Why isn’t financial literacy the focus of Gen Z?

Being debt averse is not enough. Gen Z needs to understand the big picture when it comes to personal finance and investing if they want to thrive.

Smart money management isn’t just about trying to avoid debt — and now’s the time for Gen Z to learn that. While this generation is one of the most debt-averse generations to date, it also scored lowest in a recent financial literacy study by the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business.

Although Gen Z respondents were on average the least likely (43%) to answer finance-related questions correctly, no generation demonstrated a particularly high level of financial acumen. In the same survey, only 48% of Millennials, 49% of Gen Xers, and 55% of Baby Boomers and Silent Generation answered the questions correctly, which is hardly impressive.

The good news is that Gen Z has the most time to fill the gaps in their financial knowledge. And tools like Blooman app designed specifically for teens and their parents to understand the world of finance, is one way to do that.

“At Bloom, we’re trying to bridge that gap and show kids that investing and financial literacy can be fun and really help you in the future,” says Allan Maman, co-founder and chief financial officer of Bloom. “When a teenager owns $20 worth of stock, he’s much more excited to learn about a stock split, or a price-to-earnings ratio, than when he doesn’t. of skin in the game.”

I recently reached out to the team at Bloom to talk about the financial challenges Gen Z are facing and how they can make financial literacy their forte. Here’s what they had to share.

All in the family

With 84% With Gen Z relying on family members for the “how” of money management, it’s critical that parents have the right answers for them. “Every parent wants to make sure their teen is financially literate/ready for the world when they turn 18, but unfortunately financial literacy is necessarily as easy to teach as something like math or history” , says Mom.

Mom thinks we don’t talk about money enough in homes. “Many parents tend to have a hard time talking about money/finances with their teens because they don’t know exactly where to start and what the exact program looks like,” he says.

Given the relatively low financial literacy scores among all generations, apps like Bloom likely give parents some advice of their own when talking with their teens about their financial future. “Much of our investment training has also been extremely helpful for parents,” Mom says.

The case of financial literacy courses

Considering the outsized impact financial literacy can have on an individual’s life, it would seem that personal finance courses in high school would be a no-brainer. Unfortunately, in many states this is currently not the case. A separate high school finance class is only required in five statesand while five other states require such a course to be offered, it is not mandatory to obtain a degree.

Meanwhile, 15 other states require certain financial literacy content to be integrated into other courses. While this is better than nothing, it shows how easily a young person can jump from high school into the “real world” without ever having learned the basics of how the world of finance works.

Something has to change. “While subjects like history and algebra are important courses, financial literacy should be taught alongside those subjects,” Mom says.

Advice for the hesitant and overconfident

Like investors of any age, teen investors come in all types, from shy to brash. Neither approach is a recipe for financial success. Here again, knowledge of financial structures is essential both to encourage the hesitant and to temper those who err on the side of audacity.

Can people with a deep fear of the stock market overcome it? According to mom, yes, and the best thing is to look at the history of the stock market. “Historically, the S&P 500 has returned 10.5% per year from its inception in 1957 through 2021,” he says. “Once you know more about how specific companies work, you better understand how things work and why stocks rise or fall over time.”

What should a timid investor invest in first? “A very basic strategy I have is to always put money aside in the S&P and then really invest in companies that I personally like and that make products that I use,” Mom says.

On the other hand, of course, investors entering the market are overconfident in their ability to play the game. “Once I was exactly like that,” admits Bloom co-founder and CPO Sam Yang . “When I started investing a few years ago, we were in a bull market, especially for tech stocks. I got overconfident as I watched my stocks go up and up, and ended up investing much more money than I should have in a short period of time.

With sadness, Yang recounts how the market inevitably crashed, taking with it a significant portion of his personal net worth. “I had never learned important concepts like cost averaging, diversification, or budgeting when I was younger, and instead had to learn the hard way once I started making money. ‘money,’ he says. “That’s one of the main reasons I joined Sonny in building Bloom – I wish I had learned how to invest myself much earlier, and could also have practiced building a portfolio of real stocks.”

Today, Yang finds meaning in his work as he reflects on how he helps the next generation learn about investing and money. “This knowledge allows them to make better financial decisions for the rest of their lives,” he says.

Find their sweet spot

The upheaval caused by the pandemic has inspired 52% of Gen Z to focus on their financial intelligence – the highest percentage of any generation. Although motivated to expand their knowledge and abilities in this area, many simply don’t know where to start.

Sonny Mo, co-founder and CEO of Bloom, recalls the impetus for creating Bloom: his underage brother’s desire to have a brokerage account. “His options were limited by products designed for a different generation,” says Mo. “How could we expect next-gen financial success if the tools to support it just don’t exist?”

Of course, today’s economic conditions for many people are tough and getting tougher. “With new economic uncertainties looming on the horizon, it’s never been more crucial to be smart with money,” says Mo.

Mom agrees. “With the economy changing so quickly, there’s no better time to educate yourself on what’s going on and what’s causing certain things,” he says. “Our first message is always education and safety. With a good education, teenagers are able to understand why things happen; for example, what it means when inflation is at its highest.

In finance, as in so many areas of life, knowledge is synonymous with power. Developing strong financial literacy at a young age will allow Gen Z to find their sweet spot not just in the stock market, but in whatever dreams they wish to pursue.

Sarah J. Greer