The 2020 TIAA Institute-GFLEC Personal Finance Index: Financial Wellness and the P-Fin Index
Achieving financial security, or financial well-being, is a goal shared across individuals.18 An increased employer focus on employee financial well-being has manifested itself in workplace financial wellness programs. These programs are more holistic than predecessor programs, which typically focused on a single aspect of personal finances, e.g., saving for retirement or investing in retirement accounts.
The P-Fin Index is well suited to examine the relationship between financial literacy and financial well-being. To that end, the survey contains questions indicative of financial wellness—either outcomes linked to financial well-being or behaviors that should promote it. These questions cover money management with a particular focus on debt, the capacity to cope with financial shocks, and planning and saving for retirement.
• In a typical month, how easy or difficult is it for you to make ends meet?
• Do you make your loan payments in full and on time each month? This includes credit card balances, as well as a home mortgage, auto loans, personal loans, student loans, etc.
• Do you agree or disagree with the following statement? Debt and debt payments prevent me from adequately addressing other financial priorities.
• How con dent are you that you could come up with $2,000 if an unexpected need arose within the next month?
• Do you save for retirement on a regular basis?
• Have you ever tried to figure out how much you need to save for retirement?
There is a strong link between financial literacy and these financial well-being indicators, demonstrating the importance of including financial literacy in financial wellness programs. As the percentage of P-Fin Index questions answered correctly increases, individuals are:
• More likely to find it easy to make ends meet in a typical month (Figure 12).
• More likely to make loan payments in full and on time each month (Figure 13).
• Less likely to be debt constrained (Figure 14).
• Less likely to be financially fragile (Figure 15).
• More likely to save and plan for retirement (Figure 16).
Time spent thinking about and dealing with issues and problems related to personal finances is another useful indicator regarding an individual’s financial situation. Improving employee productivity by decreasing the amount of work time lost to personal nance issues is a primary motivation for employer-sponsored financial wellness programs. Here again, there is a strong link between financial literacy and this indicator (Figure 17). Adults with high levels of financial literacy (i.e., they correctly answer over 75% of the P-Fin Index questions) spend 3 hours per week, on average, thinking about and dealing with personal nance issues and problems.19 By comparison, those with low financial literacy (i.e., they correctly answer 25% or less of the index questions) spend a much greater amount of time doing so, an average of 12 hours per week. An even more pronounced dynamic exists in the workplace—workers with high financial literacy spend one hour of work time per week, on average, dealing with financial issues; workers with low financial literacy spend an average of six hours of work time per week on personal nance issues.20
18 Financial wellness can be de ned as a state of being wherein a person has control over day-to-day, month-to-month finances; has the capacity to absorb a financial shock; is on track to meet his or her financial goals; and has the financial freedom to make choices that allow enjoying life. See Consumer Financial Protection Bureau (2015).
19 Respondents were asked: How much time do you typically spend thinking about and dealing with issues and problems related to your personal finances? Please report approximate hours per week.
20 Employed respondents were subsequently asked: How many of these hours occur at work? Please report approximate hours per week.