Financial Literacy in a Digital Age

With a quick tap on your phone or stroke of a few computer keys, payments can be made or accepted from around the world. The growth of digital financial products and services—such as online banks, investment platforms, and payment apps like PayPal, Venmo, and CashApp—have made shopping online, investing, and making other payments easier for many. But as consumers increasingly invest and make use of these opportunities, they should also know about the risks they pose.

For Financial Literacy Month (April), today’s WatchBlog post looks at our recent work on Financial Literacy in a Digital Age. This work is based on a forum of experts and industry stakeholders hosted by the comptroller general and head of GAO. 

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What should consumers know about the opportunities of digital financial products?

Digital financial products can generally increase access to financial services and provide a more personalized experience for consumers. In particular, digital financial products can help provide access to financial services for groups that have been underserved. For example:

• Low-income and minority consumers may benefit from the increased flexibility offered by digital products and services. These consumers are increasingly using online banking services provided by nonbank financial technology companies rather than traditional banks. 
   
• Younger consumers are attracted to digital investment platforms. These consumers see new opportunities to build wealth that had previously seemed out of reach to them.
   
• These products and services also enable personalized support, such as through advisers powered by conversational or generative artificial intelligence, to inform decision-making specific to a consumer’s financial situation.

What are the risks posed by digital financial products?

The ease and convenience of digital transactions is also attractive to those looking to scam or defraud consumers. Increasingly, those who use online financial apps have seen phishing scams and requests to share personal information. The speed of digital transactions can also encourage quick and frequent transactions that should receive more scrutiny—such as frequent stock trades or investments in crypto assets.

Consumers need both technical skills and traditional financial knowledge to make informed decisions about digital financial services. This would help them detect biased marketing and avoid scams. For example, some digital financial product information can be misleading, and consumers may fall victim to deceptive marketing tactics that promote unsuitable products.

Reliable financial information, such as that offered through government sources, is available online. But government resources are often underused. Why? Some consumers may find government sources less engaging than information shared by the private sector. The information may also be difficult for consumers to find if it is not among the first results in internet searches.

What more can be done to protect consumers?

Last year, we convened a group of 15 financial literacy experts and stakeholders for a forum focused on how consumers’ financial literacy has been affected by the increased digital offering of products, services, and education. Participants represented a range of backgrounds and experiences, including federal agencies, academic institutions, nonprofit organizations, and private-sector financial service providers.

Participants said research is needed to better understand the effects of digital products on consumers’ financial wellbeing. However, there has been little research on this issue. This is because researchers often don’t have access to data controlled by private companies, which is needed to analyze digital financial products’ impacts. Data sharing agreements between researchers and digital service platforms could help. 

Partnerships between the public and private sectors that allow for data sharing and monitoring could also improve efforts to evaluate products and better protect consumers. Such partnerships could enable researchers to conduct randomized trials to test the effects of different digital financial products and could facilitate knowledge sharing between the public and private sectors.

For more information on how digital financial products are being used, see GAO’s recent reports on the benefits and risks of fintech products for underserved consumers and crypto asset options in retirement plans.

• GAO’s fact-based, nonpartisan information helps Congress and federal agencies improve government. The WatchBlog lets us contextualize GAO’s work a little more for the public. Check out more of our posts at GAO.gov/blog.
   
• Got a comment, question? Email us at blog@gao.gov.