The lack of financial literacy has been a well-known issue for many years. The economic downturn from the pandemic has stressed personal finances greatly and made the issue of financial literacy even more severe.
The 2018 Schwab Young Adult Financial Literacy Survey found that young adults are optimistic about their financial futures even after the financial crisis of 2008. This response is surprising in the context that more than 80% of the young adults in the survey saw their parents suffer financial hardship during the Economic Crisis.
The encouraging survey result is that these young adults are interested in learning about how to manage their finances. Their responses show they trust their parents to provide the best guidance in this arena. In fact, most young adults (69%) say their parents are good financial role models, and many (39%) say their parents are their most trusted source for financial advice.
The majority of young adults are optimistic about their financial futures, but may be somewhat unrealistic. Here are other key survey findings about financial challenges facing those born between 1998 and 2002, GenZ, and those born between 1993 and 1997, Young Millennials.
The average expected retirement age is 60, seven years earlier than full Social Security benefit eligibility. This seems quite optimistic. Also, more than half (53%) expect an inheritance from their parents; but only 40% of parents say they plan to leave an inheritance.
Other expectations for the future also appear to conflict with current financial reality. More than three-quarters (76%) of young adults surveyed believe they will have a better financial future than their parents, despite simultaneously reporting significant present-day financial struggles, such as: skipping meals, selling possessions to pay their bills.
The reality is that the majority young adults are not financially independent, yet almost all consider it a top goal. Their definition of financial success includes the usual: a high-paying job and owning a house. The top component is being able to live independently, without financial help from their family. The target age for achieving independence is 29, but the vast majority do not achieve this objective.
A large part of the reason for the delay of financial independence is requests for parental financial help are not just occasional but actually consistent. Responses about their primary source of money included: 25% of young adults point to their parents, only 23% list a full-time job, part-time work (22%), odd jobs (7%), and financial aid and government benefits (8%).
Managing debt is a serious issue with the average being $8,003. Furthermore they struggle with cash shortfalls. Resorting to short-term, high interest loans simply makes the problem worse resulting in more bills and more going to interest payments. This is simply a recipe for more financial stress.
The tendency to have high debt and low savings becomes even more concerning when the survey shows they are confused about types of debt, good debt versus bad debt. Though some might say all debt is bad, it actually depends on the use. Generally good debt helps build wealth or the ability to earn more. Bad debt goes to items which depreciate or are consumed, like vacations or clothes.
Overall, the survey results also demonstrate that young people have a strong interest in learning about money management, including how to:
- reach their financial goals
- save enough for retirement
- protect financial information secure
- manage a budget for necessities
- differentiate between good and bad debt
Perhaps the best summary of the survey is that young adults want to learn more about responsible money management, and parents are in the position as a trusted relationship to teach them these critical skills.
As a society, we should commit to educating our youth about money management so they have the opportunities to achieve the financial freedom they want and deserve.