The Personal Finance Index: Demographic Variations

Personal finance knowledge varies across individuals with their demographic characteristics. P-Fin Index findings are generally consistent with financial literacy patterns identified by previous studies, with some minor differences. Figure 3 shows the average percentage of P-Fin Index questions answered correctly across demographic groups, while Figure 4 presents the distribution of correct answers within each group.

While previous research has found that financial literacy among men exceeds that among women by a sizeable amount,7 gender findings in the P-Fin Index are more nuanced. The difference in the average number of questions answered correctly is not significant, but there is a significant difference in the share of men and women demonstrating a relatively high level of personal finance knowledge (i.e., answering over 75% of P-Fin Index questions correctly.)

Personal finance knowledge is greater among those ages 45 and older than those under age 45. A larger percentage of P-Fin Index questions are answered correctly by those in the 45 and older group, and they are more likely to have a relatively high level of knowledge and understanding. These results are consistent with previous research which found that financial literacy tends to increase with age. It is important to note that many consequential financial decisions are made well before age 45 while financial knowledge is often very low— in fact, those under age 45 were much more likely to have a relatively low level of personal nance knowledge (i.e., answering 25% or less of P-Fin Index questions correctly.)

Financial literacy is higher among whites than nonwhites in the P-Fin Index results, a finding consistent with previous research. (Hispanics were oversampled in the first wave of the P-Fin Index. A report focused on their financial knowledge and understanding will be subsequently published.)

Personal finance knowledge tends to increase as household income increases—the share of index questions answered correctly is successively greater for higher income levels. This result is consistent with previous research. Those with household incomes of $100,000 or more are most likely to have a relatively high knowledge level; those with less than $25,000 in household income are most likely to have a relatively low knowledge level.

Personal finance knowledge varies significantly with employment status in the adult population. Individuals who are not employed have markedly less personal finance knowledge than those employed and those retired. The percentage of index questions that not employed respondents answered correctly is dramatically lower and they are much more likely to have a relatively low level of knowledge and understanding. Moreover, retirees answered a greater share of P-Fin Index questions correctly compared to those employed.

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P-Fin Index figure 3
P-Fin Index figure 4