Financial activities–from paying bills to checking bank balances to sending money to friends–have increasingly “moved online, making digital literacy critical to managing our finances,” according to an update from Capital One.
Adam Davis, Vice President, Financial Health, Inclusion, and Liquidity at Capital One, said:
“Financial literacy is key to owning our financial lives and futures. 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.”
To help answer that question, a new study from the Capital One Insights Center measures consumers’ digital and financial literacy and “explores the role this knowledge plays in online banking.”
The survey found that most Americans (about 86%) know “how to protect themselves and their personal information online, which is a major component of digital literacy.”
However, over 40% 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.”
The survey also found “that most Americans, even those with low digital literacy, prefer and are already actively using a mobile app or website to manage their finances.”
These findings indicate that digital literacy is “not a significant barrier to engaging with digital banking. By appealing to consumers’ stated preferences and existing behaviors, digital banking has the power to surpass the reach of traditional physical servicing channels (e.g., bank branches, ATMs and call centers), offering consumers continuous access to their finances and the opportunity to promote general financial well-being.”
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 emphasized the knowledge needed to safely engage online.”
To gauge levels of digital financial literacy and digital banking behaviors, “the Insights Center surveyed 3,000 consumers across the United States from August to September 2023.”
As with previous research in the field, the 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 that past research, their measure of financial literacy “focused on core financial concepts such as credit, debt and interest.”
The study showed that, overall, “about 55% of Americans are digitally financially literate, meaning they scored high in both digital literacy and financial literacy.”
About 86% of consumers are digitally literate: the “high financial–high digital” population (55%) plus the “low financial–high digital” population (31%).
Roughly 59% of consumers are financially literate: the “high financial–high digital” population (55%) plus the “high financial–low digital” population (4%). 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, our 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.”
Consumers prefer to bank online, “regardless of their level of digital literacy.”
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% said they prefer managing their finances through a mobile app, 19% prefer using a website, and only 9% prefer going to a bank branch. Previous research shows similar behaviors.”
For more details, check here.