The financial decision that more than a third of Gen Z are making this is incredibly risky

Like millennials before them, Gen Z’s “digital native” understanding of technology means they do some things a little differently than the established norms. This includes how they manage money, from their attitudes about pay at work to the actual pennies and dimes of managing their finances.

But a new report into people’s spending and banking habits reveals that the ease of managing our money with fintech apps and online banking is causing many young people to make risky decisions with their money, probably without even realizing it n.

More than a third of Gen Z use digital and fintech banks as their only checking accounts.

In some ways, Gen Z has completed a banking transition that has been years in the making. Technology has made day-to-day banking much easier, and fully digital banks with no physical presence are increasingly becoming a force. Traditional banking is falling by the wayside.

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Those of us who are older probably remember the constant battle between big banks like Chase and Bank of America to incentivize us to move our checking accounts to their bank so that they are the ones who charge us the fees.

But fully online banks like Chime, Ally, and many others, not only eliminate this back and forth, they often eliminate all of those fees altogether, and Gen Z has definitely taken notice. A report by banking research firm Cornerstone Advisors showed that 47% of checking accounts opened by 2023 were with digital banks or fintech apps, and it’s undercutting the big banks’ business in a big way.

This is great for consumers – the big banks have too much power over our money and the wider economy. However, there is another side to this trend that many do not consider.

Many Gen Zs use apps like Venmo, PayPal, and ApplePay as their banks, paying for everything with the money stored there.

Analysis by Cornerstone Advisors showed that 36% of Gen Z use digital banks or fintech apps as their primary checking account, far more than any other generation. This includes mainstream banks like the aforementioned Chime, as well as apps like Venmo, PayPal, ApplePay, and CashApp.

Experts say that’s partly because young consumers basically don’t know the difference between a checking account and an app: most merchants accept them today, and most spending by young people is done online anyway. Who needs a debit card when you can just tap your ApplePay?

These apps are also used to pay each other, of course, when splitting restaurant bills or raising money for a group birthday gift or what have you. Therefore, many young people simply leave their money in these apps like a bank account, not knowing that the funds could disappear at any time.

Money found in a payment application is usually not insured by the FDIC. If the app folds, it could take your money.

The FDIC, or Federal Deposit Insurance Corporation, is a utility corporation owned by the federal government that insures the bank deposits of individuals up to $250,000 with the “full faith and credit of the United States government” described in the Constitution

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If that sounds like a big deal, it is. It 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 collapsed and current banking were common.

This is thankfully no longer a concern. The FDIC says that “since its inception in 1933, no depositor has ever lost a penny of FDIC-insured funds,” even during cataclysmic economic collapses like the Great Recession of 2009.

But apps like Venmo, PayPal, CashApp, and ApplePay aren’t banks. Aside from the fact that you can easily transfer these funds from person to person, they’re essentially no different than the money you have in your Starbucks app. And if one of these companies suddenly collapsed and shut down, it could take all your money with it.

Digital banking fintech app Synapse went bankrupt in August 2024, taking $160 million of users’ money.

Bank failures are usually something we think of as a Depression-era anachronism, but one just happened in the year 2023. Silicon Valley Bank, one of the biggest in the tech hub, collapsed and caught more of $200 billion in corporate and individual assets. in the process

SVB was insured by the FDIC, of ​​course, so these people could still keep $250,000. But contrast this with the collapse of fintech company Synapse earlier this year. The company lured customers to its various money apps like Yotta and Evolve in part by touting its FDIC insurance coverage.

But the FDIC’s protections only apply to failed banks. And since Synapse, which isn’t a bank, is the one that filed for bankruptcy and not the actual Yotta and Evolve apps that hold people’s money, FDIC protections don’t apply, leaving about 160 millions of dollars of grassroots money frozen and inaccessible for months. now

The diverse crowd of tech and finance peers, cryptocurrency devotees, and others touting fintech apps as revolutionary “disruptors” to the banking industry can be inspiring, and the ease of use of these apps can be eye-opening.

But the bottom line is this: You must deposit and hold your paycheck in an FDIC-insured bank account. If you don’t have one, go get one!

And if you already have one, do what one of my fellow Gen Zers did after hearing me pitch this story. “Literally shaking in my boots,” she wrote in the chat, “brb transferring my Venmo money to my bank RIGHT NOW.”

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John Sundholm is a news and entertainment writer covering pop culture, social justice and human interest issues.