The P-Fin Index Outcomes
Since the P-Fin Index measures knowledge and understanding that enable sound financial decision making, it should correlate with financial actions and outcomes. This expectation holds—individuals with greater financial literacy as measured by the index are more likely to have positive personal finance experiences.
As the percentage of P-Fin Index questions answered correctly increases, individuals are:
• Less likely to be financially fragile (Figure 9).
• Less likely to overdraw their checking account (Figure 10).
• More likely to plan for retirement (Figure 11).
• More likely to have non-retirement financial investments (Figure 12).
Analogously, the P-Fin Index can be used to examine correlations between financial knowledge in the functional areas and financial outcomes. More specifically, it enables analysis of whether knowledge in a given area has a particularly strong or weak correlation with a specific outcome, relative to knowledge in other areas. There is no such evidence in the data, however. Each area of functional knowledge is correlated in the expected direction with the four outcomes examined, but none has a disproportionately strong or weak correlation. (Appendix C illustrates this finding in the context of financial fragility.) On the surface, this indicates financial literacy in each area matters—none is more or less important than the others.
This highlights the complexity and comprehensive nature of personal finance decision making. Given that the functional areas comprising the P-Fin Index correspond to the National Standards for Financial Literacy outlined by the Council for Economic Education, the knowledge tested comprises the most relevant personal finance topics needed for sound financial decision making. So results indicating that financial literacy in each area matters are not surprising.