Discover surprising truths about financial literacy, and why these could be costing you money.
In this video, we explore:
1. Financial Literacy in America
2. The Three Choices – What Would You Pick?
3. The Missing Link – Comprehension and Investing
When it comes to money, we know what we don’t know, but there’s a lot we don’t know!
The TIAA institute is the Teachers Insurance and Annuity Association of America in New York.
The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) measures knowledge and understanding that enable sound financial decision making and effective management of personal finances among U.S. adults.
It is an annual survey developed by the TIAA Institute and the Global Financial Literacy Excellence Center, in consultation with Greenwald & Associates.
It is unique in its breadth of questions and its coverage of the topics that measure financial literacy. The index is based on responses to 28 questions across eight functional areas: earning, consuming, saving, investing, borrowing/managing debt, insuring, comprehending risk, and go-to information sources.
Key Insights from the 2020 index:
1. U.S. adults, on average, correctly answered 52% of the P-Fin Index questions.
2. Correct responses have risen by 1 percentage point each year since the inaugural survey in 2017, resulting in a statistically significant increase over this period.
3. Financial knowledge is lowest in the area of comprehending risk and investing, and highest in borrowing and debt management.
4. Individuals with greater financial literacy spend less time at work contemplating money management problems.
5. Financial literacy is notably lower among Gen Z compared with older generations.
Many individuals do not know what they do know in terms of financial literacy. Consuming and earning are the areas where the largest share of adults rate their financial knowledge as being highest (25% and 22%, respectively) While these are areas of relative strength in terms of financial literacy, clearly many individuals do not recognize the level of knowledge they possess regarding borrowing.
While borrowing is the area of greatest functional knowledge among U.S. adults, only 10% rate themselves most knowledgeable in this area, the same percentage that rate themselves least knowledgeable. Perhaps challenges individuals face in managing debt are viewed as signaling a lack of knowledge.
At the same time, many do not know what they do not know! Investing is by far the area where the largest share (30%) think they know the least; however, about one-half of the P-Fin Index questions on investment were answered correctly. On the other hand, only 13% think comprehending risk is the area where they know the least, when it is actually the area where people show the lowest functional knowledge. It appears that individuals tend to not recognize their more prevalent weakness.