For decades, the financial services industry has operated on a static curriculum of financial literacy. It takes for granted that stability depends on a sound understanding of financial planning, budgeting, and minimizing debt. The "responsible" consumer builds a credit score, distinguishes between debit and credit, plans for large purchases like a car or home, and understands the power of compound interest.
In this traditional worldview, the path to security is paved with workplace benefits, retirement plans, growing investment accounts, and a prudent approach to taxes and insurance.
But as we look ahead to the risk landscape of 2026, we must acknowledge a jarring disconnect. For Millennials born 1981 to 1996, and Zoomers born 1997 to 2012, the concepts of financial literacy are being rewritten by an economic environment that defies the logic of the past.
The Income and Tax Paradigm Shift
The erosion of the traditional model begins with income. The historical unemployment rate masks a structural fragility: For younger generations, the gig economy has replaced long-term employment. “Job security” is a portfolio of volatile contracts rather than a steady corporate ladder with a defined benefit plan. Consequently, workplace benefits are often nonexistent, shifting the burden of healthcare and retirement risk onto the individual.
The tax landscape further complicates this picture. While federal tax focus drifts toward tariffs and tax cuts for the wealthy, state governments are increasingly reliant on regressive revenue sources – taxes on gambling, marijuana, and other “sins.” The state is less a partner in wealth creation and more a beneficiary of vice, creating a cynical backdrop for young taxpayers who see their contributions yielding little in social safety nets.
Debt and Payments
Behaviorally, the shift is stark. No one uses a checkbook, and fewer young consumers rely on traditional credit cards. Instead, peer-to-peer payment apps dominate the flow of funds.
Brenda Boultwood
More concerning is the explosion of buy now, pay later (BNPL) schemes used for nondurable purchases. When everyday essentials such as groceries and fast fashion are financed over four weeks, it signals a distress that traditional credit reporting misses.
Because these "phantom debts" often bypass the major credit bureaus, many young people do not know their true level of indebtedness. Student loan delinquencies are rising, yet the stigma of debt is fading, replaced by a sense of inevitability.
We are observing a generation managing liquidity crises in real time, often blind to the long-term impacts on their creditworthiness because the feedback loops (like monthly paper statements) have vanished.
The Investment Disconnect
Perhaps most disorienting for risk professionals is the behavior of capital markets. For Gen Z, stock prices often seem distant from the net present value (NPV) of future cash flows. Instead, valuations rise with meme fads and social sentiment. The “gamification” of trading has replaced the discipline of fundamental analysis.
Furthermore, if there is an investment account, it is likely a market index ETF. We have reached a saturation point where there are more ETFs than underlying single stocks, raising questions about price discovery and liquidity.
Planning is exceptionally hard when the market is so volatile and job prospects so uncertain. The “buy and hold” mantra rings hollow to an investor whose timeline is dictated by immediate liquidity needs rather than multi-decade compounding.
The Macroeconomic Trap
Finally, the macroeconomic signals are contradictory. The Federal Reserve may cut the fed funds rate, yet longer-term borrowing costs rise, decoupling monetary policy from consumer reality. With consumer price inflation persistently above the 2% target, the “affordability crisis” is the dominant narrative.
The ultimate anchor of financial literacy – homeownership – is severed. With the housing cost-to-income ratio at historical highs, owning a home is out of reach for many. When the primary vehicle for middle-class wealth accumulation is mathematically impossible to acquire, the incentive to “save for a rainy day” evaporates. The result is a generation forced to prioritize immediate survival over long-term planning.
Implications for Banks
The shift in financial behavior presents an operational and credit risk challenge for banks.
The Data Blind Spot: Traditional credit scoring models are losing predictive power. With the rise of BNPL and shadow lending, a significant portion of a young borrower’s leverage is invisible to FICO. Banks risk underestimating default probabilities because their data inputs are incomplete. Lenders must evolve to ingest “alternative data” – rent payments, utility bills, and payment-app cash flows – to construct a valid risk profile for gig workers.
Deposit Volatility: The “sticky” deposit is a relic. Gen Y and Gen Z move funds instantly between high-yield fintech accounts, crypto wallets, and payment apps. Banks can no longer rely on low-cost core deposits to fund lending. This structural shift implies a permanently higher cost of funds and a need for liquidity stress testing that accounts for rapid, app-driven deposit flight.
Implications for Financial Markets
The changing complexion of the investor base introduces new forms of market structure risk.
Valuation and Liquidity Risk: As capital flows indiscriminately into passive ETFs, the link between a company’s performance and its stock price degrades. This creates “air pockets” in liquidity. If a meme-driven sentiment shift triggers a mass sell-off, underlying stocks, particularly small caps, may lack the liquidity to absorb the volume, exacerbating crash risks.
Volatility Regimes: Markets must price in the behavior of irrational actors who do not fear valuation ceilings. The disconnect between price and NPV introduces a volatility regime driven by social media trends rather than earnings reports, complicating the work of portfolio managers and hedging strategists.
Implications for ERM
For risk managers across all sectors, this cultural shift demands a recalibration of Operational and Reputational Risk frameworks. For example,
Human Capital Risk: Financial anxiety is now a key driver of operational risk. High levels of personal debt and housing insecurity contribute to employee burnout, turnover, and even internal fraud. Enterprise Risk Management (ERM) must view employee attitudes toward their financial wellbeing not as a benefit, but as a risk.
Model Risk: Forecasting models that assume rational behavior (e.g., “consumers will save when rates rise”) may fail. Risk managers must stress-test their portfolios against “irrational” scenarios, such as consumers prioritizing discretionary “doom spending” over debt service, or sudden shifts in demand driven by viral trends rather than economic fundamentals.
Parting Thoughts
Ultimately, the widening gulf between traditional financial literacy and the lived experience of Gen Y and Gen Z is not just a cultural curiosity; it is a systemic risk. We cannot continue to grade these generations on a curve designed for a post-war economic stability that no longer exists.
When the “safe” path of traditional savings yields negative real returns, and the “risky” path of speculative assets offers the only perceived hope of catching up to runaway housing costs, behavior that looks like recklessness to a risk manager looks like survival to a younger consumer.
For the GARP community, the mandate is clear: We must stop viewing these behavioral shifts as anomalies to be corrected and start treating them as the new baseline inputs for our models. The future of financial stability depends less on forcing young people to balance extinct checkbooks, and more on designing a financial architecture resilient enough to support their volatile, high-velocity reality.
Brenda Boultwood is the Distinguished Visiting Professor, Admiral Crowe Chair, in the Economics Department at the United States Naval Academy. The views expressed in this article are her own and should not be attributed to the United States Naval Academy, the U.S. Navy or the U.S. Department of Defense.
She is the former Director of the Office of Risk Management at the International Monetary Fund. She has previously served as a board member at both the Committee of Chief Risk Officers (CCRO) and GARP, and is also the former senior vice president and chief risk officer at Constellation Energy. She held a variety of business, risk management, and compliance roles at JPMorgan Chase and Bank One.
Topics: Enterprise, Modeling, Data