Lack of Financial Literacy Holding Back Millennials
Inadequate financial knowledge has put many Millennials in dire financial circumstances, according to a survey conducted by PricewaterhouseCoopers (PwC) and George Washington University. In fact, when given a test about complicated issues, such as bond concepts, inflation and risk diversification, only 24% demonstrated basic financial knowledge and just 8% showed high financial literacy.
The report analyzed the financial characteristics of more than 5,500 respondents aged 23-35 and found this lack of financial literacy is jeopardizing Millennials’ future financial success. Key findings include:
34% of Millennials are very unsatisfied (1-3 on a scale of 1-10) with their current financial situation. 18% are not at all satisfied.
54% are concerned about their ability to repay their student loans. Even those with a sizable salary ($75,000 or above) are worried. 34% of this economic bracket said they are not sure they will be able to repay their student loans.
For Millennials, debt crosses economic and educational lines. Among college-education Millennials, 81% have at least one long-term debt, compared to only 2/3 of people in other demographics. 30% of all Millennials and 44% of college-education Millennials carry more than one long-term obligation. The numbers indicate that a college degree may no longer guarantee a better financial future.
Unprepared for Emergencies
This generation is having a tough time making ends meet. Nearly 30% are overdrawing their checking accounts and most are unprepared for emergencies. Nearly 50% said they could not come up with an extra $2,000 if they needed it, and 53% are carrying balances on their credit cards.
Alternative Financial Services (AFS)
Millennials are heavy users of AFS, such as payday loans, pawnshops, auto title loans, tax refund advances and rent-to-own products. In the past five years, 42% of Millennials have used these products. 50% of those users had a high school degree or less and 28% had a college degree. Even those with bank accounts (39%) and credit cards (35%) are using alternative financial services.
Only 36% of Millennials have a retirement account, and many are tapping into their retirement to make ends meet. More than 20% took a loan against their accounts and 14% made a hardship withdrawal.
Not Seeking Assistance
Even though they do not posses adequate financial knowledge, only 27% of Millennials are seeking professional financial advice on savings and retirement, and a mere 12% sought assistance on debt management.
PwC believes this cycle can only be broken through financial education. In 2012, they launched the Earn Your Future program, which invests in helping students develop financial skills by providing educators with the resources and training they need.