The Personal Finance Index: The P-Fin Index


The gamut of financial decisions—simple and complex—faced in the course of life is somewhat astounding. There are routine, everyday decisions, such as:

  • Where to shop and what to buy?

  • Cook dinner or eat out?

 Decisions made that are rarely revisited:

  • Choosing the deductible on car insurance, on homeowner’s insurance.

  • Choosing a bank.

Decisions made on a regular, periodic basis: 

  • Vacation or staycation?

  • Health insurance annual enrollment.

Decisions inevitably revisited with time: 

  • Where to live? Rent or own? Fixed or adjustable rate mortgage? Refinance?

  • Lease or purchase a new car? Get a used car? How much to spend?

Decisions with both short- and long-term consequences: 

  • Go to college? Which college? How to pay?

  • Relocate and change jobs?

  • How quickly to pay down debt?

  • Using credit and credit cards.

  • Carry life insurance? What kind and how much?

  • When and how to save for various needs, such as a child’s education?

  • Contribute to retirement plan? How much? How to invest?

  • Retire or work a few more years? When to collect Social Security?

  • Drawing income from savings during retirement.

It’s clear that individuals must make a myriad of financial decisions across a range of functional areas in the context of personal finance, such as consuming, saving, investing, borrowing and insuring. Nonetheless, all financial decisions are inherently interrelated and inevitably involve trade-offs. In addition, risk and uncertainty further complicate most financial decision-making.

How well individuals navigate life’s financial decisions is dependent, at least in part, on their knowledge and understanding of personal finances, often referred to as financial literacy. Decisions made and outcomes experienced matter not only at the household level, but also for the economy as a whole—an extreme example being the subprime mortgage crisis which devastated household finances and triggered the last recession. Therefore, understanding the level of personal finance knowledge among Americans, how it varies across different areas of financial decision-making and among demographic segments of the population, and how it evolves over time matters greatly at the individual level and for society as well.

To this end, the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index, for short) measures knowledge and understanding which enable sound financial decision-making and effective management of personal finances. The P-Fin Index is unique in the breadth of questions it asks and the topics it covers to measure financial literacy.

The P-Fin Index

The P-Fin Index relates to common financial situations that individuals encounter and, in that sense, can be viewed as a gauge of “working knowledge.” The index builds from the existing academic research on financial literacy and capability. But it is the capacity to produce a nuanced examination of financial literacy across different areas of personal finance in which individuals inherently function that distinguishes the P-Fin Index. In contrast, previous studies were constrained to use a smaller set of questions that focus on fundamental concepts, such as numeracy, inflation and risk diversification.

The P-Fin Index is based on responses to 28 questions; with three or four questions devoted to each of the following functional areas:

  1. Earning—determinants of wages and take-home pay

  2. Consuming—budgets and managing spending

  3. Saving—factors that maximize accumulations

  4. Investing—investment types, risk and return

  5. Borrowing/managing debt—relationship between loan features and repayments

  6. Insuring—types of coverage and how insurance works

  7. Comprehending risk—understanding uncertain nancial outcomes

  8. Go-to information sources—recognizing appropriate sources and advice

This depth and breadth in survey design produces a robust measure of overall personal finance knowledge and enables refined analysis of this knowledge across functional areas.

P-Fin Index results are available for demographic groups defined by age, gender, race and ethnicity, education level, employment status, household income and exposure to financial education. In addition, the P-Fin Index survey collects information about household finances and financial behaviors; this enables examination of the relationship between knowledge and outcomes.

The P-Fin Index was developed by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC), in consultation with Greenwald & Associates. The initial wave of the survey was fielded online in September 2016 with a nationally representative sample of U.S. adults, ages 18 and older.4 The survey was completed by 1,043 individuals. This report is an abridged version of the analysis performed on these data; detail about the empirical work will be available in a longer research paper.

The P-Fin Index will be an annual study. Future waves will enable trend analysis of overall personal finance knowledge, as well as knowledge in the different functional areas and across demographic groups.

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