According to a study by Sallie Mae, a consumer banking company, 25% of college grads have little understanding of even the basic financial concepts. In the recently published study ‘Majoring in Money’, the findings conclude that fresh graduates, from the ages of 21-29 years old, are unable to answer 4 simple questions related to finance.
Surprised? Well, don’t be! This is because a similar study was published in 2016 showing that young people had very little clue about how to best handle their finances. According to the study, more than 40% of college grads couldn’t differentiate between a credit card and a debit card. Shocking, isn’t it?
The recent study by Sallie Mae only proves what finance experts and the older generation have known for some time now. That is most Millennials and Generation Z are ill-equipped to handle their finances on their own. In most cases, they need outside help to manage their money, secure financing, or relinquishing debt. Don’t believe us? Then you may want to take a good hard look at the finance-related questions that most of the youth today cannot answer and see if you can answer them.
Interest Accumulation (Question 1)
The study found that 17% of the college grads involved in the survey could answer a question about interest accumulation. They were given two figures: the amount of money in their savings account and an interest rate at which the funds in the account would grow.
The survey respondents had to figure out the amount of money that would be in their savings accounts after 5 years keeping in mind the savings and interest rate are given. They were given a multiple choice answer with four options to choose from.
Disappointingly enough, only 17% of the respondents chose the right option.
How Payment Behavior Affects the Cost of Credit (Question 2)
The students involved in the survey were given three personas and six options. They were asked to make a guess about which persona, when understanding their unique habits and behavioral approach with money, would make the most interest payments on their credit card over time.
Only 54% of the respondents answered this correctly.
Repayment Term Impact on Credit Cost (Question 3)
The respondents were given two choices and were asked which option would be more beneficial to lower their overall cost over the life of a loan.
Only 22% picked the right option.
Interest Terminology (Question 4)
The survey respondents were given three options and were asked to choose the one that best defined ‘interest capitalization’. For those who aren’t familiar with this term, it refers to the increase of the principal balance to a loan when payments are deferred or forborne. A difficult question, but shouldn’t be hard for students who have taken out a loan to pay for their schooling.
Only 55% chose the right option.
What Are They Doing To Invest Right Now?
If you found yourself struggling through some of the questions, then you’re in good company. The majority of our rising generation missed the questions. The results of this survey are shocking to not only them, but to everyone who understands that financial literacy is the gateway to a good future.
It is clear that our growing generations are not yet ready to manage their finances and investments by themselves. However, this does not deter these generations from trying to invest. Most of them will try to invest in stocks with new apps that allow them to trade commission free. Most of these young investors find that they lose more than they make. A more common route for these young investors is opening a traditional investment account with Fidelity, Vanguard or Charles Schwab. Over time, more and more people have grown skeptical of these with the lack of transparency inside hidden fees and poor performance.
With the arrival of technology and innovation, there is another option that has become more adopted in the last couple of years. It is the use of algorithmic intelligent (AI) technology to manage their financial investments for them. This option for investing was designed to grow stable returns with the use of technology, and protect against loss.
Why Algorithmic Intelligence (A.I) & What Does It Do?
This AI technology ends up cutting out traditional investment banks that currently perform the function of investing people’s money. AI is an automation technology that is a done-for-you option, meaning customers don’t need to know anything about stocks or technology to use it. The technology uses intelligent software to make decisions about buying, selling, and holding money for you, which decreases the risk for investing. It is the option for those looking to get away from institutional bank fees and still grow a stable return. iFlip currently has hundreds of customers, but their free mobile app is looking to be released September of 2019. It will allow people to invest at no cost, which means free! They currently have a growing waitlist for the number of people looking to use it soon.