The Struggle For Millennials With Personal Finance

Research indicates that those from the millennial generation aren’t as financially literate as those from previous generations. They are however more likely to use the latest financial technology.

The millennial generation is perhaps most famous for being technological. By 2025, the workforce will be made up primarily (75%) of millennials. The issue is that the millennial generation is showing signs of struggling to understand the most basic financial language. Could it be the job of accountants to aid them in understanding finances and in turn manage them more effectively?

“Only 8% of millennials demonstrate high financial literacy”

Lack of understanding the basics of finance

Just 24% of millennials demonstrate basic financial knowledge. Even some of the most basic terms surrounding personal finance were a mystery to those involved in studies. However, adults didn’t perform much better with 50% getting all answers correct. Millennials scored 44%.

In a study that asked millennials about aspects of finance including: ISAs, bonds, shorting, hedge funds, index tracker funds and derivatives, half of those questioned couldn’t explain one of them. In students this figure rose to 60%. Almost 85% couldn’t explain equity, and 90% were unable to define asset management.

“34% of millennials are very unsatisfied with their currently financial situation”

It’s not uncommon knowledge that millennials struggle to save money in today’s climate. Even those with savings couldn’t give much information on them. Over half of millennials in the study with savings (£10-24,999k) couldn’t tell the interviewer what an ISA was.

Millennials and spending

Debt is just one factor in millennials struggling to save money. Long-term saving is just less important to most millennials than what shorter-term goals are. Millennials are typically more likely to spend more money on experiential things such as long holidays and ‘big trips’.

Impulse buys and indulgent spending are more important to millennials than what they are to previous generations. Most will prioritise this over saving money for the future. Another generational factor that crops up during research is spending money on eating out and other lifestyle centred activities.

“87% of millennials say that they’d still splurge on an expensive dining experience if money was tight”

Millennials and financial technology

Whilst there’s clearly a large financial literacy gap, Visa highlights that over half of British millennials use their mobile banking apps on a regular basis. Where transfers are concerned, 59% make transfers digitally to family and friends.

According to the Global Financial Literacy Excellence Center, the majority (80%) of millennials use their mobiles to manage their transactions, sending payments and tracking what they spend. There’s no evidence to suggest that the 90% of millennials using online banking for informational purposes will have improved finance outcomes.

Tips and the role of accountants

Where millennials are more likely to have financial goals in place, it’s still vital that they’re aware of what’s going on with their day-to-day cash flow. There are lots of budgeting tools and apps that can help utilise funds and for dividing money between essentials, wants and for the future.

Emergency funds are one of the best things you can do for yourself financially, no matter how old or young you are. As we’ve said in previous posts you should aim to build one that contains at least 3 months worth of essential living expenses.

It’s no secret that millennials are in a lot of debt. From university feeds to rising living costs and wages that don’t match, there’s a chance that millennials you know will be in significant debt.

“Nearly 30% of millennials are overdrawing on their debit accounts”

 A survey conducted by YouGov discovered that a fifth of adults aged 25-34 spent over 60% of their income on the day they received it. By learning to manage finances and knowing which products/services will save them money accountants can bring greater understanding surrounding personal finance.

With the rise of accounting technology, accountants are able to instantly see the finances of their clients. These tools also provide the opportunity to send real-time advice to clients before they find themselves in financial trouble.

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