Recent research indicates a surprising difference in levels of financial literacy across various generations, impacting how entrepreneurs of different ages manage and grow their businesses. Understanding these gaps can open business owners’ eyes to their own potential blind spots, missed opportunities, and even danger zones for their organizations.
Generational Disparities in Financial Literacy
A recent survey from Xero highlights that 60% of Gen Z and 59% of Millennials experience financial challenges due to limited financial literacy, compared to only 22% of Baby Boomers.
Furthermore, 23% of Gen Z business owners lack an emergency financial backup plan, whereas only 5% of Boomers report the same.
The Side Gig Factor
Younger generations are increasingly starting businesses as side gigs: 67% of Gen Z and 69% of Millennials, compared to less than half of Boomers.
What bearing does this have on financial literacy? Plenty, since 61% of small business owners used personal funds to start their businesses.
Source: Survey: Half of US small businesses encounter fiscal challenges due to a lack of financial literacy
This situation can place both business and personal finances at risk, partiulcarly if no financial safety net exists. Long-term, this combination of factors could make younger entrepreneurs more vulnerable during economic downturns or unexpected business setbacks.
Furthermore, the transition from a side gig to full-time entrepreneurship presents numerous financial challenges on both the personal and professional side—challenges that can quickly overwhelm budding entrepreneurs without a clear financial road map.
Addressing Financial Confidence
A QuickBooks financial literacy survey indicates that only 15% of women small business owners felt very confident in their financial knowledge before launching their business, highlighting a broader issue of financial confidence among entrepreneurs.
“Too many business owners, especially women, avoid their numbers and rely on gut instinct instead of financial data to make decisions,” according to Forbes.
A gap in financial confidence leads to fear or avoidance of financial management. This, in turn, puts business owners in a position where they don’t have a clear grasp on their numbers, which often leads to knee-jerk decisions, overspending, under pricing, cash-flow problems, and more.
The Role of Financial Advisors
Despite the challenges outlined above, only 16% of small business owners engage with accountants or advisors. And again, the data is more extreme with younger entrepreneurs:
A Policygenius survey found that adult members of Generation Z are 65% less likely to consult a financial professional first when they have a financial question, compared to Baby Boomers. Additionally, Gen Z individuals are 9 times more likely than Boomers to turn to social media as their initial resource for financial advice! Not the most reliable source of information.
Financial professionals can provide essential support in budgeting, cash flow management, and strategic planning, helping bridge the financial literacy gap across generations.
Entrepreneurs who aren’t seeking expert advice are very likely putting their businesses at risk.
Want to protect your business and position it for growth? Schedule a call with a fractional CFO—no strings attached.