Research: Millennials struggle with financial understanding, accountants can help
New research shows Gen Y is less financially literate and more likely to use financial technology to quickly transact. Could accountants play a major role in helping them understand their finances and transact better?
The World Economic Forum reports that by 2025 millennials will make up 75% of the workforce. Recent evidence from the U.S. however, shows a financial literacy gap between Gen Y and their older peers. On average, millennials answer 44% of questions on a standard financial literacy test correctly, while older test takers managed an average mark of 50%.
Closer to home, the trend is the same. Research by Finimize showed 59% of millennials could not confidently explain what an ISA is, 84% didn’t know what the term ‘equity’ meant and 90% couldn’t confidently explain what ‘asset management’ is.
Compounding the poor financial literacy levels of millennials is their tendency to transact using FinTech. The Global Financial Literacy Centre reports that “over 90% of millennials own a smartphone, and smartphones offer ready access to money management capabilities. While smartphones are a tool of convenience—80% of millennial smartphone owners use their device to some degree for transactional fintech purposes and 90% for informational fin-tech purposes—it is not clear whether fintech use represents a net gain for better personal finance outcomes.”
So, what does this mean for accountants and bookkeepers?
“There’s an opportunity for accountants to provide advice and support to Gen Y as their millennial client base grows” David Carr, CFO of Clear Books and qualified accountant believes. “By using cloud-based technologies, accountants can see the finances of their younger clients, and provide real-time advice to help nudge them towards better financial decision.”
East Sussex-based accountant Andy Maitland viewed HMRC’s Making Tax Digital (MTD) as a catalyst for SME Millennials to begin working with accountants and he plans to use their own device preferences to build effective working relationships. “We believe knowledge is power, so we include access to accounting software as part of our monthly service packages. We ensure both our team and our clients have the ability to view KPI’s and Management Information via user-friendly dashboards and encourage them to collaborate with our experienced team before they make major financial decisions.”
The "Millennial Financial Literacy and Fin-Tech Use: Who Knows What in the Digital Era" study posed financial questions to 1,007 millennials, people age 18 to 37. Millennials answered 44 percent of questions correctly, compared with all adults, who answered 50 percent of the questions. Moreover, younger millennials, ages 18 to 27, only answered 41 percent of questions correctly, compared to 47 percent of older millennials, ages 28 to 37.