The aim of this study is to explore the influence of financial literacy on the financial behaviours of Generation Z residing in the National Capital Region (NCR) of India. This research adopts a quantitative, descriptive, and causal approach using a cross-sectional survey design. A structured questionnaire was administered to a stratified sample of Generation Z individuals aged 18–25 years, focusing on those engaged in personal financial management. The study utilized Structural Equation Modeling (SEM) to test the hypothesized relationships between financial literacy dimensions and financial behaviours, assessing model validity through various indices such as CFI, TLI, RMSEA, and SRMR. The results indicate a strong positive relationship between financial literacy and key dimensions of financial behaviour, including saving, spending, investment, debt management, and long-term financial planning, with path coefficients ranging from 0.765 to 0.840 (p < 0.001). The study found that financial literacy significantly influences financial behaviour, with numeracy skills and budgeting & money management emerging as the most powerful predictors of responsible financial practices. This research is the first empirical study to apply SEM within the Indian context, confirming the multidimensional nature of financial literacy and its impact on financial behaviour among Generation Z. It contributes valuable insights for policymakers, educators, and financial institutions in enhancing the financial capabilities of India’s youth in the digital age