Center on Assets, Education, and Inclusion

Building Millennials' Financial Health via Their Financial Capability

Building Millennials’ financial capability and improving their financial behaviors is especially relevant given that they are making high-stakes financial decisions in the midst of volatile macroeconomic conditions. The behaviors that flow from these decisions and their results may have long-term implications for Millennials’ abilities to achieve financial stability and to accumulate wealth over time. Millennials who save for emergencies, steer clear of high-cost alternative financial services like payday loans and tax advances, and avoid carrying too much debt may be in a more stable financial position upon which they can leverage to their benefit across the life course. Millennials who are financially fragile, lack emergency savings, use high-cost alternative financial services, and carry too much debt may likely struggle to save and to be financially stable in the future. While these may appear to be purely individual behaviors over which Millennials have ultimate control, they may behave accordingly based on their financial knowledge and the opportunities available to them via institutional arrangements. Financial capability recognizes that Millennials’ financial behavior is not purely based on individual knowledge; they also need financial inclusion with mainstream financial institutions that provide opportunities to carry out financial behavior. With generous support from the FINRA Investor Education Foundation, this project uses nationally representative data from the 2012 National Financial Capability Study and evaluates whether the combination of financial education and financial inclusion via a savings account can contribute to Millennials’ improved financial behaviors. The findings that emerge will inform local, state, and national efforts for integrating financial capability into services offered to Millennials and young generations by educators, financial service providers, and employers, such as financial education in the public school system and youth summer employment opportunities.

The “Savings Account Gateway”

Understanding young adults’ balance sheets of today—particularly with regard to factors that set them on a path to economic mobility by diversifying and accumulating assets and leveraging safe credit markets—lends some insight into their balance sheets of tomorrow. Assets and debts comprise important components of young adults’ balance sheets. Young adults under age 40 accumulate median liquid assets of about $6,328, with net worth ranging from $1,200 to $64,700 depending on whether or not they are college-educated or have student loans. Their average debt is approximately $60,000, including debt from mortgages, vehicles, credit cards, payday lenders, and student loans. Young adults who enter this period of the life course with healthier balance sheets may have the financial resources to better weather unexpected changes in employment or living situations or to further invest in their futures. Owning and acquiring a savings account may help young adults achieve healthier balance sheets. Using panel data from the Census Bureau’s 1996 and 2008 Survey of Income and Program Participation, this project investigates the acquisition of a savings account as a gateway to balance sheets comprised of diverse and accumulated assets and secured, productive debt. That is, this study asks whether acquisition and ownership of a savings account paves the way for young adults to diversify their asset portfolios, accumulate liquid assets, enter healthy credit markets, and protect them from riskier ones. The findings from this project will inform national practice and policy efforts like Children’s Savings Accounts and Financial Inclusion by 2020 that promote savings account take-up for deepening financial inclusion and strengthening balance sheets.

Mapping Financial Opportunity

There is growing consensus that place matters. That is, the community in which one grows up or lives has short- and long-term impacts on a variety of outcomes, including financial ones like earning income and gaining employment. The logic behind these effects argues that communities are heterogeneous, with differing resources and opportunities that residents can leverage to achieve life’s outcomes. A community’s infrastructure may also create the conditions that enable or hamper financial inclusion, helping to explain why gaps in financial inclusion persist or deeper inclusion is not realized. Here, infrastructure refers to the densities of mainstream and alternative financial institutions, internet and mobile technology, and postal and retail services within a specific geographic region. While often discussed, the community infrastructure that creates the conditions for financial inclusion is rarely measured—meaning that its potential influence on financial inclusion efforts can be invisible. This project assesses how infrastructure at the zip code level—a fine grain view of community—relates to financial inclusion using Esri Geographic Information Systems (GIS) and restricted-use zip code files from nationally representative panel data. This information will then be applied to a national, interactive map that rates zip codes based on their infrastructure and uses the ratings to take the pulse of communities across the United States, providing quick assessments of communities’ financial inclusion and opportunity. The findings from this project will inform financial inclusion efforts at the local, state, and national policy levels including BankOn, credit union micro branches, expanded mobile banking, and proposed postal savings.