The country’s overall financial literacy is not improving.
The country’s overall financial literacy is not improving.
That’s the message in the 9th annual Personal Finance Index (P-Fin Index), which found that financial literacy remains low among U.S. adults. Respondents, on average, correctly answered only 49% of the index questions across eight key personal finance areas, the same as in 2017.
A joint initiative by the TIAA Institute and Stanford University’s Global Financial Literacy Excellence Center (GFLEC), the report highlighted “the important role financial literacy plays in financial well-being.” It noted that adults with very low financial literacy are twice as likely to be debt-constrained and three times more likely to be financially fragile than those with very high financial literacy.
“The persistent low levels of financial literacy underscore the need for targeted educational initiatives,” Annamaria Lusardi, a Stanford economist and a TIAA Institute Fellow, said in a statement. “To promote long-term financial security, it is essential to develop educational programs tailored to the diverse needs of various demographic groups and provide support where possible to help individuals make informed financial decisions.
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In addition to highlighting overall low financial literacy, the year’s results revealed noteworthy differences across generations, underscoring the challenges younger and older adults face.
- Gen Z averaged only 38% correct answers on the P-Fin Index, the lowest of any generation studied, with many of them demonstrating very low levels of financial literacy (i.e., they could correctly answer only up to seven questions out of the set of 28).
- In contrast, baby boomers correctly answered 55% of the index questions, on average, exceeding their younger peers, but still showing that they, too, did not correctly answer many of the questions.
- Gen Z financial literacy is consistently lagging behind the other generations across all eight key personal finance areas (spanning from saving to investing to comprehending risk). Importantly, when it comes to comprehending risk, this generational knowledge gap closes; across all generations, including baby boomers, risk is the hardest topic for people to understand.
“Taken together, these findings highlight a need for generationally tailored financial education: helping Gen Z establish foundational skills early and refining other generations’ understanding of basic financial knowledge to help with long-term planning,” according to the report.
Other key findings include:
- Understanding risk stands out as the lowest-scoring area, with only 36% of related questions answered correctly, on average – highlighting the difficulty Americans face in understanding possible financial outcomes.
- Significant gaps persist in financial literacy levels among demographic groups, including women and Hispanic and Black Americans.
- Greater financial literacy is strongly linked to better financial outcomes, including lower rates of debt constraint and financial fragility.
- The study also measured “retirement fluency,” finding that adults correctly answered only 37% of retirement-specific questions, on average, with questions covering distinct subjects, from Social Security benefits to Medicare coverage.
- Baby boomers demonstrated greater retirement fluency than younger generations; nonetheless, they still answered fewer than half of the retirement-related questions, indicating a potential gap in preparedness despite their proximity to retirement.