Financial illiteracy is rampant among the young
Once upon a time, a twenty-something American’s finances were pretty simple. You graduated from school, started earning a paycheck, opened a checking account and maybe took out a car loan. Today’s young people, though, have to cope with student loans and credit cards while deciding how to invest within a 401k plan. And many of them aren’t well equipped to make such decisions, according to a recent study by the University of Michigan Retirement Research Center.
Authors Annamaria Lusardi, Olivia Mitchell and Vilsa Curto administered a short quiz to a sample of 23- to 28-year-olds, and found that only 27 percent could do simple interest-rate calculations and grasp concepts like inflation and risk diversification. Furthermore, there was a large gender gap, with women doing worse than men.
One obvious implication is that young folks need better financial education. Another is that maybe we need financial products that are easier to understand. The authors write:
Given the low levels of financial knowledge documented in this work, simplification of financial decisions could be very beneficial to young people. For example … simplifying the way in which workers enroll into pension plans can foster pension participation, particularly among disadvantaged groups, such as blacks and low-income workers.
The good news is that while young people may not be terribly well equipped to become investors, they seem to enjoy trying. A new survey from Scottrade says that 40 percent of Generation Y investors (ages 18-26) are do-it-yourselfers, a higher percentage than among older age groups. They’re also far more likely to say they plan to invest new money in the next 12 months. And 35 percent of Gen Yers say they find investing enjoyable, up from 27 percent a year ago.
(2 votes, average: 3 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
Generation Y can’t balance a checkbook, trust me!!!
@k :
I work at a bank. None of the generations can balance a checkbook.
Managing your money and balancing your checkbook are 2 different things. Nowadays computers do all those calculations to balance the checkbook, but it still takes good ole’ education and maturity to manage your finances.
It’s good to see young people investing. At least they’re doing it. They’ll learn how to get better at it as they grow up(mentally).
Back in the old days we had a class in high school called General Business. You learned these basic skills. Don’t think they do that anymore. One of the best classes I ever took.
Young people should get as many loans as they can and spend, spend, spend! This is America, dammit!
What people below 30 will tell you:
I can afford it if I can pay the monthly payment
I work for college + credit card + car loans
Too young to think about retirement savings
Investing = stocks, and stocks are for suckers and gamblers
Don’t trust any financial advisors, I can do it myself
Gen Y-ers don’t even have a checking account! They run out and buy money orders every time they need a “check”!
Why all the Gen-Y bashing? I am 27 and have some responses to these negative comments:
1).No I dont balance my check book because there is no need to. It is a waste of time since you can view all of your transactions online. I always keep a $1500 buffer in my account just in case a check cashes that I forgot about.
2). I work for college + credit card (wedding expenses) + mortgage + retirement + fun
3). I already have 50k saved up in my 401k plan and have only been working for 4 years. This balance is after the huge market crash too.
4). Definitely do my finances myself. If you get an advisor or investor the best you are earning a couple percentage points, but you also take a hit to your return and worst case scenario you will lose all your money like the Bernie Madoff suckers.
I don’t doubt that Gen Y is financially illiterate, but who allowed them to reach their 20s and still be illiterate? Credit cards and 401k plans aren’t new. My parents taught me all about both, and I’m 10 years older than Gen Y. They also taught me it doesn’t matter how hard I work and how much I deserve something. If I can’t afford it, I can’t afford it.
It is offered. Personal Finance is a class that is required for graduation for all high school students now. Missouri even supplies the curriculum. I teach it. Now little Johnny has to do their work. Osmosis is not an option.