Financial literacy, wellness and resilience among African Americans: Executive Summary
New insights from the Personal Finance (P-Fin) Index
The economic consequences of the COVID-19 pandemic have made obvious the precarious financial state of many American households. The capacity to cope with a financial shock is lacking, as is an understanding of fundamental personal finance concepts, such as risk and uncertainty, which is of particular importance during periods of economic turmoil.
Overall, in 2019, even before the current crisis hit, the financial well-being of African Americans lagged that of the U.S. population as a whole, and whites in particular. The reasons for this gap are complex, but one area of importance in addressing it is increased financial literacy.
Financial literacy is knowledge and understanding that enable sound financial decision making and effective management of personal finances. As such, improved financial literacy contributes to improved financial well being. This report uses the third wave of the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) to examine the state of financial literacy among African American adults and the relationship between financial literacy and financial wellness. Key findings include:
Personal finance knowledge among African American adults lags that of whites. On average, African Americans answered 38% of the P-Fin Index questions correctly, with only 28% answering over one-half of index questions correctly. The analogous figures among whites were 55% and 62%, respectively.
Financial literacy varies across demographic groups within the African American population. The observed patterns are consistent with variations identified in the U.S. population as a whole-financial literacy is greater among men, older individuals, those with more formal education, and those with higher incomes.
Insuring is the functional area where personal finance knowledge is lowest among African Americans, but it is also essentially just as low in the areas of comprehending risk, investing and identifying go-to information sources.
Borrowing and debt management is the area of highest personal finance knowledge among African Americans.
A lack of financial resilience was more common among African Americans than whites in 2019, before the onset of COVID-19 and its economic consequences. African Americans were less likely to express confidence in their ability to cope with a midsized emergency expense.
There is a strong link between financial literacy and financial wellness among African Americans. Those who are more financially literate are more likely to plan and save for retirement, to have non-retirement savings and to better manage their debt; they are also less likely to be financially fragile.
A more refined understanding of financial literacy among African Americans—their level of overall financial knowledge, areas of strength and weakness, and variations among subgroups—can inform initiatives to improve financial well-being. While not a cure-all, increased financial literacy can lead to improved financial capability and practices that benefit even those with relatively low incomes.