Like Millennials before them, Gen Z's “digital native” understanding of technology means they do some things a little differently than the established norm. . This includes how you handle money, from how you think about your paycheck at work to the actual change you make in managing your finances.
But a new report on people's spending and banking habits shows that, as it has become easier to manage money with fintech apps and online banks, a significant number of young people are now making risky decisions with their money. It's obvious that you're there – perhaps you're not even aware of it.
More than a third of Gen Z use digital banks and fintechs as their only checking account.
In some ways, Gen Z has completed a transition into banking that has been years in the making. Technology has made it much easier to manage day-to-day banking, and completely digital banks with no brick-and-mortar branches are becoming more and more popular. Traditional banking is falling by the wayside.
For those of us older, the constant battle between big banks like Chase Bank and Bank of America to allow them to charge us fees for moving our checking accounts to their banks. You should remember.
However, fully online banks like Chime, Ally, and many others not only eliminate this interaction, but often eliminate these fees altogether. And Gen Z is definitely taking notice. a Bank research firm Cornerstone Advisors report showed that 47% of current accounts opened in 2023 will be through digital banks or fintech apps, making a big dent in the big banks' business.
This is great for consumers. Big banks have too much influence over our money and the economy in general. However, there's a flip side to this trend that many people don't consider.
Many Gen Zers use apps like Venmo, PayPal, and Apple Pay as their bank, and use the money they save there to make all their payments.
According to an analysis by Cornerstone Advisors, 36% of Gen Zers use a digital bank or fintech app as their primary checking account, far more than any other generation. This includes regular banks like the aforementioned Chime, but also apps like Venmo, PayPal, ApplePay, and CashApp.
Experts say this is partly because young consumers don't have a basic understanding of the difference between a checking account and an app. Most merchants now accept checking accounts, and the majority of young people's spending is done online anyway. Who needs a debit card when you can use Apple Pay with just a tap?
Of course, these apps are also used to pay each other when splitting restaurant bills or collecting money for things like group birthday presents. Therefore, many young people simply leave their money in these apps like a bank account, without knowing that their funds can disappear at any time.
Money stored in payment apps is generally not insured by the FDIC. If the app folds, your money can be taken away too.
The FDIC (Federal Deposit Insurance Corporation) is a federally owned public benefit corporation that insures people's bank deposits up to $250,000 with the “full faith and credit of the United States Government,” as provided in the Constitution. Masu.
If that sounds like a big deal, it is. The law was enacted as part of the Banking Act of 1933 in response to the Great Depression, when millions of Americans lost all their money almost overnight, banks failed, and bank runs were frequent. I did.
Thankfully, you don't have to worry about that anymore. The FDIC says that even during catastrophic economic collapses like the Great Recession of 2009, “no depositor has lost a penny of their FDIC-insured funds since our founding in 1933.”
But apps like Venmo, PayPal, CashApp, and ApplePay are not banks. Other than the fact that these funds can be easily transferred between individuals, they are essentially no different than the money stored in the Starbucks app. And if one of those companies suddenly goes bankrupt and shuts down, all your money could be taken away.
Digital banking fintech app Synapse went bankrupt in August 2024, taking away $160 million of its users' funds.
Bank failures are often thought of as an anachronism from the Great Depression, but a bank failure just occurred in 2023. silicon valley bank, One of the biggest tech hubs collapsesmore than $200 billion in corporate and personal assets were burned in the process.
Of course, SVB was FDIC insured, so these people were still able to keep their $250,000. But compare this to the collapse of fintech company Synapse earlier this year. The company directed customers to various money apps such as Yotta and Evolve by promoting FDIC insurance coverage.
However, FDIC protection applies only to failed banks. And since it was Synapse, not the bank, that declared bankruptcy, and not the actual Yotta or Evolve apps that store people's money, FDIC protections don't apply, and about $160 million of ordinary people's money money has been frozen and inaccessible for several months. now.
The eclectic gathering of tech and finance people, crypto enthusiasts, and others touting fintech apps as revolutionary “disruptors” of the banking industry may be exciting, and the ease of use of these apps is a revelation. It may feel like.
But the bottom line is that your paycheck must be deposited and held in an FDIC-insured bank account. If you don't have it, get it.
And if you already have, do what one of my Gen Z colleagues did after hearing this story of mine. “I'm literally shaking,” she typed into the chat, “Please transfer my Venmo money to my bank now.”
John Sundholm is a news and entertainment writer covering topics related to pop culture, social justice, and human interest.
