Financial news

New research has been released by Capital One Insights Center, the research facility for the America-based bank, revealing the extent of consumers’ digital and financial literacy. 

The Capital One research shows some promising signs and some causes for concern simultaneously. Eighty-six per cent of Americans know how to protect themselves and their personal information online. However, over 40 per cent of consumers lack basic financial knowledge, like how to manage debt or build credit. Previous research has shown that financial literacy improves financial well-being.

To gauge levels of digital financial literacy and digital banking behaviours, the Insights Center surveyed 3,000 consumers across the United States from August to September 2023.

“Financial literacy is key to owning our financial lives and futures,” said Adam Davis, vice president, financial health, inclusion, and liquidity at Capital One. “But consumers increasingly say they prefer managing their finances online, so the question we should be asking is how can we help them master financial literacy in a digital environment.”

Although financial literacy has been well studied, digital financial literacy is an emerging concept that measures the intersection of financial skills and digital safety knowledge. Online financial activities are a target for fraud and scams, so early research on digital financial literacy has emphasised the knowledge needed to safely engage online.

As with previous research in the field, the Capital One survey also measured digital literacy by evaluating digital safety knowledge, like how to identify phishing scams and whether it’s safe to share personal information on private social media accounts (see the methodology section for more information).

Consistent with past research, Capital One’s measure of financial literacy focused on core financial concepts such as credit, debt and interest.

How Americans rate on digital financial literacy

The study showed that, overall, about 55 per cent of Americans are digitally financially literate, meaning they scored high in both digital literacy and financial literacy.

Additionally, about 86 per cent of consumers are digitally literate. This can be further broken down into the ‘high financial–high digital’ population (55 per cent) plus the ‘low financial–high digital’ population (31 per cent). Roughly 59 per cent of consumers are financially literate: the ‘high financial–high digital’ population (55 per cent) plus the ‘high financial–low digital’ population (four per cent). These findings align with previous research on financial literacy.

The survey also found that digital financial literacy increases with age. Older consumers tend to rank high in both digital and financial literacy. By contrast, younger consumers tend to score high in digital literacy but low in financial literacy.

Although younger consumers may have grown up in the digital age, they are still at risk of being scammed. However, the study indicates that younger consumers’ high digital literacy may offer an opportunity to improve their financial literacy by harnessing the digital channels they prefer, such as online education, automated reminders and just-in-time notifications.

Survey respondents overwhelmingly said they prefer to use digital channels to manage their finances. Even among consumers who scored low on both digital and financial literacy, 45 per cent said they prefer managing their finances through a mobile app, 19 per cent prefer using a website, and only nine per cent prefer going to a bank branch. Previous research shows similar behaviours.

These preferences drive home the need to ensure that consumers have basic digital financial literacy knowledge so that they can manage their finances how and where they prefer. It’s also important for banks and financial services providers to continue investing in products, platforms and services that consumers can use, regardless of their level of digital literacy.

At least seven out of 10 US households are enrolled in digital banking for some or all of their financial accounts.

Ninety-five per cent of these consumers said they bank online ‘often’ or ‘occasionally’. Even those with low digital literacy report that they frequently bank online.

Of those enrolled in digital banking, many consumers–even those with low digital literacy–conduct routine financial transactions online or on mobile apps. Overall, about 86 per cent of consumers enrolled in digital banking said they check their balances and transactions digitally, 77 per cent pay their bills digitally, and 60 per cent transfer money digitally.

Do consumers use online financial management tools?

Online financial management tools–such as tools that monitor credit scores or manage budgets and subscriptions–are designed to help consumers improve their financial health. The study found that, among all consumers, those with low digital financial literacy are often more likely to use these online tools, perhaps indicating that they want or need help understanding and managing their finances.

Digital banking surpasses the reach of traditional physical servicing channels (e.g, bank branches, ATMs and call centers) by giving consumers greater flexibility and convenience. Capital One’s research explores whether consumers have the digital literacy skills they need to take advantage of digital banking opportunities.

The Pew Research Center finds that 93 per cent of American adults use the internet, and the gap between urban and rural Internet access is shrinking. Consumer affairs finds that 92 per cent of Americans have at least one smartphone, and smartphone ownership is high among urban, suburban and rural communities. Building on this research, we found that 86 per cent of Americans, including older consumers, are digitally literate and well-equipped to use digital platforms to meet their routine banking needs.

The findings also show widespread adoption of digital banking across demographic groups because it appeals to consumers’ expressed preferences and existing behaviours, regardless of their digital literacy levels.

These results indicate that as we move to near ubiquity in digital access and digital literacy, digital banking is effective at reaching across generations and geographies. Compared with traditional physical servicing channels, digital banking can be accessed anywhere at any time. As a result, it consistently meets consumers’ evolving needs, circumstances and expectations.

Investing in financial education

In addition, Capital One’s finding that only 40 per cent of consumers are financially literate suggests the need to continue investing in financial education. Many states now require high school students to take a financial education class in order to graduate.

Because consumers of all digital and financial literacy levels say they prefer managing their finances online, financial education might benefit by including lessons on how to safely and effectively engage online, especially in financial contexts.

By leaning into online platforms for learning, financial educators can meet consumers where they are. For example, Khan Academy, a leader in online learning, has partnered with Capital One to offer free online financial literacy courses. Online financial education–or a combination of digital and financial literacy training–might also attract and retain more learners.