Financial literacy slope gets slipperier with each generation

The financial preparedness of new generations of adults in the United States has steadily declined since Generation X—the age group that preceded millennials—first came onto the scene, says Matt Bees, a Las Vegas-based senior financial adviser at Wells Fargo.

Now, as more members of Generation Z enter adulthood and their spending increases, studies show it’s the latest generation in a long line of Americans to lack financial literacy, or the understanding of monetary concepts—from insurance and estate planning to savings and investment.

“It’s a really important issue, because all of these things contribute to your overall financial well-being, which can have a really, really profound effect on your physical, mental and social well-being,” Bees said. “So, money skills are also just life skills at the end of the day.”

Financial literacy is low in each of the nation’s five adult generations, but particularly in the youngest, Gen Z—even though it’s the generation most likely to have participated in a financial education class or program, according to a study from the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business.

Daniel Chi, chair of the UNLV Lee Business School’s finance department, said he has seen little to no evidence that the financial literacy and spending levels of Gen Z’ers—born between 1997 and 2012—differ greatly from those of the generations that came before it.

The need for financial literacy across all age groups is evident in various studies, Chi said. The population as a whole has generally failed to save adequately for retirement, education and more, he added, and the outlook is “pretty depressing.”

“They are spending pretty much all they make, and sometimes even more than they make,” he said, noting that many people are also hard-pressed to produce sufficient cash in case of emergencies.

Factors like rising default rates for auto loans have also contributed to high debt levels, he said.

Nearly 40% of both Gen Z’ers and their predecessors in Generation Y report that debt and debt payments prevent them from adequately addressing other financial priorities, according to the TIAA Institute-Global Financial Literacy Excellence Center study. Gens Z, Y and X were most commonly dissatisfied with their current financial situation.

The study found that Gen Z was the most motivated to increase its financial literacy, however, following economic uncertainty caused by COVID-19.

Challenging economic events like the pandemic or recent inflation will always be around, and Bees said it’s important for people to have long-term financial plans, so they can adapt and adjust accordingly. And the foundation of any sound financial plan, he said, is cash flow.

“Once you have an understanding of what money means to you, and how it fits into your life … you recognize that by saying no to some things, that frees you up to say yes to other things,” he said. “And every facet of your financial life has a cash flow implication.”

Cash flow can be divided into three segments—money committed to spending, money committed to saving and money for discretionary spending, Bees said.

“Gen Z has had a challenge recognizing the importance of saving, and it’s really a matter of balancing the present versus the future,” he said. “And so, it’s hard to not get caught up in what’s going on … with the economy today. But by recognizing that you have to save for your future self, you’ll see the importance of it.”

Saving is also important when it comes to weathering a potential recession, which Chi said would disproportionately affect younger and low-income individuals, who are more likely to be laid off.

He emphasized the importance of financial literacy, particularly how to budget, spend, save and invest, and pointed to UNLV efforts to increase financial preparedness through financial literacy courses, opportunities for Clark County School District students and more.

Though money is often a “taboo” topic of conversation, Bees said it doesn’t have to be. Money is a tool to help people achieve their ideal life, he said, and open communication can help them determine how to use it.

“The first step is just to become crystal clear on what’s most important to you,” he said. “And then get to work aligning your spending, and your goals and your values. And so, having these conversations is the important part—whether it’s with a trusted adviser or a family member—and learning from others.”

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Mike McNamara

Mike McNamara

A Las Vegas Realtor since 2008. Mike has a wide range of knowledge around all things Las Vegas.

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