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Which Generation is Most Financially Literate?

Industry Trends and Research

Yes, younger generations have lower levels of financial literacy—but the results of a new study suggest that the overall levels and implications may not be what you think. 

According to the report from the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, financial literacy is alarmingly low within each of the five generations—the Silent Generation, Baby Boomers, Gen X, Millennials and Gen Z—but it is the lowest among Gen Z.  

Two-thirds of Gen Z respondents could answer only 50% or fewer of the study’s P-Fin Index questions correctly. Approximately 40% of Baby Boomers and the Silent Generation answered more than 50% of the questions correctly—but averaged only 55%. The percentage of questions answered correctly by Gen Xers, Millennials and Gen Zers was 49%, 48% and 43%, respectively.

The P-Fin Index is an annual barometer created by the TIAA Institute and GFLEC to assess the financial literacy among the U.S. adult population, measuring knowledge and understanding of financial decision making and effective management of personal finances. It is based on responses to a 28-question survey covering eight areas: 

  1. Earning: determinants of wages and take-home pay
  2. Consuming: budgets and managing spending
  3. Saving: factors that maximize accumulations
  4. Investing: investment types, risk and return
  5. Borrowing/managing debt: relationship between loan features and repayments
  6. Insuring: types of coverage and how insurance works
  7. Comprehending risk: understanding uncertain financial outcomes
  8. Go-to information sources: recognizing appropriate sources and advice

Functional Knowledge 

Overall functional knowledge tends to be greatest across generations in the areas of borrowing and saving, according to the findings. Financial literacy in these areas tends to be lower earlier in the lifecycle, particularly among Gen Z, the report notes. Within Gen Z, financial challenges tend to be more common among those who have never attended college (currently or previously) than current students and non-students who attended college previously. 

At the other end of the spectrum, the study found that functional knowledge about insurance tends to be particularly low among Gen Zers and Millennials, showing the largest gap with the older generations. For Gen Z, it is the area of lowest financial literacy, with an average of only 28% of the questions answered correctly.

What’s more, the P-Fin Index has found consistently that financial wellness is linked to financial literacy—a finding that holds across all five generations, the report notes. Interestingly, differences in financial wellness between those with relatively high and those with relatively low financial literacy tend to be most pronounced among Millennials. 

Financial Challenges

Even though Gen Z has the lowest levels of financial literacy, trends across the financial wellness indicators show that Gen X faces the greatest financial challenges. According to the findings, 28% of Gen X respondents report having difficulty making ends meet in a typical month—significantly more than any other generation. In comparison, approximately 20% of Gen Z, Millennials and Baby Boomers and 11% of the Silent Generation report difficulty making ends meet.

“These findings indicate that individuals typically begin adulthood with low financial literacy and while it increases over time, financial literacy nonetheless tends to remain low,” says TIAA Institute Senior Economist Paul Yakoboski. “Furthermore, financial wellness across generations tends to be more compromised among those with lower levels of financial literacy.”

The researchers suggest this is a problem across life stages since significant financial decision-making occurs across life stages, with retirement savings being just one example. “Individuals new to the workforce must decide whether, when and how much to save for retirement in the face of other competing needs, while individuals in retirement must decide a strategy for spending down retirement savings when they cannot know how long they will live or what future expenses will emerge,” the report observes. 

That said, the economic uncertainty created by the COVID-19 pandemic apparently has underscored the need for Americans to improve their personal financial knowledge, as 39% of survey respondents say they are now motivated to focus on their financial literacy. The study notes that this feeling is more common among younger generations, with Gen Z, Millennial and Gen X respondents reporting feeling the most focused, at 52%, 48% and 44%, respectively.

The 2021 wave of the P-Fin Index was fielded online in January 2021 with a nationally representative sample of more than 3,000 adults, ages 18 and older; Gen Z respondents were oversampled during survey fielding.