Our very own researcher, Dr. Jung, stressed the importance of understanding the link between generational gap and the financial capability by behavior. Her theory is explained below.
The data used to understand financial capability by generation was the 2018 National Financial Capability Study (NFCS). A total sample was 26,349, and generations were divided into four group, Pre-Boomer (ages 71 and over), Boomer (ages 52-70), GenX (ages 36-51) and Millennial (ages 18 and 35).
The individual households' financial capability were measured by assessing common financial products, such as accessing checking and savings account, emergency savings, retirement savings, and investments. Also by assessing individuals' common financial management skills, including, pay bills on time, credit card pay in full.
As it shows on the graph, Millennials are likely to be financially vulnerable, meaning, not accessing mainstream financial products, like retirement funding, investment. Unfortunately, highly relying on credit card, without being able to paid in full each month and utilize more on alternative financial services, like loans and pawnshop, that consequences higher interest with low-financial benefits.
The individual households' financial capability were measured by assessing common financial products, such as accessing checking and savings account, emergency savings, retirement savings, and investments. Also by assessing individuals' common financial management skills, including, pay bills on time, credit card pay in full.
As it shows on the graph, Millennials are likely to be financially vulnerable, meaning, not accessing mainstream financial products, like retirement funding, investment. Unfortunately, highly relying on credit card, without being able to paid in full each month and utilize more on alternative financial services, like loans and pawnshop, that consequences higher interest with low-financial benefits.
Individuals' financial behavior were classified using Latent Classes Analysis. 4 classes were identified, they are: 1) Financially well-off; 2) Alternative Financial Services users (AFS); 3) Credit-Card Relying (CC-relying); 4) Financially Vulnerable.
As seen on the graph, Financially vulnerable group is prominently populated by Millennials and GenX, and importantly, those groups are likely to heavily rely on Credit-Card.
Another important pattern that is worth examine further is, AFS users. Like financial vulnerable group, majority of AFS users were identified as GenX and Millennials. Unlike 'unbanked' individuals - without checking and savings account, AFS users were more likely to be 'underbanked', meaning accessing basic financial products, like checking and savings account, but not being able to utilize fully due to limited income and financially unstable. However, those younger generation, are actively participating in non-retirement investment, including stock market. This could be a problematic, as these younger generations are utilizing alternative financial services (e.g., loans, payday loans) to participate in risk investment as part of their secondary or primary income sources. Further, while this younger group has not accessing traditional savings account (e.g., retirement funding, emergency savings), they could be more prone to face unexpected financial challenges due to risk investment.
While there is a discrete patterns of accessing financial services and products by generation, a financial education and services are rather generalized than being individualized. It is recommended address challenges using an age-related approach for financial education, especially as financial needs may shift across life stages with life events, including childcare, housing, educations, and long-term care.
As seen on the graph, Financially vulnerable group is prominently populated by Millennials and GenX, and importantly, those groups are likely to heavily rely on Credit-Card.
Another important pattern that is worth examine further is, AFS users. Like financial vulnerable group, majority of AFS users were identified as GenX and Millennials. Unlike 'unbanked' individuals - without checking and savings account, AFS users were more likely to be 'underbanked', meaning accessing basic financial products, like checking and savings account, but not being able to utilize fully due to limited income and financially unstable. However, those younger generation, are actively participating in non-retirement investment, including stock market. This could be a problematic, as these younger generations are utilizing alternative financial services (e.g., loans, payday loans) to participate in risk investment as part of their secondary or primary income sources. Further, while this younger group has not accessing traditional savings account (e.g., retirement funding, emergency savings), they could be more prone to face unexpected financial challenges due to risk investment.
While there is a discrete patterns of accessing financial services and products by generation, a financial education and services are rather generalized than being individualized. It is recommended address challenges using an age-related approach for financial education, especially as financial needs may shift across life stages with life events, including childcare, housing, educations, and long-term care.
