Generational Divides in Financial Access: A Cross-Sectional Analysis of U.S. Adults' Financial Behaviors Pre-COVID-19

Background and Purpose: Despite signs of economic recovery in the U.S. post-COVID-19, many households continue to struggle financially, with significant disparities across generations. With a third of households unable to have emergency savings of $2,000 and prevailing financial dissatisfaction, younger cohorts such as Generation X and Generation Z report higher levels of financial instability. This study aims to explore the patterns of financial access among U.S. adults, considering age and socio-economic factors, to inform targeted financial policies and programs that address the unique needs of each generation.

Methods: This study utilized data from the 2018 National Financial Capability Study (NFCS), which assesses the financial behavior of 26,349 U.S. adults across different generations, from the Silent Generation to Millennials, prior to COVID-19. It employs a set of 10 binary financial access indicators, such as the presence of back accounts, responsible credit card usage, and the possession of retirement and investment accounts. Multi-group Laten Class Analysis (LCA) permitting the estimation of common covariates, including economic and demographic variables, while multinomial logistic regression examines the influence of socio-economic and demographic variables on financial access.

Results: Multi-group LCA revealed six classes were identified: 1) Low Financial Access; 2) Low Savers; 3) Credit-Card Reliant; 4) Investor/AFS Users; 5) High Savers; 6) High Financial Access, and it each reflecting different patterns of financial behaviors. Certain socio-demographic characteristics have significant associations with financial access classes across generations. For Baby Boomers, White respondents were less likely to be in the 'Low Financial Access' group compared to their non-White counterparts. For Gen Xers, higher education levels were associated with a lower likelihood of 'Low Financial Access'. Interestingly, higher income among Gen X increased the probability of being 'Investor/AFS Users'. Millennials displayed a unique pattern where being female reduced the odds of 'Low Financial Access' but increased the chances of being 'Low Savers'. Marriage status influenced Millennials to be less likely in the 'High Financial Access' class, and higher self-reported financial knowledge correlated with a greater likelihood of 'Credit-Card Reliance' and 'High Savers'.

Discussion and Implications: This study’s insights into the generational differences of financial access and their socio-demographic associations offer a possible recommendation to policy and program development aimed at enhancing financial capability and well-being. The typology of financial behaviors, between high financial access and low financial access, describes the variability within and across generations in financial product access. It is particularly noteworthy that Millennials and Gen X incline toward riskier financial behaviors, a trait potentially compounded by an inflated confidence in their financial literacy. This contrasts with older generations, who generally exhibit more secure financial habits but still face challenges as they approach retirement, with shifts in pension structures and social security funding. Therefore, policy efforts should adopt an age-graded strategy, recognizing that financial literacy and access needs evolve with life stages. Programs should facilitate safe investment practices for pre-retirees and consider the financial vulnerability of younger generations who may over-rely on credit and underutilize mainstream banking services. Ultimately, targeted interventions can help secure financial stability.