The 2019 TIAA Institute-GFLEC Personal Finance Index: Introduction

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


How well individuals navigate the myriad of financial decisions they face is dependent, at least in part, on their knowledge and understanding of personal finances, typically referred to as financial literacy. Decisions made and outcomes experienced matter not only at the household level, but also for the economy as a whole. So what is the state of financial literacy in the United States? Are there areas where knowledge is particularly strong and, analogously, areas where it is particularly weak? How does financial literacy vary across different segments of the population? How does financial literacy correlate with financial behavior?

The 2019 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) represents the third wave of a long-term project to annually assess financial literacy among the U.S. adult population. The P-Fin Index measures the knowledge and understanding that enable sound financial decision making and effective management of personal finances. The index relates to common financial situations that individuals encounter and thus can be viewed as a gauge of “working knowledge.”

The P-Fin Index is unique in its capacity to produce a robust measure of overall personal finance knowledge and a nuanced analysis of knowledge across eight areas of personal finance in which individuals inherently function. The index is based on responses to 28 questions, with three or four questions for eight functional areas:
1. Earning—determinants of wages and take-home pay.
2. Consuming—budgets and managing spending.
3. Saving—factors that maximize accumulations.
4. Investing—investment types, risk and return.
5. Borrowing/managing debt—relationship between loan features and repayments.
6. Insuring—types of coverage and how insurance works.
7. Comprehending risk—understanding uncertain financial outcomes.
8. Go-to information sources—recognizing appropriate sources and advice.

In contrast, other studies have been limited to a smaller set of questions focusing on fundamental concepts, such as numeracy, inflation and risk diversification.4 In addition, the P-Fin Index survey collects information about household finances and financial behaviors; this enables examination of the relationship of knowledge with actions and outcomes.

The 2019 survey was fielded online in January with a nationally representative sample of U.S. adults, ages 18 and older, and completed by 1,008 individuals. (Table A1, Appendix A shows the weighted distribution of respondents across various demographics.) This report differs from previous P-Fin Index reports in two ways. First, it compares financial literacy across the initial three waves of the index. Second, it analyzes the link between financial literacy and financial wellness. In addition, African- Americans were oversampled in fielding this year’s index survey; an analysis of that population subgroup will be presented in a follow-up report.

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