The financial capability of young adults - a generational view

• Context
• The study
• Key findings
• Points to consider

Context

The study is focused on ‘millennials’; Americans born between 1978 and 1994. Millennials represent a key grouping within the U.S. economy, as they account for a third of the population. This cohort experience a range of financial challenges as a result of the struggling post-recession economy.

The cohort experienced the ‘Great Recession’ during their formative years and/or early stages of their careers. The challenging financial climate underscores the importance of millennials being able to make well-informed and effective financial choices. However, evidence suggests that younger Americans often lack financial knowledge, and are therefore more likely to make poor financial decisions. This study explores data from the FINRA (Financial Industry Regulatory Authority) Investor Education Foundation’s National Financial Capability Study (NFCS) to enhance understanding about the financial capability of millennials. (Financial capability in this context relates to money management and financial decision making).

The study

This study was produced in consultation with the United States Department of the Treasury and in support of the President’s Advisory Council on Financial Capability for Young Americans. The study examines data from the FINRA Investor Education Foundation’s 2012 National Financial Capability Study (State-by-State Survey), to determine the financial capability of young adults. The National Financial Capability Study was funded by the FINRA Investor Education Foundation and conducted by Applied Research and Consulting. The study sample drew on 25,509 adults age 18 and older. Non-probability quota sampling was used to construct the sample. All statistics reported are weighted, but the sample sizes reported are unweighted. The weights make the data representative of the U.S. adult population (age 18 and up) based on age, gender, ethnicity, education and census division. Data from the U.S. Census Bureau’s American Community Survey were used to construct the weights. The data was analysed to measure the financial capability of millennials; focusing on how they manage their money and plan ahead, interact with financial products, and demonstrate financial knowledge.

Key findings

The report set out a series of key findings, designed to provide researchers, practitioners and policy makers with a better understanding of the financial capability of millennials.

• Millennials are struggling financially. The cohort demonstrates problematic financial behaviours, displays low levels of financial literacy and are concerned about personal debt.
  • Females and black and minority ethnic groups demonstrate lower financial capability overall compared to their male and white counterparts.
  • However, millennial households with dependents struggle the most in terms of financial capability.
  • Despite facing greater financial strain, the financial satisfaction levels of millennials are on a par with gen Xers (aged 35 to 49) and boomers (aged 50 to 66), but significantly lower than the silent generation (those aged 67 years and older).
• The low financial literacy levels demonstrated by millennials means they are less well equipped with skills and knowledge to address the range of financial challenges they may face.
• However, more millennials report being offered financial education and are participating in financial education programmes compared to other generations. This is a promising step towards improving the financial capability of millennials.

Points to consider

• Methodological strengths and limitations: A pure probability sample of this size would have an estimated margin of error of half a percentage point (i.e., plus or minus 0.5 percent), with the margin of error increasing somewhat for sub-groupings of the sample. The authors note a number of possible sampling limitations. For example the results could have been affected by coverage, nonresponse and measurement error, which could temper the robustness of the findings. However, generally the methodology is robust and the results should be seen as representative of the population.
• Relevance: The study findings should be of interest to researchers, practitioners and policy makers working in the financial capability field. However the study took place in a US context, and caution should be exercised when considering the relevance of the findings to other countries.