A Closer Look at Generation Z: Financial Knowledge and Financial Anxiety during an Economic Shock

1. Financial Anxiety and Financial Knowledge

Financial anxiety refers to feelings of worry or unease in financial situations (Kim et al. 2023) and is closely related to constructs labeled financial mental health (Archuleta et al. 2013) and financial stress (Xiao & Kim 2022). Throughout this study we use the term financial anxiety. Financial anxiety is associated with adverse financial behaviors (Sages et al. 2013) and constitutes a key indicator of subjective financial well-being (Xiao & Kim 2022). Financial knowledge denotes the extent of an individual’s understanding of financial information and is typically measured along two dimensions: objective financial knowledge, assessed through performance on quizzes covering core financial concepts, and subjective financial knowledge, assessed through self-rated competence (Huston 2010; Kim et al. 2022). Several recent studies incorporate both dimensions (e.g., Woodyard & Robb 2012; Henager & Cude 2016; Kim et al. 2023).

Empirical evidence consistently links financial knowledge to lower financial anxiety. Hasler et al. (2021) showed, using focus-group and survey data, that respondents who answered the Big Three financial literacy items correctly were less likely to report financial anxiety or stress. Gignac et al. (2023) replicated this protective effect in a U.S. adult sample (N = 553) using a 12-item objective measure. Kim et al. (2023) extended these findings using 2018 NFCS data and demonstrated that both objective and subjective financial knowledge were negatively associated with financial anxiety. Building on this evidence base, we propose:

• H1: Objective financial knowledge is negatively associated with financial anxiety.
• H2: Subjective financial knowledge is negatively associated with financial anxiety.

2. COVID-19 Pandemic and Financial Anxiety

The COVID-19 pandemic functioned as a compound stressor combining health and economic threats, with documented impacts on psychological well-being globally (Pfefferbaum & North 2020). For households, the pandemic threatened both health and financial security, posing risks to job stability and household income (Fox & Bartholomae 2020). The labor market disruption disproportionately affected vulnerable groups, including young adults, immigrants, and those with lower educational attainment (Kochhar 2020). These shocks were associated with elevated psychological distress and reduced financial well-being (Fox & Bartholomae 2020; Lusardi et al. 2020).

Empirical evidence from the early pandemic period documents these effects. Donnelly & Farina (2021) estimated multilevel logistic regression models on 2020 Household Pulse Survey data and found that respondents experiencing household income shocks had 83% higher odds of anxiety than those without shocks. Botha et al. (2021) similarly demonstrated a substantial negative relationship between pandemic-related labor shocks and financial well-being, although individuals with higher incomes were less affected, suggesting heterogeneous resilience to shocks. Accordingly, we propose:

• H3: COVID-19 shock exposure is positively associated with financial anxiety.

3. Generational Differences and Generational Theory

Generational classification provides a framework for grouping age cohorts to understand life-cycle shifts and to compare attitudes and behaviors across cohorts (Pew Research Center 2015). Generational definitions, however, vary across researchers. Dimock (2019) at Pew Research Center defined Generation Z as those born 1997–2012, Millennials as 1981–1996, Generation X as 1965–1980, and Baby Boomers as 1946–1964. Mottola (2014) and Pendergast (2009) proposed somewhat different boundaries. The present study adopts Dimock’s classification because it explicitly delineates Generation Z, the focal cohort of this analysis.

Existing research on Generation Z has concentrated on fintech and mobile financial-service adoption (Windasari et al. 2022; Jain & Raman 2023) and on financial well-being in university samples (Philippas & Avdoulas 2020). Cross-generational comparisons have examined Generation X’s risk tolerance (Schooley & Worden 2003) and differences between Generation X and Y (Reisenwitz & Iyer 2009), and have analyzed Millennials’ financial behaviors (Kim et al. 2019; Lusardi 2019). Yet a systematic, comparative examination of financial anxiety, financial knowledge, and pandemic-shock exposure across all four working-age cohorts—including Generation Z—is missing from the literature.

Generational theory provides a theoretical foundation for expecting that these relationships differ across cohorts. According to this theory, the unique historical context experienced during a generation’s formative years shapes core values, beliefs, and behaviors that distinguish one cohort from another (Strauss & Howe 1997; Li et al. 2013). Strauss and Howe (1997) defined a generation as an aggregate of people born within the same phase of life who share a common historical context, thereby forming a collective persona. These shared formative experiences produce enduring cohort-level characteristics (Schewe & Noble 2000; Pendergast 2009). Applying this framework, we expect the interplay among financial anxiety, financial knowledge, and COVID-19 shocks to vary meaningfully across cohorts. Accordingly:

• H4: The associations among financial anxiety, financial knowledge, and COVID-19 shock exposure differ significantly across generations.

1. Dataset and Sample

The National Financial Capability Study (NFCS), administered by the FINRA Investor Education Foundation, has been released triennially since 2009 to assess U.S. household financial capability. We analyzed the most recent 2021 wave (collected June–October 2021), which uniquely contains COVID-19 shock measures. The original sample comprised 27,118 respondents; after excluding cases with missing values on the focal variables, the analytic sample comprised 21,734 respondents.

2. Measures

Dependent variable. Financial anxiety was measured using a single-item 7-point scale (1 = strongly disagree, 7 = strongly agree) from the question "Thinking about my personal finances can make me feel anxious" (item J33_40).

Generations. Following Dimock (2019), we defined generations as Generation Z (born 1997–2012), Millennials (1981–1996), Generation X (1965–1980), and Baby Boomers (1946–1964). The Silent generation was excluded due to low labor-force participation and small sample size.

COVID-19 shocks. A composite categorical variable was constructed from two NFCS items: health shock (item N51, coded 1 if the respondent or a household member tested positive for COVID-19) and labor shock (item J52, coded 1 if the respondent had been laid off or furloughed during the pandemic). The composite captured four mutually exclusive categories: (a) both health and labor shock, (b) health shock only, (c) labor shock only, and (d) neither (reference).

Financial knowledge. Objective financial knowledge was measured as the number of correct answers (range 0–6) to standard items on compounding, inflation, bonds, mortgages, stocks, and the time value of money (items M6–M10, M31). Subjective financial knowledge was self-rated on a 1–7 scale.

Control variables. Following Xiao and Kim (2022), the analyses controlled for age, gender, marital status, presence of dependent children, race/ethnicity, education, employment status, household income, asset and debt ownership (home, investments, retirement, mortgage, student loan, credit card), health insurance, and state fixed effects.

3. Empirical Strategy

We estimated four OLS regression models using sampling weights. Model 1 (full sample) regressed financial anxiety on generation, financial knowledge, COVID-19 shocks, control variables, and state fixed effects. Model 2 estimated the same specification separately for each generation. Model 3 added interaction terms between COVID-19 shocks and financial knowledge to Model 1. Model 4 fitted Model 3 on the Generation Z subsample. To assess whether the coefficients on COVID-19 shocks and financial knowledge differed significantly across generations, post-estimation Wald-type chi-square tests for coefficient equality were conducted using Generation Z as the reference, yielding three pairwise comparisons. Mean centering was applied to continuous variables before constructing interaction terms.

1. Descriptive Statistics

Table 1 reports descriptive statistics. Generation Z showed the highest financial anxiety (M = 5.27), exceeding Generation X (M = 4.78) and Boomers (M = 3.93; p < 0.001), while not differing significantly from Millennials (M = 5.23). Generation Z also reported the greatest COVID-19 shock exposure: 11.66% experienced both health and labor shocks, compared with 8.56% of Millennials, 4.29% of Generation X, and 1.25% of Boomers. Conversely, Generation Z held the lowest objective (M = 2.33) and subjective (M = 4.75) financial knowledge, with significant differences from older cohorts (p < 0.001).

Table 1.

Descriptive statistics of selected variables, 2021 U.S. National Financial Capability Study (NFCS)

2. Main Effects

Tables 2 and 3 report the OLS regression results for the full sample and separately by generation. After controlling for socio-demographics and state fixed effects, Generation X (β = –0.24, p < 0.001) and Boomers (β = –0.52, p < 0.001) showed significantly lower financial anxiety than Generation Z; Millennials did not differ significantly. Respondents experiencing both health and labor shocks showed financial anxiety 0.91 points higher than those without shocks (p < 0.001), followed by labor-shock-only (β = 0.54, p < 0.001) and health-shock-only respondents (β = 0.14, p < 0.001), supporting H3. Both objective (β = –0.07, p < 0.001) and subjective (β = –0.15, p < 0.001) financial knowledge were negatively associated with financial anxiety, supporting H1 and H2. These protective associations of objective and subjective knowledge held across all four cohorts. The combined-shock and labor-shock-only coefficients were significant in every generation, whereas the health-shock-only coefficient was significant only for Generation X and Boomers (p < 0.01) but not for the younger cohorts. This pattern suggests that older generations may be more reactive to health-related shocks—possibly reflecting greater health vulnerability and medical-expense concerns—while younger generations show greater reactivity to labor-market disruptions consistent with early-career income volatility.

Table 2.

Ordinary least squares (OLS) regression results on financial anxiety, full sample (N = 21,734), 2021 U.S. National Financial Capability Study (NFCS)

Table 3.

Ordinary least squares (OLS) regression results on financial anxiety by generation, 2021 U.S. National Financial Capability Study (NFCS)

3. Generational Differences: Tests of Coefficient Equality

Table 4 presents the Wald-type chi-square contrast test results for three pairwise comparisons using Generation Z as the reference. All comparisons were statistically significant, supporting H4. The combined health-and-labor shock coefficient was substantially larger for Millennials than for Generation Z (χ² = 157.89, p < 0.001), consistent with Millennials’ established financial commitments such as mortgages and family expenses (Lusardi 2019). The labor-shock-only coefficient also differed significantly across all comparisons. For objective financial knowledge, the negative association with financial anxiety was strongest for Millennials, intermediate for Generation Z, and weakest for Generation X and Boomers. For subjective financial knowledge, the negative association was strongest for Boomers and weakest for Millennials. These patterns suggest that the relative salience of objective versus subjective knowledge varies across the life cycle.

Table 4.

Tests of coefficient equality across generations, 2021 U.S. National Financial Capability Study (NFCS)

4. Moderating Role of Financial Knowledge

Table 5 reports the interaction-term results for Generation Z and the full sample. The patterns differed by knowledge type. Among Generation Z, the interaction between objective financial knowledge and health-only shock was negatively associated with financial anxiety (β = –0.08, p < 0.01), indicating that respondents with higher objective knowledge reported smaller anxiety differentials in response to health-only shocks. In the full sample, the interaction between objective knowledge and the combined shock was likewise negative (β = –0.08, p < 0.05), consistent with a moderation pattern against compound shocks.

Table 5.

Ordinary least squares (OLS) regression results with interaction terms, 2021 U.S. National Financial Capability Study (NFCS)

Counter to expectations, the interactions involving subjective financial knowledge were positive. In both samples, higher subjective knowledge was associated with greater anxiety differentials in response to combined and labor-only shocks (p < 0.001 to p < 0.01), rather than smaller ones. This pattern is consistent with prior findings that high self-perceived financial knowledge can foster overconfidence (Lee & Kim 2020), which during a severe shock may correspond to heightened anxiety as expectations confront reality. The contrast between objective and subjective knowledge therefore suggests that the two constructs reflect qualitatively different psychological mechanisms—competence-based versus belief-based—in confronting economic shocks.

5. Discussion

Three principal findings emerge. First, Generation Z carried the heaviest financial-psychological burden during the pandemic, exhibiting the highest financial anxiety, the lowest financial knowledge, and the greatest shock exposure—consistent with Greenglass et al. (2014), who documented that economic crises impose disproportionate stress on young adults. Second, financial knowledge, particularly objective knowledge, was robustly and consistently associated with lower anxiety across all four cohorts, extending Hasler et al. (2021) to a multi-generational pandemic context. Third, the moderating patterns of objective and subjective knowledge diverged: objective knowledge was associated with reduced shock-anxiety differentials, whereas subjective knowledge was associated with amplified differentials—suggesting that the two constructs operate through qualitatively different psychological mechanisms, competence-based versus belief-based.

These generational differences gain theoretical traction when interpreted through generational theory and life-cycle perspectives. The substantially larger compound-shock coefficient for Millennials (χ² = 157.89, p < 0.001 against Generation Z) reflects their mid-career life stage with established financial obligations such as mortgages, dependent children, and accumulated consumer debt (Lusardi 2019). The pronounced negative association of subjective knowledge with Boomers’ anxiety (β = –0.29) is consistent with the generational-theory view that cohort-specific formative experiences shape enduring orientations (Strauss & Howe 1997; Li et al. 2013): Boomers’ self-assessments are calibrated against decades of experienced economic cycles, whereas Generation Z's self-assessments are formed in an information-rich but experience-thin environment shaped by digital financial services (Jain & Raman 2023).