The 2019 TIAA Institute-GFLEC Personal Finance Index: Discussion

Financial Literacy in the United States and Its Link to Financial Wellness


How well individuals navigate the myriad of financial decisions inherent in the normal course of life and the level of financial wellness that they achieve depends, at least
in part, on their financial literacy. Many Americans, however, lack personal finance knowledge that enables sound financial decision making and effective management of personal finances. In the 2019 P-Fin Index, U.S. adults answered only one-half (51%) of the index questions correctly, on average.

Over the first three waves of the P-Fin Index, the percentage of questions answered correctly increased from 49% in 2017 to 50% in 2018 to 51% in 2019, and the percentage of adults answering more than one-half of the questions correctly increased from 48% to 51% to 53%. While these results are noteworthy, the changes are too small, and the time period too short, to conclude that financial literacy levels are actually increasing.

In addition, while the relative rankings of knowledge across functional areas remains almost unchanged over the first three waves of the P-Fin Index—borrowing is where knowledge is highest and comprehending risk is where it is lowest—six of the eight functional areas saw small increases in the percentage of questions answered correctly. More sizeable changes occurred in the areas of saving, earning and go-to information sources.

The P-Fin Index also highlights why improving financial literacy levels is important, i.e., the link of financial literacy to financial wellness. The 2019 index survey contained several questions, some new, indicative of financial wellness—either about behaviors that should promote financial wellness or about outcomes demonstrating financial wellness. In each case, greater financial literacy was positively associated with the financial wellness indicator. For example, as the percentage of P-Fin Index questions answered correctly increases, individuals are more likely to have the capacity to handle a financial shock and to save for retirement on a regular basis, and less likely to be debt constrained.
The importance of financial literacy for financial well-being, combined with marginal changes in financial literacy to date, highlight the importance of increased focus on efforts, both in the workplace and in the education system, to improve financial knowledge and understanding among all Americans.

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