There's a common stereotype about older Americans turning to younger relatives for assistance with smartphones, social media, and other digital platforms. This stereotype, born from the days when computer and internet use was only beginning to become ubiquitous, continues to persist.
But today, the stereotype is no longer accurate -- at least not for online personal finance. New research shows that thanks to a combination of financial and technological savvy, Baby Boomers actually lead younger Americans in their ability to manage and understand their finances using digital tools.
A new Capital One Insights Center survey of 3,000 adults found that older Americans outperform Gen Z when it comes to financial skills and digital safety. Nearly 75% of respondents over 65 ranked highly on both digital and financial literacy skills, compared to just 28% of people between 18 and 24.
These somewhat surprising results could indicate real problems on the horizon. As banking and finances become increasingly digital, understanding and pursuing digital financial literacy will play a growing role in achieving "financial well-being" -- which the Consumer Financial Protection Bureau defines as "a condition wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life."
The gap between Zoomers and Boomers in digital financial literacy is mainly due to a gap in financial knowledge, rather than digital expertise. For instance, research has shown that younger Americans are more likely than their elders to get basic questions about borrowing and investing wrong. They are also less likely to know the interest rate on their credit cards or understand how to build credit. An alarming number of younger Americans either do not plan to or do not think it is possible to save for retirement.
Thanks in part to the sheer number of options in the digital financial space, Zoomers are also wary of traditional financial institutions and more likely to seek financial advice from online social networks -- in fact, Gen Z is nearly five times more likely to seek money advice on social media than adults over 40. While social media can be a useful tool to promote financial literacy, it can also be challenging for users to filter out untrustworthy information. According to the Federal Trade Commission, more than half of investment scam victims say the incident began on social media. Younger adults fall for more online scams than Boomers.
This is not a hopeless situation. It's an opportunity to ensure younger Americans' financial literacy aligns with their digital know-how. The first step is to begin early. Children have a basic awareness of money by age three and may start developing financial habits as early as age seven. Family members can build a strong foundation for younger generations by encouraging good financial habits at home, such as helping kids set up savings accounts and working with teens to practice managing money. Parents with lower levels of financial literacy can also take advantage of educational tools and then practice those habits together with their kids.
Financial concepts also have a place in formal school curricula. Thankfully, we're making progress on that front. A few years ago, only eight states required students to take a financial literacy class before high school graduation; now it's up to 25. At the national level, the Financial Literacy and Wealth Creation Caucus, which my organization supports, champions financial education programs for K-12 students. And for young people without access to financial management classes in school, Capital One and Khan Academy have teamed up to offer a free online course.
Outside of classroom settings, we should meet people where they are by using tools that advance digital financial literacy in an engaging way. For example, new "gamified" apps can make budgeting and saving both rewarding and enticing. Certain investing platforms allow users to practice with a virtual trading portfolio in a low-risk environment, and easy-to-use financial calculators let users play out different scenarios like paying down debt or planning for retirement.
The digital financial literacy gap is real. Fortunately, Capital One's research has given us a roadmap to closing it. Innovative digital tools and online education, backed up by lessons in school and at home, can help make younger Americans as money-smart as they are tech-forward.
Adam Davis is the Vice President of Financial Health, Inclusion, and Liquidity at Capital One.
