Financial Wellness— Millennials

Understanding the state of millennial personal finances

Millennials are on the cusp of becoming P-Fin Index millennial findings America’s largest generation. They are projected to number 73 million in 2019. Millennials’ financial literacy

The sheer size of this generation means that Millennials are less financially literate than the general population. the state of their personal finances matters % of P-Fin questions Distribution of correct answers greatly for the state of the U.S. economy as answered correctly to P-Fin questions a whole. 50% 100% 11% 100% 16% The TIAA Institute-GFLEC Personal Finance (P-Fin) Index 44% 75% 75% is an annual barometer of financial literacy among the 30% U.S. adult population. The 2018 wave of the P-Fin Index 35% survey oversampled for millennials and included a special 50% set of questions about how they engage with fin-tech, i.e., 32% 50% use smart phones for financial purposes. 28% 25% 25% 28% 21%

The P-Fin Index considers millennials Millennials U.S. adults Millennials U.S. adults to be those born from 1981 through 2000; thus they were ages 18 to 37 Source: The TIAA Institute-GFLEC Personal Finance Index (2018). when surveyed in 2018. Millennials Just 11% of millennials demonstrated a relatively high are also known as Gen Y. level of financial literacy by answering over 75% of the index questions correctly. However, 28% demonstrated very low financial literacy by answering 25% or less of the questions correctly. Understanding the state of millennial personal finances

A notable difference in financial knowledge exists What you don’t know can hurt you between younger (ages 18 to 27) and older (ages 28 to 37) millennials. A study of college-educated millennials found that less than 30% had received some form of financial education. Financial literacy across generations Yet the vast majority (85%) were confident that they handle day-to-day financial matters well.1 P-Fin Index Distribution of correct answers to the P-Fin questions results belie this confidence. 22–28 8% 13% 14% 22% Financial literacy among millennials is lowest in the 15–21 27% areas of comprehending risk and insuring. Understanding 33% 34% how insurance works (e.g., the trade-off between 39% deductibles and premiums) and what constitutes appropriate coverage comprise functional knowledge in 8–14 34% this area. Poor insurance decisions can leave an individual 30% 30% under-insured for some risks and over-insured for others, 24% as well as overpaying for coverage. 0–7 31% 24% 22% 15% Millennial functional knowledge Younger Other Gen X Baby millennials millennials boomers % of P-Fin questions answered correctly

Source: The TIAA Institute-GFLEC Personal Finance Index (2018). 58% Borrowing 52% Saving 55% Nearly four times as many young millennials 48% 52% demonstrated very low financial literacy than those Consuming 44% who demonstrated a high level (31% vs. 8%); the Earning 48% corresponding result for older millennials is 24% vs. 41% Go-to info 45% 13%. The 31% of young millennials with very low financial sources 40% literacy is twice that among Baby boomers (15%). 42% Investing 37% 39% Insuring 31% Comprehending 36% Millennials make financial decisions risk 33% in the normal course of everyday life W Older millennials W Younger millennials from a very limited base of personal Source: The TIAA Institute-GFLEC Personal Finance Index (2018). financial knowledge. The problem with a lack of knowledge among millennials— in any functional area—is that consequential financial decisions are faced early in life, and have ramifications for financial well-being decades into the future. Furthermore, some financial decision-making habits are “sticky” and cannot be readily changed. Understanding the state of millennial personal finances

Millennial fin-tech use

Sample P-Fin Index financial Millennials live a technology-enabled existence. More literacy question: than 90% own a smartphone, which offers ready access to money management capabilities. Sebastian wants the premium payments for his car insurance to be as low as possible. What can he do? Transactional fin-tech W W Increase the deductible on his car insurance Percentage of millennials using their smartphone to… (correct answer; chosen by 40% of younger 33% 35% 68% millennials) Pay bills Deposit checks 26% 32% 58% WW Lower the deductible on his car insurance (chosen by 9%) Send/receive money 19% 35% 53% Mobile paymentPay bills 14% 33% 26% 53% 35% 68% WW Nothing, because his premium payments are dictated by his driving record (chosen by 14%) Deposit checks W Frequently26% W Sometimes32% 58% Send/receive money 19% 35% 53% WW Don’t know (chosen by 37%) ComparisonMobile payment shop 14% 37% 26% 53% 44% 82% Informational fin-tech Track spending W Frequently37% W Sometimes 34% 67%

PercentageCheck credit of millennialsscore 14% using their smartphone34% to…47% Almost all millennial smartphone Get investmentComparison advice shop 4% 13% 37%17% 44% 82% owners use their device for some fin- Track spending W Frequently37% W Sometimes 34% 67% tech activity (91%). Check credit score 14% 34% 47% Get investment advice 4% 13% 17%

W Frequently W Sometimes

Source: The TIAA Institute-GFLEC Personal Finance Index (2018).

Paying bills is the most common transactional fin-tech activity among millennials with a smartphone (68%). Comparing prices or product features while shopping is the most common informational activity among millennials with a smartphone, as well as the most common fin-tech use overall (82%).

No consistent pattern emerged related to fin-tech use and financial literacy levels within either the transactional or informational groups: some fin-tech uses appear more common at higher financial literacy levels, while others appear more common at lower financial literacy levels. These findings indicate that the eight fin-tech activities examined—which vary in purpose and nature—attract different users with different needs and economic circumstances. Understanding the state of millennial personal finances

Advising Gen Y Read more about millennials personal finances: Current financial advisory business models Millennial Financial Literacy and Fin-tech Use: focus largely on either transactions or assets Who Knows What in the Digital Era under management. Yet Gen Y households’ College-Educated Millennials: financial advice needs are more oriented toward An Overview of Their Personal Finances budgeting, debt management, and basic insurance issues. TIAA Institute research shows how Gen Y about advising millennials: households can be better served. Advising the Financially Vulnerable New Gen Y Household In a productive Gen Y advisory relationship, the advisor:

WW Develops an understanding of the individual, then meets the individual on the individual’s terms WW Educates and plants seeds; does not judge or preach

Effective programmatic engagement of Gen Y:

WW Creates and leverages peer-to-peer engagement through social media WW Messages at appropriate times with relevant, personalized content WW Conveys content in a user-friendly format WW Provides the means to take action, such as tools and information WW Engages in “social listening” and solicits feedback to identify priority topics

Source: Ciccotello, C. (2016). Advising the Financially Vulnerable New Gen Y Household. New York, NY: TIAA Institute.

1 Scheresberg, C., A. Lusardi, and P. Yakoboski (2014). College-Educated Millennials: An Overview of Their Personal Finances. New York, NY: TIAA Institute. TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA), New York, NY. ©2018 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY 10017