Millennial Financial Literacy and Fin-tech Use: Discussion

Financial literacy positions one to make appropriate decisions and experience better financial outcomes. Research confirms this dynamic. Unfortunately, millennials in general, and younger millennials in particular, are operating from a limited base of financial knowledge. Nonetheless, these individuals must make numerous financial decisions on an ongoing basis. Some decisions are relatively trivial in the moment, but have a cumulative effect over time. Other decisions have self-evident importance for financial well-being now and even decades into the future. 

Furthermore, there are areas where financial literacy is particularly low—comprehending risk and uncertainty, as well as insuring. This is clearly problematic. Risk and uncertainty are inherent elements in financial life, while insurance presents a means to mitigate some risks. So low financial literacy in these areas raises the question of whether millennials are insuring appropriate risks at appropriate levels, and doing so in a cost-efficient way.

Overlaying financial literacy, personal finances and financial well-being is the reality that Gen Y lives a technology-enabled existence. For example, over 90% of millennials own a smartphone, which is a tool of convenience—80% of millennial smartphone owners use their device to some degree for transactional fin-tech purposes and 90% for informational fin-tech purposes. 

Mobile payments at the point of purchase are convenient, but does another degree of separation from handing over cash (now an individual does not even need to open a wallet to remove a debit or credit card) increase the likelihood that someone overspends available funds? The answer likely varies across individuals. Findings here indicate that the technology might exacerbate a relative tendency among those with low financial literacy to overdraw their checking account.

On the other hand, it seems that the capability to track spending with a smartphone should improve personal finance outcomes, but how much and among whom? Findings here indicate that the technology may create new trackers, but with marginal, if any, improvement in outcomes.

The use of fin-tech in combination with financial literacy has the potential to improve personal finance outcomes. Just as choice architecture (i.e., nudges) is best viewed as a complement to financial literacy in producing better outcomes, so should fin-tech be viewed as a complement to, not a substitute for, financial literacy. Financial education that is designed for a tech-enabled financial life should help ensure that the net result is improved financial well-being.

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