Research shows Millennials are less financially literate than previous generations, but also more likely to use financial technology.
The digitally native millennial generation - which according to the World Economic Forum will make up 75% of the workforce by 2025 - struggles to understand basic financial language. Could accountants play a major role in helping them understand their finances and transact better, Clear Books asked in a recent AccountingWEB industry update.
Poor understanding of financial basics
Half of the 1,000 millennials surveyed by the online financial planning platform Finimize could not explain any of the financial terms in its questionnaire. The percentage was even higher (60%) among students.
The financial terms included: ISA, bonds, shorting, hedge funds, index tracker fund and derivatives. Other concepts that mystified most of the respondents took in equity (unknown by 84%) and asset management, which could only be explained by 10% of those surveyed.
Even millennials who did have savings lacked basic knowledge when it came to managing their money: more than half of those with £10,000-£24,999 in savings (52%) were unable to explain what an ISA was.
The situation is not exclusive to the UK. The Global Financial Literacy Excellence Centre (GFLEC) compiled a 2018 personal finance index (P-Fin Index) that highlighted a financial literacy gap between millennials and the rest of the US adult population. Millennials answered 44% of the P-Fin Index questions correctly, while adults answered 50% correctly.
Millennial use of financial technology
In spite of the financial literacy gap, 53% of British millennials use mobile banking apps regularly, according to Visa. Over a third (34%) have also made peer-to-peer digital payments via a mobile device and 59% have sent mobile money to a friend or family member.
According to GFLEC, over 80% of millennials use their device for managing transactions including making payments and tracking expenses. Although 90% of millennials use their smartphones for informational fintech purposes, there is no evidence to suggest that this improves their personal finance outcomes.
Alongside their financial literacy struggles, millennials are also one of the most indebted generations, starting from the moment they finish their university studies. Last year, student loan debt in the UK rose to more than £100bn for the first time. At the end of 2017-18 the total debt owed by students studying in England was £104.6bn, according to the Student Loans Company.
For millennials already in the labour market, the situation is not much better. In fact, a YouGov survey for KPMG found that more than one in five UK adults aged between 25-34 spent more than 60% of their income on the day it entered their bank account.
“There’s an opportunity for accountants to provide advice and support to Gen Y as their millennial client base grows,” said Clear Books CFO David Carr. “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 decisions.”