Financial Capability Among Young Adults

Posted October 19, 2017 by Raven Newberry

Funded by the National Endowment for Financial Education, George Washington University completed a research study on the financial lives of American Millennials. The results show that Millennials are financially active, struggling with debt and are often overestimating their personal finance knowledge. This financial profile can be instructive to educators considering how to best engage and understand Millennials.

The study analyzed data from the 2012 National Financial Capability Study (NFCS), a state-by-state online survey commissioned by the FINRA Investor Education Foundation. This analysis evaluates the financial capability of Millennials, focusing on 23- to 35-year-old individuals.

The study finds that Millennials, the generation born between the late 1970s and mid-1990s, are active in their financial lives but carry large loads of debt. They are the most educated generation ever, but are delaying life milestones due to financial concerns. Their reported dissatisfaction with their financial situation indicates a lack of connection between Millennials’ expectations and their realities. Key findings of the GWU study are summarized in this blog:

Long-Term Debt

  • Two-thirds of Millennials have at least one source of long-term debt, and 30 percent have more than one source of outstanding long-term debt.
  • Millennials are heavily leveraged and are borrowing on their assets.
  • Nearly 30 percent of those with bank accounts had overdrawn their account in the prior 12 months.
  • Nearly four in ten respondents have student loan debt.

Short-Term Liabilities

  • Millennials use credit cards extensively: Nearly 70 percent have at least one.
  • More than half of cardholders have engaged in potentially expensive card behavior (e.g. paying only the minimum, using credit cards for cash advances, incurring fees).
  • 42 percent of Millennials use alternative financial services (AFS) like car title loans or payday loans.

Financial Expectations and Satisfaction

  • Over half of Millennials feel they have too much debt.
  • Many millennials are not satisfied with their current financial condition.

Financial Fragility

  • Millennials are unprepared to handle sudden economic shocks. Fewer than one-third have set aside funds to cover three months of expenses. Only 19 percent report having emergency funds.

Confidence versus Knowledge

  • Millennials are very confident about their financial knowledge and their financial management skills.
  • This high confidence does not match actual financial literacy levels: Only one quarter of respondents show basic financial literacy and only 8 percent show a high level of knowledge.

This study is one of the first to present a complete picture of Millennials’ finances. While the data can be alarming, it does provide guidance on providing financial education for the Millennial generation. With this data, we can recognize gaps as opportunities. GWU puts forth the following recommendations:

  • We can capitalize on the high value Millennials place on asset-building to provide financial education and encourage positive behaviors.
  • We can help Millennials assess their basic financial knowledge as a baseline for instruction tailored to their needs.
  • We can examine the specifics of Millennials’ finances to understand and improve the gap between their expectations and their realities.
  • As a community we can share what works and experiment with new approaches (with evaluation of effectiveness).

As Millennials age out of the traditional college age bracket, it’s important to consider their unique concerns as nontraditional students and to apply lessons learned to the upcoming generation of college students.

Read the full GWU study.