4 Points about Gen Z Financial Literacy and Habits Your Bank Needs to Know
Generation Z were born after 1995 as the first generation to grow up with computers, smartphones, and the Internet. Millennials have remained in the spotlight for some time, but with the oldest of Gen Z are now reaching college age, paying attention to them, how they think about money, and their financial literacy is a crucial step for banks wishing to make connections with Gen Z later in life.
The recession, the housing bubble burst, and seeing millennials struggling with college and other financial debt, has influenced gen z financial literacy and habits. As a result, a study by Raddon found that 2/3 of a group of 2,500 teens had already opened a bank account and were as much as 3x more likely to have taken a financial education class than millennials. But, while they may be more financially savvy than many millennials, many also faced stress related to college savings, getting a job, renting an apartment, buying a home, and paying off debt after college.
4 Points about Gen Z Financial Literacy and Habits
1. Money Management Skills
Most Gen Z individuals are concerned about financial literacy but at the same time, 84% rely on parents and family for financial information. This is challenging considering that many parents grew up with different financial information, less sophisticated options relating to savings, retirement, mortgage, and loans, and often don’t fully understand the options themselves.
With recent shifts towards self-service, automation, and always-on availability of apps and digital banking, including pre-approval for mortgages and loans, situations have changed dramatically since even 10 years ago. At the same time, many banks and companies no longer offer the in-depth support of pension professionals investing for the benefit of retirement and 401(k), meaning that Gen Z individuals will have to make more financial decisions than their parents ever did.
Here, basic financial literacy programs relating to money management, investing, mortgages, and renting or managing money will give Generation Z a better foundation for making these crucial financial decisions on their own.
2. Debt Is (Very) Bad
Many Gen Z individuals grew up witnessing millennials with student loans and debt which has influenced Gen Z financial habits. Gen Z individuals are often extremely hesitant to take on any debt at all. While this is positive in a way, because too much debt is often a bad financial decision, Gen Z also needs to build credit and take on small and manageable debts in order to be able to take out mortgages and loans for larger financial decisions later in life.
Gen Z financial literacy programs need to teach smart debt management to build credit and awareness of how debt works can greatly help Generation Z to better manage finances. While many are already aware that too much debt is bad, not all do, and many do use credit cards even from a young age. Engaging with information on credit history and how long-term credit history helps to prove your ability to pay back loans and mortgages, combined with information on how to manage debts once accrued will give Generation Z a better foundation for long-term financial planning.
Similarly, one study by TransUnion showed that 46-56% of high-school-aged students don’t understand what is factored into a credit report or credit history. For example, many believe that bill-paying, such as paying a phone bill, is factored when it isn’t. Providing comprehensive training on credit reports and scoring is one way to combat this.
3. You Can Manage All Money Yourself
Generation Z are digital natives who grew up with apps and calculators for almost everything. While a certain level of awareness and self-sufficiency is good in many ways, it’s also important to seek out help and personalized assistance. Talking about how financial assistance can result in improved and more personalized loans, bank accounts, and options may help you to drive engagement and increase engagement with banks. In addition, it will help Gen Z finances to better differentiate between when self-service is the best option, and when it isn’t.
4. Creating a Gen Z Financial Literacy Program
Generation Z spans a wide gap, ranging from students who are just entering college to those who are just over 10 years old. Individuals at every age require different levels of help and support but connecting early and preferably in high-school or sooner is ideal for building the financial literacy and knowledge to aid Gen Z financial habits and help make good decisions once they become financially independent.
For example, many Generation Z students need good budgeting skills so that they can manage money. Moving into college and financial independence often means operating on credit and using a credit card as a primary means of purchasing, and budgeting is crucial for avoiding unnecessary debt.
At the same time, many are concerned about and interested in concepts including saving money, preparing for unexpected expenses, and budgeting to leave room for savings or to spend within limited financial means. Courses should include information on:
- Budgeting including day-to-day spending
- Credit and credit history
- Saving and planning for college debt
- Getting a job and managing money
- Renting a home
- Buying a home
- Investing in vehicles and other large purchases
- Responsible credit habits such as paying bills on time
Why Gen Z Financial Literacy Programs are Important
Generation Z is set to be the largest generation and within a decade will own more buying power than Millennials and Baby Boomers combined. However, with poor financial information available, rapidly changing financial rules, and an increasing shift in how financial services are produced and distributed, Generation Z has to know and do more themselves than any other generation. Providing basic financial literacy through a digital course or through a school platform at K-12 level will allow your bank to reach out to Gen Z when they need financial literacy programs most, right before they take on the financial responsibility themselves.
At the same time, it’s important to keep any program you create relevant, to focus on the short and mid-term issues for Gen Zs’ finances such as saving for college, budgeting, managing credit cards, renting, and possibly buying a home. Longer-term goals such as saving for retirement or investing can be covered, but most won’t have an interest.
Taking the time to connect with Generation Z through financial literacy programs will give you an opportunity to begin to build a relationship with the next generation of consumers.