As Generation Z (those born between 1997 and 2012) enter adulthood, their unique financial challenges and behaviors become apparent. This is an ideal time for banks and financial institutions to assume a significant responsibility in shaping the financial destiny of this tech-savvy generation. As Gen Z now makes up 20% of the U.S. population, their financial habits and literacy levels will significantly impact the economy.

Why financial education for Gen Z is important and how banks can step up to provide useful tools, resources, and workshops to close the financial literacy gap.

The current state of financial literacy among Gen Z

Shockingly, only two-thirds of Gen Z adults answered 50% or more of the index questions correctly, according to the TIAA Institute-GFLEC Personal Finance Index (2021). Within this group, the level of financial literacy is particularly low among those who have not attended college—only 39 percent of questions were answered correctly.

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Further insights from The 2022 Investopedia Financial Literacy Survey reveal:

• 54% of Gen Z have invested in something, but only 31% are confident in their understanding of how the stock market works.
• Almost one-third of Gen Zers say they know basic things, like how to handle debt and borrowing, at a beginner level.

These knowledge gaps must be addressed by banks to gain trust and attract lifelong customers.

Why Gen Z has problems with financial literacy?

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1. Lack of education in schools: Despite the fact that most students want to learn, only 35 percent of college students can answer four out of five basic financial literacy questions correctly, according to the TIAA Institute. High school financial literacy education in the U.S. is inconsistent. Only 14% of the states received an “A” in financial education, according to the Center for Financial Literacy at Champlain College (2023).

2. Information overload: Gen Z has a large amount of financial resources available to them through the internet, including TikTok influencers and YouTube tutorials. While this democratizes knowledge, it can also lead to confusion and misinformation. According to Investopedia, 45% of Gen Z learns about finance from YouTube, but only 31% feel confident about their knowledge.

3. Economic Challenges: The pandemic worsened financial stress for Gen Z. According to ADP Research Institute, 78% of Gen Zers were personally affected, and 39% had been laid off or furloughed at some point. These challenges have left many unprepared for financial independence.

How Banks Can Help Close the Gap

To attract Gen Z and foster long-term loyalty, banks must offer tailored financial literacy programs and innovative tools. Here’s how:

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1. Provide Accessible Financial Education

Banks can create digital and in-person resources and make them available to topics like budgeting, saving, taxes and investing. Offering free workshops on these essentials can help Gen Z navigate financial independence.

For example, integrating financial education into mobile banking apps will allow them to get on the job training at their own convenience. Features like budgeting trackers, savings goals, and gamified quizzes can make learning more engaging and fun.

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2. Tailor Products to Their Needs

Gen Z values financial products that address their unique challenges:

• Debit-Style Credit Cards: These allow students to build credit without overspending.
• AI-Driven Money Management Tools: Real–time insight into spending and saving habits resonates with Gen Z’s tech first mindset.
• Rent and Bill Credit Reporting: Enabling young customers to build credit by making timely rent and utility payments is crucial for future financial stability.

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3. Focus on Inclusivity and Accessibility

A major barrier to financial literacy is the lack of access to resources. According to John Pelletier from Champlain College’s Center for Financial Literacy, predominantly white and affluent districts are more likely to mandate personal finance education. Banks can help close this gap by providing localized programs to underserved communities so that all students have the opportunity to develop essential financial skills.

4. Leverage Technology and Social Media

Six and a half hours a day is how much time Gen Z spends on their smartphones, according to Investopedia. Social media platforms like TikTok and Instagram are there for banks to engage with them. Creating short, engaging videos that break down concepts like compound interest, credit scores, and investing can grab their attention.

5. Support Small Business Growth

Many Gen Zers are entering the gig economy or starting their own businesses, so banks can provide resources aimed at small business owners. To this emerging workforce, workshops on taxes, business loans, and financial planning for entrepreneurs can make banks a trusted partner.

The ROI of Financial Literacy Programs

Investing in financial literacy for Gen Z isn’t just altruistic; it’s a strategic move for banks to secure their future customer base. Financially literate customers are:

• 30% less likely to use high-cost borrowing methods, according to the TIAA Institute.
• More likely to develop long-term wealth, leading to higher-value banking relationships.

Additionally, according to Next Gen Personal Finance, states mandating personal finance courses report lower student loan default rates and better credit scores among graduates.

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Success Stories

Banks like Capital One and Wells Fargo have already begun to address the issue of financial literacy:

• Capital One Cafés offer free money coaching sessions.
• Wells Fargo’s Hands on Banking® platform provides educational tools for all ages, including Gen Z.

These initiatives illustrate how banks can positively impact financial literacy and set the stage for long-term customer loyalty.

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Moving Forward

Gen Z’s financial literacy issues are a challenge, but they are also an opportunity for banks to lead the way. By investing in education, creating innovative tools, and fostering inclusivity, banks can become the trusted partners of Gen Z’s pursuit of financial independence. By 2030, half of Gen Z will have received substantial financial education, according to John Pelletier, so there is no time to act.

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References:

• TIAA Institute-GFLEC Personal Finance Index (2021): https://gflec.org/initiatives/financial-literacy-and-well-being-in-a-five-generation-america/
• The 2022 Investopedia Financial Literacy Survey: https://www.investopedia.com/generation-z-stepping-into-financial-independence-5224362
• Champlain College’s Center for Financial Literacy (2023): https://www.finextra.com/blogposting/27148/bridging-the-financial-literacy-gap-for-gen-z
• ADP Research Institute (2020): https://www.thestreet.com/retirement-daily/nextgen-money/understanding-gen-zs-financial-literacy-gap-the-urgent-need-for-personal-finance-education-in-u-s-schools

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