Gen Z’s relationship with money is complicated: New research on Gen Z’s debt, investments, and financial literacy

Gen Z’s relationship with finance is… complicated. On one hand, nearly half of them (47%) already follow good financial practices such as budgeting and monitoring expenses. On the other, 41% of them are spending more than they make, according to data by Chime. 

Gen Z’s relationship with debt

A very low percentage of Gen Z carries eye-watering amounts of debt and for the majority of this group’s debt is limited to manageable amounts. 41% of Gen Z report having $2000 in debt or lower. At the same time, about a fifth of Gen Z don’t carry any credit cards.

“Gen Z isn’t a monolith, it’s the most diverse generation we’ve seen yet and it shows in their relationship to credit. The 21% of Gen Z that have opted out of credit cards are hesitant to accumulate debt (or more debt, if they are paying off student loans), or have spent much of their lives observing the pitfalls of leaning too much on credit and have learned to only spend what they earn,” said Rucha Fulay, VP of Analytics at Chime.

Gen Z’s relationship with financial literacy

Gen Z’s preferences and financial habits have had a bit of a subversive effect on the financial system. 38% of them seek financial advice and information on social media. At the same time, 19% of them are unaware of their credit scores. Both these data points show that there is a gap between traditional financial services and how Gen Z likes to operate. 

Naturally, this gap has directly impacted the financial literacy of this generation. 

“There are so many factors influencing financial literacy within this generation. First of all, access to comprehensive education on this subject is limited, it’s not universally integrated into school curriculums, and often young people are left to explore this subject on their own. Given they are still early in their careers and earning journeys, many folks in this generation are “credit invisible”, which means they have very thin or non-existent credit files. 21% don’t have credit cards, and 40% only opened their first bank account in the last 2 years, which means they’re only at the start of their credit journey and awareness,” said Fulay.

Gen Z is not invested

More than a third (37%) of Gen Zers do not have any investments including traditional stocks, commodities, index funds, treasuries, CDs, real estate, or cryptocurrency. At the same time, 28% of Gen Z admit to making poor investments.This generation needs access to responsible financial literacy materials. Oddly, 38% of Gen Z report not using traditional investment platforms like Fidelity, Robinhood, Vanguard, or TD Ameritrade. “Much of the hesitancy towards these platforms comes from Gen Z not pursuing investments generally, but further, a lot of these standard platforms are confusing if you don’t have a solid understanding of investing,” added Fulay. 

Moreover, so many in this consumer group have yet to get to a stage where they can comfortably invest. 46% of Gen Zers have low paying jobs and 34% are facing difficulty finding jobs altogether. These conditions are made worse by an economy where companies are conducting mass layoffs and trying to cut down on their expenses. “Because they’re early in their careers, many of them are focused on meeting their immediate financial needs like fixed monthly expenses, education, or paying off debt. They’re still building up disposable income to put towards long term investments,” she said. 

While Gen Z’s financial state is in flux today, much of this will change over the coming decade. By then Gen Z would not only have inherited a lot of wealth but have built habits and consumer loyalties that served them well in their younger years. This is why FIs (especially incumbents) should act now if they want to connect with this generation. That means reaching them over channels they spend their time on. And while some banks have started to build their presence on social media platforms like Instagram and Snapchat, Gen Z has already moved on to TikTok, a channel which is largely unexplored by the big banks. 

On the other hand, neobanks like Chime have been able to hit it off with this generation, by combining engaging interfaces with Gen Z-friendly products and communication strategies. The neobank has 14.5 million users and 9 million of these users use it as their primary bank. These numbers are still less than those seen by big banks like Bank of America which has 35.5 million users, but are startling considering the neobank’s recency.