There’s more to smart money management than just trying to avoid debt, and it’s time for Generation Z to learn it. Despite the fact that this generation is one of the most debt-averse generations, it also scored. lower in a recent financial literacy study conducted by the TIAA Institute and the Global Financial Literacy Excellence Center at George Washington University School of Business.
Although Generation Z respondents scored the lowest average (43%) in answering 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 X and 55% of both Baby Boomers and the Silent Generation answered the questions correctly – unimpressive numbers.
The good news is that Generation Z has more time ahead of them to fill in the gaps in their financial knowledge. And tools like Bloom, an app designed specifically for teens and their parents to understand the world of finance, are one way they are doing just that.
“At Bloom, we are trying to bridge this gap and show children that investing / financial literacy can be fun and really help in the future,” says Bloom co-founder and CFO Allan Maman. “When a teenager owns a $ 20 worth of stock, he’s much more excited about what a stock split or price-to-earnings ratio is than when she doesn’t have a skin in the game.”
I recently connected with Bloom’s team to talk about the financial challenges Gen Z face and how they can make financial literacy their weakness. Here’s what they had to share.
All in family
With 84% of Gen Z relying on family members for the “how to” of money management, it’s imperative that parents have the right answers for them. “Every parent wants to make sure their teen is financially literate / prepared for the world by the time they turn 18, but unfortunately, financial literacy is necessarily as simple to teach as something like math or history,” says Maman.
Maman believes that there is not enough talk in families about money. “Many parents tend to have a hard time talking about money / finance with their children, as they don’t quite know where to start and what the exact resume looks like,” she says.
Given the relatively low financial literacy scores across all generations, apps like Bloom are likely giving parents some hints as they talk to their kids about their financial future. “Much of our investment education has also been extremely beneficial for parents,” says Maman.
The case of financial literacy classes
Given the huge impact that financial literacy can have on an individual’s life, it would appear that personal finance classes in high school would be a breeze. Unfortunately, this is not currently the case in many states. A separate high school finance class is only required in five states, and although five other states require offering such a course, it is not mandatory to graduate.
Meanwhile, another 15 states require some financial literacy content to be incorporated into other courses. While this is better than nothing, it shows how easily a young person can move through high school and into the “real world” without ever having learned the basics of how the world of finance works.
Something has to change. “While things like history and algebra are important classes, financial literacy should be taught alongside these subjects,” says Maman.
Advice for the hesitant and the overconfident
Like investors of any age, teen investors come in all shapes and sizes, from shy to cheeky. Neither approach is a recipe for financial success. Again, awareness of financial structures is key to both encouraging the hesitant and tempering those who err on the side of audacity.
Can individuals with ingrained fear of the stock market overcome it? According to Maman, yes, and the best way is to look at the history of the stock market. “Historically, the S&P 500 has returned 10.5% annually since it was created in 1957 through 2021,” she says. “Once you learn more about how specific companies operate, you will have more information on how things work and why stocks go up or down over time.”
What should a shy investor invest in first? “A very simple strategy I have is to always put some money aside in the S&P, and then really invest in companies that I personally like and that make products that I use,” says Maman.
The downside, of course, are investors who enter the market too confident in their ability to play. “I was once exactly like that,” admits Bloom and CPO co-founder Sam Yang. “When I started investing a couple of years ago, we were in a bull market, especially for tech stocks. I became overconfident as I watched my stocks go up and up and ended up investing a lot more money than I should have in a short period of time.
Sadly, Yang recounts how the market inevitably fell, taking a significant chunk of his personal net worth with it. “When I was younger I never learned important concepts like dollar cost averaging, diversification or budgeting, and instead I had to learn the hard way once I started making money,” she says. “This is one of the main reasons I joined Sonny in building Bloom: I wish I had learned to invest much earlier myself and that I could have also practiced building a portfolio of real stocks.”
Today, Yang finds meaning in his work by reflecting 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,” she says.
Finding their sweet spot
The upheaval caused by the pandemic inspired 52% of Gen Z to rely on their financial intelligence, the highest percentage of any generation. While they are motivated to broaden their knowledge and skills in this area, many simply don’t know where to start.
Sonny Mo, co-founder and CEO of Bloom, remembers the momentum for Bloom’s creation: the younger brother’s desire for a brokerage account. “His options were limited by products designed for a different generation,” says Mo. “How could we expect financial success from the next generation if the tools to support it simply don’t exist?”
Of course, the economic conditions today are difficult for many people and are becoming more and more difficult. “With new economic uncertainties looming, it has never been more crucial to be smart with money,” says Mo.
Mom agrees. “With the rapidly changing economy, there’s no better time to find out what’s going on and what’s causing certain things,” she says. “Our first message is always education and safety. Through proper education, teens are able to understand why things are happening; for example, what it means when inflation is high “.
In finance, as in so many areas of life, knowledge is power. Building strong financial literacy at a young age will allow Gen Z to find their sweet spot not just in the stock market, but in every dream they want to pursue.