Managing money can be a full-time job for anybody who wasn’t born into an abundance of it. This will always be true, no matter how the social and political winds might shift. However, studying how people of different ages demonstrate their financial literacy is a fascinating exercise — one made only more interesting by the coming-of-age of millennials.
Modern life has brought new challenges, and millennials are feeling some of those challenges more keenly than others. There now appears to be a significant gulf between real financial literacy and financial confidence. Millennials don’t really want for confidence, on average, but a surprising number of them do lack a basic understanding of finance.
The “why” and “what now” is more difficult, but we do have some practical advice for young people who feel these trends describe their current approach to money-wrangling. Before we get to that, though, let’s get honest about the scope of the problem and what might be responsible for this widening generational knowledge gap.
Why Millennials Aren’t So Great With Finances
It’s true that millennials have to divide their time and attention among more distractions than any previous generation: They’re busy juggling one or more jobs, paying down lingering student debt, renting responsibly or contemplating home ownership, maintaining relationships and saving for retirement. About 34% of millennials are unsatisfied with their financial standing at the moment and 18% are “not at all” satisfied. More than half of them are worried they won’t be able to pay back their student loans, including 34% who earn a household income of more than $75,000 per year.
Despite these many challenges, too many millennials still lack basic personal finance knowledge. Thanks to a survey furnished by George Washington University, only about 8% of the millennials polled had what the researchers were comfortable calling a high level of knowledge about personal finance. About one-quarter of the respondents demonstrated a basic understanding. All this, despite the fact that almost 70% of folks who took part in the study believed their money savviness was high-level.
For a concrete example of the kinds of knowledge gaps revealed by this study, consider for yourself how you’d answer this question: “True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.” There’s only one correct answer to this questions, but when asked, 40% of millennials got it wrong.
But why?
The first and easiest explanation for millennials’ relative lack of knowledge about personal finance has to do with the sheer complexity of modern life. As we’ve mentioned, millennials have to worry about staying employed, growing their skillset, managing debt, courting a partner, potentially having children and remaining a responsible renter or property owner. Two-thirds of millennials owe some kind of long-term debt, and 53% claim that debt is overwhelming. However, if that was the only demand on their time, it would be far less of an issue.
Another potential explanation is the ever-more-difficult task of keeping our primary school system funded and functional. It’s not a secret any longer that as our schools have languished under austerity, they have become less and less successful at fashioning knowledgeable, well-rounded individuals prepared for the practical challenges of modern life. It’s why more and more parents and educators now recognize how important it is for schools to teach money skills deliberately alongside more traditional subjects like trigonometry and calculus.
Practical Advice for Modern Money Management
No matter how old you are, one of the benefits of being surrounded by modern technology is discovering new tools for helping us practice financial responsibility. While millennials on average lack some of the knowledge their parents are old enough to take for granted, they have nearly countless tools at their fingertip for closing that gap.
Here are some practical suggestions if you’re a young person who feels out of your depth when it comes to financial literacy:
- Find the right apps: It’s a cliché by now that “there an app for that” — but it’s true. Managing money is no different. If you’ve traditionally struggled with saving money, check out something like Digit or Qapital to automate your savings. Download your credit union’s app to keep track of your earnings and to transfer a part of each paycheck to long-term savings accounts. Whatever you do, you’ll likely appreciate how much of the heavy-lifting your smartphone can do.
- Figure out your financial personality: How each of us handles money comes down in part to our personality. Take some time to ask yourself some basic questions and determine how your personality informs how you handle money and how your savings habits can support it in turn. Some people live more freely, using their money to pursue opportunities. Others are more focused on growth.
- Track every dollar coming in and going out: There’s nothing about tracking your spending that requires talent or high technology — the barrier more often has to do with laziness. The truth is, unless you’re vastly and independently wealthy, you owe it to your sanity to carefully track all the money coming into your life and how much of it you choose to spend. Make a spreadsheet. Keep receipts. Compare your utility bills this month against last months. You should be tracking your money as closely as you monitor anything else that has such a significant influence on how you live your life.
You know what, though? Sometimes all you really need to do is ask for help. Each of the studies we’ve talked about today reference the fact that most millennials don’t ask for advice about money when they’re feeling overwhelmed. That should probably change.
Millennials Leaving Their Mark
The millennial generation is a divisive one. Everybody and their stepmom seem to know what makes them tick, including what they want out of life, how they conduct themselves and what the future of the world might look like under their leadership. Although millennials have a host of their own challenges and opportunities, just as every generation does, the truth is that millennials are rising to those challenges admirably.
They get some flak for being a so-called lazy generation, but the evidence doesn’t bear this out. Millennials work smart — and they’re better than Gen Xers or boomers at figuring out ways to work even smarter, thanks in part to modern technology. However, they have to work harder and save more to expect the same kind of dignity in retirement — a feat made more difficult by the challenges of a modern economy. So what did millennials do? They built an alternative economy that better suits modern technology and modern lifestyles.
Yes — when it comes to money and modern life, millennials are pretty savvy. They have some blind spots to be sure, but by and large, they’re helping us chart new territory in personal financial literacy.
