Establishing financial literacy in young adults is key in helping them build savings, receive credit and keep out of debt. Today, young people can stay on top of their finances with the help of both traditional money-management methods and modern digital tools.
In today’s world, young adults have access to plenty of innovations that help make easier work of things like budgeting their money and paying bills, as well as building up savings and investments. Such tools include money management apps and the ability to make automated transfers and bill payments.
Key financial literacy statistics
- Significant percentages of young people say their parents didn’t teach them how to build financial wealth. This was reported by 21% of Generation Z members (ages 18-27) and 28% of millennials (ages 28-43).
- When it comes to building emergency savings, 32 percent of Gen Zers and 46 percent of millennials reported having more credit card debt than emergency savings.
- One-quarter of Gen Zers and millennials say their parents did not teach them how to build financial wealth.
Sources: Bankrate’s December 2023 financial security poll, Bankrate’s 2024 emergency savings report
Traditional money management
Today, members of younger generations come of age in an era when online banking and other digital money management tools are well established. Old-school money management methods that were established before the digital age involved using cash, writing checks and paying bills through the postal mail.
Cash was king: Using cash for everyday everyday expenses was commonplace before debit and credit cards came about. Although it wasn’t as convenient as paying with plastic, it was a surefire way to avoid overspending. Some budgeters put their cash into envelopes to cover monthly expenses. (A digital version of this concept is with the app Goodbudget.)
Bank branches were essential: Visiting a bank branch used to be the primary way to make deposits and withdrawals. Passbook savings accounts were commonplace. With these accounts, you would present a small book to the bank teller, who would record the details of your transaction inside.
Consumers wrote more checks: Before the introduction of online bill pay, bills were paid using cash or checks. Bill statements would arrive in the postal mail, and consumers wrote a check and mailed it back. Before the dawn of online banking and budgeting apps, manually balancing a checkbook was necessary as a way of keeping track of the account balance and ensuring checks didn’t bounce.
Finances were tracked manually. Failing to manually track your finances before the digital age — such as through balancing a checkbook — could result in negative account balances and overdraft fees. Such fees would be charged without your being notified in real time through an email, text message or app alert.
Today, less manual work is required thanks to digital resources. Staying in good financial shape, however, can still involve things like monitoring your account balance and paying attention to your spending.
Budgeting in the digital age
Today, digital tools take much of the effort out of money management, as consumers can log on to a bank’s app or website to check a balance in real time, automate bill payments, see spending and savings patterns and more.
Tracking money requires less work
Being able to log on to your bank account to see statements and an itemized purchase history can help you to follow a budget without having to maintain a spreadsheet or keep a written record of how you’ve been spending your money.
Features available today through many banks’ websites and mobile apps include:
- Automated bill payment
- Automated transfers from checking to savings
- Real-time alerts of low balances, large purchases or overdrafts
- An analysis of your income, expenses and spending habits
- Categorization of purchases, which can help with budgeting
Other features some banks provide include an automatically generated score of your financial health — separate from a credit score — and early direct deposit of your paycheck.
Living in an automated, cashless society, however, does come with some of its own unique challenges.
Challenges of digital money management
Digital tools have made it simpler to handle personal finances, yet they might also make it easier to let spending get out of control. Some consumers may be more likely to overspend with a debit card than if they were using cash, for instance. And a tool like automated bill payment can end up hurting your finances if you continue to pay for subscriptions or services you no longer use.
The advent of multiple payment methods might also increase the odds of overspending. For instance, owing money to multiple credit cards and buy-now-pay-later services can make it difficult to keep track of the grand total you owe and whether you can pay it all back on time.
Though balancing a checkbook may no longer be necessary, some time spent managing your money is still critical for financial health.
Why budgeting is important for young adults
It may be easier now to manage your money than it was in past decades, yet some budgeting work is still necessary to reach financial goals such as buying a house, having an emergency fund and saving money for retirement.
The key parts of traditional budgeting still apply today. The process involves categorizing your monthly expenses, such as housing, food, transportation, utilities, entertainment and savings.
Looking at the amount spent in each category can help you find ways to trim spending so you can save more money and reach financial goals sooner. Paying close attention to spending can also help you catch any bank or credit card errors or overcharges.
Young adults can have the best of both worlds by combining traditional money management techniques — such as budgeting — with modern digital tools that can simplify your finances.
Methods of budgeting
- Cash stuffing (also known as envelope budgeting): Placing your spending money into separate envelopes at the start of each month, with the goal of not spending more than what’s set aside for each category
- 50-30-20 rule: A strategy that allocates 50 percent of your income to necessities, 30 percent to wants and 20 percent to savings
- Zero-based budgeting: A method in which every dollar of your income is given a specific purpose, such as rent, transportation, food and recreation.
More than 8 in 10 people surveyed reported they track their monthly income and expenses, according to a 2023 Debt.com survey. Of those who budget, 1 in 4 say debt is the reason they started budgeting.
When it comes to savings, the median transaction account balance is $8,000, according to the most recent Federal Reserve Survey of Consumer Finances. Young people who wish to start earning money can do so by the age of 14, according to the Fair Labor Standards Act, although the number of hours that can be worked by minors under the age of 16 is limited.
Young adults looking to start earning money and following a budget have access to various tools that can help by tracking spending, generating reports and more.
Online banking tools
Visiting a bank branch can be a thing of the past when you can perform transactions instead on the bank’s website or mobile app, including transferring money between accounts, depositing checks, paying bills and talking with a customer-service representative.
Your mobile banking app can also help keep you from overdrafting by sending real-time alerts when your balance falls below a set threshold.
In addition to making banking more convenient, digital tools make it easier to manage your investments. Investment apps can help you do things like trade stocks, monitor your accounts in real time and follow the latest stock market news.
Expense tracker tools
Budgeting apps like YNAB and Wally can sync with your bank and credit card accounts to provide insight into your spending habits, and some can also provide credit monitoring and charts for your finances. What’s more, banks like Wells Fargo and Bank of America also offer digital tools to their account holders for tracking their spending habits.
These apps can be easier and less time consuming than using a spreadsheet to track spending. Some charge a monthly fee, while others are available for free.
Tools from credit card providers
In addition to third-party apps, you can often track your spending using tools provided directly by your credit card company. The Discover and Chase smartphone apps, for instance, provide reports that break down cardholders’ spending by category as well as generate charts that show how spending fluctuates from month to month.
Ways to keep track of credit card spending
- Incorporate credit card spending into your monthly budget.
- Monitor your credit card spending regularly by logging in to your account
- Categorize wants and needs, and keep from charging unnecessary things you can’t pay off right away.
- Cancel recurring charges for subscriptions and memberships you don’t use.
- Find a cash-back card, a travel rewards card, or cards that reward you for dining out or grocery shopping.
- Avoid accruing interest by only charging an amount you can pay in full each month.
Spreadsheet budget template
Using a budgeting spreadsheet may be the right option if you prefer entering your spending information manually. Though creating and entering information into a spreadsheet can take more time than using a budgeting app, it gives you the freedom to add any columns you wish to help track your expenses.
A budgeting spreadsheet can be created using rows for each expense, as well as columns for things like dollar amounts, dates, categories and means of payment.
One way a budget spreadsheet can be created is by using the Google Drive cloud storage service. Once you’ve created your file there, you can then access it on any smartphone, tablet or computer you use to access Google Drive. Some programs have built-in templates to help users get started with budgeting.
Subscription management apps
These days, it’s easy to sign up for monthly or yearly subscriptions to streaming services, online fitness classes and dating apps. It can be just as easy to lose track of services you’re being charged for regularly that you no longer use.
Subscription management apps conveniently can show you a list of the subscriptions you’re paying for, and some of them can even cancel unwanted subscriptions on your behalf. Such apps include Trim, PocketGuard, Rocket Money and Subby.
If you’re interested in a subscription service but aren’t sure whether you’ll ultimately make use of it, find out if there’s a free trial period. If you wish to cancel before the trial ends, be sure to set a reminder to avoid being charged.
Financial literacy FAQs
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Financial literacy is the ability to make sound money decisions thanks to having a good understanding of topics like saving, budgeting, managing one’s credit, investing and paying taxes.
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Financial literacy starts with tracking your spending so you know where your money is going. Doing this helps you save money for emergencies, build a retirement fund, stay debt free or actively pay down debt, reach financial goals, and generally live within your means.
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Having a solid understanding of how to manage your money is key in becoming financially secure. Being secure in your finances enables you to have money on hand for emergencies, make purchases without taking on unhealthy debt, and retire at an age of your choice. Other benefits include better sleep with fewer worries, as well as feeling better prepared for things that come your way.
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Becoming financially aware is possible with plenty of free resources available online. Sites like Bankrate provide informative articles on everything from how to create a budget to finding the best high-yield savings account to the basics of investing. Other topics to increase your financial knowledge and money-management skills include insurance, taxes, retirement and estate planning.
Bottom line
The landscape of financial management has changed over the years, with the advent of countless digital tools, yet habits such as tracking spending, budgeting and saving wisely remain impactful. Combining tried-and-true strategies with modern technology can help young people reach their financial goals.
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Bankrate commissioned YouGov Plc to conduct the survey on building wealth. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,233 U.S. adults. Fieldwork was undertaken between Dec. 18-20, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.
The study on emergency savings (that was conducted January 2024) was conducted by SSRS on its Opinion Panel Omnibus platform. The SSRS Opinion Panel Omnibus is a national, twice-per-month, probability-based survey. Data collection was conducted from January 19 – January 21, 2024 among a sample of 1031 respondents. The survey was conducted via web (n=1001) and telephone (n=30) and administered in English (n=1005) and Spanish (n=26). The margin of error for total respondents is +/- 3.6 percentage points at the 95% confidence level. All SSRS Opinion Panel Omnibus data are weighted to represent the target population of U.S. adults ages 18 or older.
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