Generation Z, the generational name given to people born after the mid-1990s, is coming of age. The oldest members of the cohort are graduating college and entering the workforce, and, just like their millennial counterparts, are doing so in the midst of an economic crisis.
And on top of that, the economic destruction and massive unemployment created by the COVID-19 pandemic has generated a perfect storm for scammers. Coronavirus scams have proliferated over the past few months, including fake remedies, fake charitable causes, and financial scams.
It’s that last category that has some within the financial services industry especially concerned, as younger consumers are actually uniquely vulnerable to being scammed. A survey from TransUnion released in May found that the telecoms, e-commerce, and financial services industries are seeing the greatest influx of online COVID-19-related fraud activity, and that young people in particular were being targeted.
More Exposure To Scammers
It might seem counterintuitive that a group who grew up on the internet would be more predisposed to falling for online financial scams, but according to regulators, that’s exactly the case.
An analysis by Vice found that although American millennials are less likely than older generations to fall for scams over the phone, they are actually more likely to fall for online scams. This is true in Australia as well, as the Australian Competition and Consumer Commission found last year.
Part of this comes from the fact that, according to the FTC, young people are more likely to report being scammed, which partly skews the data.
But young people are also far more active online and on social media, and therefore more likely to be exposed to a scam. The added familiarity with the internet may also contribute to a false sense of security, an emotional vulnerability that scammers can exploit.
Younger consumers are more likely to use non-traditional tools, like a payment app, over options that come with more federal protections, such as credit cards or checks. Young people—Gen Z in particular—also have far less experience with how financial systems work, and may not know what red flags to look for in a financial transaction.
All of these factors can contribute to common payments scams, such as phishing attempts and pyramid schemes. One of the most common of financial schemes targeting young consumers is the “Buy now, pay later” scam, in which high-interest loans or payment plans are disguised as convenient payment options.
Greater Margin For Error
The fact that young people in Generation Z have a longer time horizon for wealth-building than older segments of the population is generally seen as an advantage. After all, it gives them more time to recover from financial missteps.
But that longer horizon can also magnify the potential long-term damage of a major mistake, such as unknowingly accruing credit card debt or locking yourself into a purchase with an alarmingly high interest rate.
A different TransUnion report found that Gen Zers are racking up more credit card debt than their millennial predecessors. It’s impossible to know exactly why this is the case, but some experts suggest it’s a result of consumers getting access to credit at a younger age and the proliferation of e-commerce that relies on credit over cash payments.
Getting access to credit is an important part of one’s financial foundation, but credit is a double-edged sword. Having high credit card debt can lower your credit score, which can make it more difficult to be approved for loans in the future.
The bottom line is that it’s easier than ever to send and receive money online, and COVID-19 has only accelerated the shift away from cash and in-person banking. But consumers, especially young people, need to be aware that this also increases the opportunity for online scammers.
“With so many apps and services available, the market is saturated with easy ways to get funds quickly—but they’re not all safe or appropriate for the financial health of consumers,” said Phillip Rosen, Founder and CEO of Even Financial, a fintech company that facilitates online financial services. “It’s important for younger consumers, especially Gen Zers, to utilize their technological literacy in combination with proper financial literacy to make smart decisions regarding financial products.”
Young consumers need to understand the impact that high interest rates or APRs can have on their financial health or, in the worst case scenario, their credit score.
Payday loans and other predatory financial products—despite how attractive they look at checkout—can be extremely dangerous for the financial health of most consumers, especially for Gen Zers who have young and fresh credit scores.
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