The Banking Dilemma: Why Gen Z is Shying Away from Financial Services

Gen Z, the generation known for its tech-savvy ways and forward-thinking mindset, is facing a surprising dilemma when it comes to banking. A recent survey by Socure, a digital identity verification provider, revealed that nearly half of Gen Z respondents regret not applying for financial accounts earlier in life, yet they also feel unprepared to enter the financial ecosystem by the time they turn 18.

This hesitation to dive into the world of banking is further compounded by the fact that 35% of Gen Z members lack a digital financial footprint, making it difficult for them to build the credit history necessary to access financial services. These “digital ghosts” have little to no history of credit cards, loans, rental leases, or home purchases, which can hinder their ability to secure important financial resources.

One of the key factors contributing to Gen Z’s lack of financial credit footprint is the Credit Card Accountability Responsibility and Disclosure Act, a federal policy implemented in 2009. This regulation introduced requirements for individuals under 21 seeking a credit card, such as needing a cosigner and proof of income, pushing back the timeline for Gen Z to establish their financial footprint.

Identity verification is another hurdle for Gen Z, as the prevalence of identity fraud continues to rise. Many Gen Zers report having to visit financial institutions multiple times in person to verify their identities, leading to delays in accessing federal student aid or college loans and grants.

Despite these challenges, Gen Z represents a significant market and economic force, with a global cohort of 2.5 billion people earning $7 trillion currently. By 2030, Gen Z is projected to generate an income of $33 trillion, making up 27% of the world’s income.

The implications of a delayed start to banking and a lack of credit history can have costly repercussions for Gen Z, particularly in areas such as housing, car purchases, and loan applications. Credit checks are often required for auto loans, rental applications, and even basic services like cell phone plans.

As Gen Z navigates the complexities of the financial world, it is clear that there is a need for more accessible and inclusive banking options to support this generation as they transition into adulthood. Subscribe to the CFO Daily newsletter to stay informed on the latest trends and developments in corporate finance.