4 - Indonesia’s Millennials and Gen Zs: Are They Financially (Il)literate?

Summary

Indonesia's population increasingly comprises younger age groups. This segment of the population is currently exposed to and becoming the target consumer market for the rapid development of multiple new financial products in the past decade or so, a consequence of the digital revolution and relentless technological innovation. One question that arises amid this development is: are Indonesia's younger generations financially illiterate or are they so literate that they become less risk-averse in managing their portfolios? This study involved conducting a survey of 142 participants, mostly students at the University of Indonesia. It distinguishes financial awareness from financial ownership and associates these two variables with different age groups. The study finds that there are differences in awareness (or literacy) and ownership of financial products among different age groups. Those from Generation Y have higher awareness about most financial products, including the high-risk asset types such as cryptocurrencies and non-fungible tokens, than the Generation X, but they tend to buy the less risky asset types, except insurance products. Although higher financial awareness is associated with higher financial ownership, this study also shows a significantly weaker relationship between awareness and the level of ownership of financial products for Gen Z compared with Gen X. It indicates that Gen Z youths, despite being generally more knowledgeable of various financial products, do not necessarily own more of these products.

INTRODUCTION

Based on the population census of 2020, Indonesia's population is dominated by those from Generation Z. Applying the categorization of generational cohorts used by the Pew Research Center (2019), about 74.93 million or 27.94 per cent of Indonesia's population represent Generation Z; 69.38 million or 25.87 per cent represent Generation Y (millennials) and 58.65 million or 21.88 per cent represent Generation X (BPS 2020). As young generations dominate the population, it bears raising the question of how they perceive financial products that have become intrinsically intertwined with technology and digitalization today.

Financial inclusion has generally been more pervasive among the younger generations, namely Gen Y and Gen Z. Indonesia's Otoritas Jasa Keuangan (Financial Service Authority, or OJK) has developed the Financial Literacy Index, which gauges financial understanding and literacy among Indonesians. OJK's 2019 survey shows that Indonesia's younger population achieved a score of 44–47 per cent—a higher score compared with the score of 38.03 per cent for all age groups on average (OJK 2020).