Financial Literacy and Wellness among African-Americans: A closer look at the race gap

New Insights from the Personal Finance (P-Fin) Index

The financial literacy gap between African-Americans and whites can be partially, but not completely, attributed to underlying demographic differences between the two groups. Financial literacy is consistently correlated with various demographics in the adult population as a whole. In general, financial literacy is lower among females, younger individuals, those with less formal education and those with lower income. A greater share of African-American adults fall into these groups relative to whites (Table 1). Thus, these demographic differences account for at least some of the financial literacy gap between African-Americans and whites.

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Source: TIAA Institute-GFLEC Personal Finance Index (2019).

Demographic differences do not account for the entire financial literacy gap, however. Even within each demographic subgroup, financial literacy is lower among African-Americans, with the gap almost always exceeding 10 percentage points (Table 2). For example, while African-Americans tend to be younger than whites and younger individuals tend to have lower financial literacy, African-Americans in each age group tend to have lower financial literacy than their white peers. Regression analysis verifies this dynamic (Appendix Table A1). A statistically significant financial literacy differential between African-Americans and whites remains after controlling for other socio-economic factors, such as gender, education, marital status, and household income.

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Source: TIAA Institute-GFLEC Personal Finance Index (2019).

The same finding holds across functional areas that comprise the P-Fin Index (Appendix Table A2). Personal finance knowledge for each functional area is lower among African-Americans within each demographic subgroup, with the exception of comprehending risk and uncertainty.More work is needed to fully understand the drivers underlying financial literacy differences between African-Americans and whites.