The 2020 TIAA Institute-GFLEC Personal Finance Index: Executive Summary

The 2020 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is part of a long-term project that annually assesses financial literacy among U.S. adults. The P-Fin Index is unique in its capacity to produce a robust measure of overall personal finance knowledge plus a nuanced analysis of financial literacy across eight functional areas in which individuals routinely operate. Several items are new in the 2020 P-Fin Index:

• Respondents were asked the functional areas where they consider their financial literacy to be strongest and weakest.

• Respondents were asked how much time they spend thinking about and dealing with issues and problems related to their personal finances, including time spent doing so on the job.

• A sufficient number of Gen Z and Gen Y respondents were quota-sampled in order to examine financial literacy across generations in addition to age groups.

In addition, new indicators of financial wellness were included to examine their relationship with financial literacy. Key findings for 2020 include:

• While many Americans lack personal finance knowledge that enables sound financial decision making— U.S. adults correctly answered only 52% of the P-Fin Index questions, on average—the percentage of index questions answered correctly has increased 1 percentage point each year since the inaugural survey. The resulting 3-percentage point increase between 2017 and 2020 is statistically significant. This finding hints at a slow increase in financial literacy levels over time.

• As in previous years, comprehending risk is where functional knowledge is lowest. Similarly, financial literacy continues to be highest in the area of borrowing and debt management. From 2017 to 2020, seven of eight functional areas have seen increases, some marginal and others more noteworthy, in the percentage of questions answered correctly; correct answers increased 7 percentage points for earning, 6 percentage points for savings and 3 percentage points for go-to information sources.

• Many individuals do not know what they do know. While borrowing is the functional area of greatest financial knowledge among U.S. adults, only a small proportion rate themselves most knowledgeable on this topic; consuming and earning are where most adults rate their knowledge as being highest. At the same time, many individuals do not know what they do not know. While comprehending risk is the area of lowest financial knowledge among U.S. adults, investing is where most people think they know the least, indicating yet again a mismatch in what people think they know and what they actually know.

• A primary motivation for employer-sponsored financial wellness programs is to decrease employee stress and also work time lost to employees dealing with personal finance issues. The P-Fin Index shows a strong link between financial literacy and time spent on money management problems. Workers with low financial literacy spend six hours of work time per week, on average, dealing with financial issues compared with one hour per week among workers with high financial literacy. Among all adults, those with low financial literacy spend an average of 12 hours per week dealing with personal finance issues; those with high financial literacy spend 3 hours per week.

• Financial literacy is notably lower among Gen Z compared with Gen X, Gen Y and baby boomers; Gen Z correctly answered 41% of the index questions on average. Financial literacy in each functional area is lowest among Gen Z, with the gap being statistically significant for six of the eight functional areas. The Gen Z gap is greatest in the area of insuring.

• Comprehending risk is a particular weakness common among the four generations. In addition, differences in risk literacy across generations are much smaller compared with other functional areas.

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