fits-all approach, which is especially risky when it comes to topics such as investing.
All the gear, no idea
Despite financial education being mandatory in secondary schools in England since 2014, it is clear that many young people are missing out. As a result, Gen Z struggles with financial literacy, which will have an impact on their ability to face financial decisions later on in life. Budgeting tools and app features mean nothing if young people do not understand them.
For example, instant-access trading platforms have arguably revolutionised investing but pose a risk to Gen Z investors if they see investments as a ‘get rich quick’ scheme. Impulse buying stocks to follow trends on social media leaves young people vulnerable to huge losses if they are not financially literate enough to understand the risks.
Almost half (45%) of the UK adult population lack confidence when managing their money, according to MaPS’ 2021 Financial Wellbeing Survey. This statistic is unlikely to improve if financial education is not prioritised for younger generations.
Gen Z has all the tools to make smart financial decisions. The risk lies in not knowing how to use them, leaving young people open to scams and misinformation.
» MORE: Can you trust influencers for financial advice?
The lure of crypto
While the advent of cryptocurrency brings with it new investment opportunities, it also poses another potential threat to young people. Our research suggests that almost a third of young people in the UK would rather invest in crypto than their pension, despite no regulation currently existing here for this type of investment. A lack of financial literacy could result in young people running into problems later down the line if they are not fully aware of the risks involved with different types of investments and financial products.
» MORE: What are the risks of investing in cryptocurrency?
Why should I aim to be financially literate?
Understanding how to manage your money is crucial to a healthy financial outlook. Today, much of the responsibility for key financial decisions about pensions, investments and savings falls on the individual. Having the skills, and then putting them into practice, should help push you towards greater financial wellbeing in the long term.
Gen Z: increasing my financial capability
As a young person, making financial decisions might seem overwhelming, especially if it’s for the first time. However, there are many financial tools that can help Gen Z catch up with some of that lost financial education and become financially literate.
Generation Z’s youngest members can use their pocket money to learn key financial skills. They might open their first kids’ bank account or manage their allowance using a pocket money app.
One way to achieve this is by opening a teen bank account. These accounts often have similar functionality to adult current accounts, but do not provide access to features such as overdrafts and credit cards. This makes these bank accounts a useful tool for teaching teenagers to spend, save and budget responsibly without the risk of running up major debts.
» MORE: Everything you need to know about teen bank accounts
For university students, this time in their life is a time for growth, more independence and more responsibility, and money is no exception to this. Learning to manage money in their formative years can heavily influence their financial habits in the future, so it is important to foster good reflexes early on. University is a time for the older members of Gen Z to learn how to budget or use a student bank account to manage their finances.
Increasing financial literacy later in life
A lack of financial education in childhood does not preclude you from financial literacy later on in life. There are still many steps you can take to increase your financial capability and, in turn, your financial wellbeing.
Even if you’re not part of Gen Z, it’s never too late to increase your knowledge on financial products and services, such as pensions, savings accounts and investments. At NerdWallet we offer a range of articles that could help kick-start your learning.
Want to save but not sure where to start? Instant-access savings accounts or regular savings accounts could both be options for you.
Looking at investing for the first time? Check out our investing guide.
Whether your retirement is near or feels like a lifetime away, it’s never too early to start thinking about your pension.
WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.
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