The 2020 TIAA Institute-GFLEC Personal Finance Index: Generational Differences
Financial literacy comparisons across Gen Z, Gen Y (millennials), Gen X and baby boomers are possible with the P-Fin Index for the first time in 2020. Financial literacy is notably lower among Gen Z compared with the other generations; Gen Z correctly answered 41% of the index questions on average (Figure 9). Financial literacy is greatest among baby boomers; on average, boomers correctly answered 58% of the index questions. It should be noted that we cannot differentiate between age and generation effects with a single cross-section of data, so this is only suggestive of generational differences.
Several findings stand out when functional knowledge is examined across generations (Table 1).
• Borrowing is consistently the area of greatest financial literacy across the four generations. Among Gen Z, knowledge of saving and consuming almost equal that of borrowing.
• Comprehending risk is a particular weakness common among generations. In addition, differences in risk literacy across generations are much smaller compared with other functional areas. This could indicate that risk remains difficult to grasp even as individuals are exposed to more and different financial decisions. Insuring is an area of weakness equivalent to comprehending risk among both Gen Z and Gen Y.
• Financial literacy in each functional area is lowest among Gen Z. The gap between Gen Z and the generation with the next lowest financial literacy level in each area ranges from 4 percentage points (consuming) to 12 percentage points (insuring). This gap is statistically significant in each functional area except consuming and comprehending risk.16
• Financial literacy in each functional area is greatest among boomers, except for comprehending risk, where knowledge is essentially equal among Gen Y, Gen X and boomers. The boomer gap is particularly noteworthy with regards to insuring, where the difference in the percentage of correctly answered questions is 16 percentage points compared to the next closest generation (Gen X).
• Any differences in functional knowledge between Gen Y and Gen X are small.
Surprisingly, there is little generational difference in where individuals perceive their financial literacy to be greatest. Earning and consuming are topics most often cited across the generations. The one difference is that saving was also cited frequently among Gen Z, but not among the other generations. People may assume they are most knowledgeable in the topics they deal with regularly.
Investing is most often cited as the area where respondents among each generation feel the least knowledgeable. In addition, Gen Z is the only generation where more than 20% cited insuring as their topic of lowest knowledge. The share citing comprehending risk as the area with lowest perceived understanding varied little across generations, ranging from 8% of Gen Z to 16% of Gen X. Again, these are a confluence of generational and age effects, and reiterate that many do not know what they do or do not know.
16 The 5-percentage point difference for comprehending risk between Gen Z and Gen X is significant at the 10% level.