Millennials’ usage of smartphones can’t fill gaps in their financial literacy, according to a new report.
The study, titled Millennial Financial Literacy and Fin-Tech Use: Who Knows What in the Digital Era, comes from the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business. It assessed individuals’ financial literacy based on a so-called P-Fin Index, which includes questions covering eight areas of personal finance:
- Borrowing/managing debt
- Comprehending risk
- Go-to information sources
“Millennials, on average, answered 44% of P-Fin Index questions correctly, compared to 50% among all US adults,” the report found. “Older millennials answered 47% of questions correctly, faring better than younger millennials who answered only 41% correctly.”
Breaking down the different areas of financial literacy, the study found that both older (28-37 years) and younger millennials (18-27 years) struggled most in comprehending risk and insuring. Younger millennials lagged in every category, with the greatest gap between the two groups observed in understanding of insurance (39% among older millennials vs. 31% for younger ones). On the other hand, both groups demonstrated the greatest literacy when it comes to borrowing and debt management (58% for older millennials, 52% for younger ones).
The P-Fin Index also asked questions to gauge smartphone use for various transactional and informational financial activities. The most common fintech transaction among millennials was bills payment (cited by 68%) followed by check deposits (58%), sending/receiving money (53%), and mobile payments (40%). Overall, around 80% of millennials reported using their phones for transactions, while 90% used their gadgets for informational activities such as tracking their spending.
The report found some cases where fintech users made poor financial decisions. For instance, nearly 30% of millennials that made mobile payments with smartphones admitted to overdrawing their checking account, compared to 20% who did not use smartphones. In addition, one quarter of those who used their phones to track spending made the same mistake, compared to just 20% of those who didn’t track spending with smartphones.
“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,” said Annamaria Lusardi, Academic Director at GFLEC and the Denit Trust Chair of Economics and Accountancy at George Washington University.