Large numbers of Americans do not have the knowledge associated with financial decisions, according to an annual survey conducted by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at George Washington University School of Business.
Given a personal finance survey of 28 questions covering such subjects as investing and managing debt, participants could only answer half of the questions correctly. With regards to questions about risk, only 35% of the questions were correctly answered. TIAA and GFLEC say that given that risk is central to many financial decisions, this indicates that Americans’ financial well-being may be in jeopardy.
However, with regards to questions about borrowing and debt, participants answered 60% of these questions correctly. The two organizations say this may be because many people carry student loans.
The annual TIAA Institute-GFLEC Personal Finance (P-Fin) Index “provides a deep understanding of the state of financial literacy among U.S. adults,” says Stephanie Bell-Rose, head of the TIAA Institute. “Given the link between financial knowledge and financial outcomes, individuals would clearly benefit from increased financial literacy levels.”
Fewer than 20% of the participants in the 2018 survey could correctly answer 75% or more of the survey questions correctly, adds Annamaria Lusardi, GFLEC academic director. “Low levels of financial literacy—not only [among] the young but also people close to retirement—show we need to step up the effort to promote financial knowledge across the entire population.”
The survey also revealed that 21% of men could answer 75% or more of the questions correctly, whereas only 12% of women could do so. Those who participated in a financial class fared better.
The 28-question survey covered the following eight personal finance topics: earning, consuming, saving, investing, managing debt, insuring, comprehending risk and recognizing sources of information and advice.