The 2018 TIAA Institute-GFLEC Personal Finance Index: The State of Financial Literacy Among U.S. Adults
Paul J. Yakoboski, Annamaria Lusardi, and Andrea Hasler
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an annual barometer of knowledge and understanding which enable sound financial decision making and effective management of personal finances among U.S. adults. It is unique in its capacity to examine financial literacy across eight areas of personal finance in which individuals routinely function. The 2018 data represents the second wave of the P-Fin Index.
Financial Education, Financial Competence, and Consumer Welfare
Sandro Ambuehl, B. Douglas Bernheim, Fulya Ersoy, Annamaria Lusardi, and David Zuckerman
Summary: Employers routinely attempt to address deficiencies in financial decision making among their employees by deploying educational interventions that are brief and laden with motivational rhetoric. The object of the rhetorical elements is to compensate for brevity by making the material engaging, memorable, and actionable. Prior studies of these interventions evaluate their benefits using criteria that suffer from serious conceptual and practical limitations. In contrast, our research employs a novel method for assessing the quality of decision making that respects each consumer’s underlying tastes and focuses instead on mistakes arising from misconceptions about opportunities. We deploy this method to evaluate a pair of educational interventions targeting two critical topics in personal finance: compound interest and portfolio allocation. Both interventions appear to be effective based on conventional outcome measures….
Financial Literacy Among U.S. Hispanics: New Insights from the Personal Finance (P-Fin) Index
Andrea Hasler, Annamaria Lusardi, and Paul Yakoboski
Abstract: This report uses the inaugural wave of the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) to examine financial literacy among Hispanics. A more refined understanding of Hispanic financial literacy could accelerate initiatives to improve their financial well-being.Personal finance knowledge among Hispanics is lower than that of the U.S. adult population as a whole. But beyond the gap with the general population, there is a notable difference in financial literacy within the Hispanic population between those born in the U.S. and those foreign born. The difference in the percentage of P-Fin Index questions answered correctly among U.S.-born Hispanics and foreign-born Hispanics (8 percentage points) is close to the difference between whites and U.S.-born Hispanics (11 percentage points).The difference in financial literacy between U.S.-born and foreign-born Hispanics cannot simply be attributed to differences in underlying demographics. Greater financial literacy among U.S.-born Hispanics relative to their foreign-born peers is consistent with education and income differences between the two groups. However, it is inconsistent with age differences between the two.
Millennials and Financial Literacy: A Global Perspective
Annamaria Lusardi and Noemi Oggero
Global Thinking Foundation | May 2017
Summary: Worldwide, just one in three adults show an understanding of basic financial concepts, making it clear that billions of people are unprepared to deal with rapid changes in the financial landscape. Credit products, many of which carry high interest rates and complex terms, are becoming more readily available. Governments are pushing to increase financial inclusion by boosting access to bank accounts and other financial services, but unless people have the necessary financial skills, these opportunities can easily lead to high debt, mortgage defaults, or insolvency. This is especially true for young people who suffer from low financial literacy…
The Gender Gap in Financial Literacy: A Global Perspective
Andrea Hasler and Annamaria Lusardi
Global Thinking Foundation | July 2017
Summary: Financial literacy is a skill that is essential if one is to participate in today’s economy. Wide-ranging developments in the financial marketplace have contributed to growing concerns about the level of financial literacy of citizens of many countries. Through analysis of the S&P Global FinLit Survey, the most comprehensive global data set on financial literacy to date, we find that financial illiteracy is widespread, but it is particularly pronounced among women. Worldwide, just one in three adults show an understanding of basic financial concepts, making it clear that billions of people are unprepared to deal with rapid changes in the financial landscape…
The TIAA Institute-GFLEC Personal Finance Index: A New Measure of Financial Literacy
Annamaria Lusardi, Noemi Oggero, and Paul J. Yakoboski
Executive Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) measures knowledge and understanding which enable sound financial decision-making and effective management of personal finances. It is unique in its capacity to examine financial literacy across eight areas of personal finance in which individuals routinely function, as well as providing a robust indicator of overall personal finance knowledge and understanding. U.S. adults are split 50/50 between those who could and those who could not answer over one-half of the P-Fin Index questions correctly. Sixteen percent of Americans demonstrated a relatively high level of personal finance knowledge and understanding, i.e., they answered over 75% of the index questions correctly. Twenty percent have a relatively low level of knowledge and understanding, answering 25% or less of the questions correctly.
Financial Capability and Financial Literacy among Working Women: New Insights
Annamaria Lusardi and Carlo de Bassa Scheresberg
Summary: The following report provides a comprehensive analysis of the personal finances of working women. Using data from the National Financial Capability Study conducted in 2015, we examined the financial capability of working women and how it changed since 2012.
The study showed as the economy steadily recovered, working women’s personal finances also improved. In particular, working women now find it easier to make ends meet, and are using alternative financial services less often. Further, women are less likely to carry credit card debt or engage in expensive credit card behaviors. However, several subgroups—those who are early in their careers, those with children, and those who have experienced marital disruption—still show signs of financial distress. In 2015, financial fragility decreased among working women, but one-third still state they would not be able to cover an unexpected expense of $2,000 in a month’s time….
When will the penny drop? Money, financial literacy and risk in the digital age
Michela Coppola, Greg Langley, Annamaria Lusardi, Mylène Sabatini, and Richard Wolf
Summary: In November 2016, Allianz, in collaboration with Director Annamaria Lusardi, surveyed a total of 10,000 (approximately 1,000 people in each country) in the western European countries of Austria, Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, Switzerland, and the United Kingdom to better understand their financial and risk literacy and financial decision making. The relationship between financial literacy and relevant financial outcomes (borrowing and investing behavior and planning and saving for retirement) is well documented in the academic literature. This current study goes further by adding questions relating to risk concepts. It also examines the extent to which people who have a good understanding of financial and risk concepts are also better at recognizing the right financial product for a specific financial need in real-life situations…
The National Financial Capability Study: Empirical Findings from the American Life Panel Survey
Marco Angrisani, Arie Kapteyn, and Annamaria Lusardi
The National Financial Capability Study (NFCS) is an ongoing study first conducted in 2009. It is commissioned and supported by the FINRA Investor Education Foundation, in consultation with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy. Its main objectives are the elicitation of key measures of financial capability among American adults, an assessment of how such measures evolve over time and with the business cycle and an evaluation of how they vary with demographic and attitudinal characteristics as well as with the level of financial literacy possessed by individuals….
This report provides a descriptive analysis of the financial capability of American adults based on a unique data set constructed by merging individual answers to the NFCS questionnaire with and extensive range of socio-economic status variables available, for each respondent, through other ALP surveys….
Summary: Our research investigates whether and how older women’s current and anticipated future labor force patterns has changed over time, to evaluate the factors associated with longer work lives and plans to continue working at older ages. For our empirical investigation, we use data from two sources: the Health and Retirement Study (HRS), and the National Financial Capability Study (NFCS). Our analysis finds that older women’s current and intended future labor force attachment patterns have changed markedly over time. Compared to the HRS baseline cohort (first interviewed in 1992), recent cohorts of women in their 50’s and 60’s work more, and they are also more likely to say they will continue to be working at age 65….
Judy T. Lin, Christopher Bumcrot, Tippy Ulicny, Annamaria Lusardi, Gary Mottola, Christine Kiefer, Gerri Walsh
Summary: Financial capability is a multi-dimensional concept that encompasses a combination of knowledge, resources, access, and habits. The NFCS is designed to understand and measure a rich, connected set of perceptions, attitudes, experiences, and behaviors across a large, diverse sample in order to provide a comprehensive analysis. As with previous waves, the 2015 NFCS has been updated to include questions on additional topics that are relevant today, such as student loans and medical costs, while maintaining key measures to enable tracking comparisons over time.
Americans’ Troubling Financial Capabilities: A Profile of Pre-Retirees
Annamaria Lusardi and Carlo de Bassa Scheresberg
The Gerontological Society of America | 2016
Introduction: Many people envision a life of work that builds to comfortable and enjoyable retirement years. For previous generations, the financial security that marked that post–labor-force chapter hinged on how generous employers were with pensions or how well employers invested and managed retirement accounts. In recent years, however, fast-paced changes to workforce dynamics, a dramatic shift from employer-provided retirement accounts to worker-managed retirement plans, and lengthening life expectancies have altered that safety net, making retirement security much more challenging to achieve….
FINANCIAL LITERACY AROUND THE WORLD: INSIGHTS FROM THE STANDARD & POOR’S RATINGS SERVICES GLOBAL FINANCIAL LITERACY SURVEY
Leora Klapper, Annamaria Lusardi, and Peter van Oudheusden
Standard & Poor's Ratings Services | November 2015
Summary: Given the many ways financial literacy affects financial behavior (Lusardi and Mitchell, 2014), it is important to understand the extent of people’s understanding of basic financial concepts as well as the degree to which financial skills fall short among groups like women and the poor. The Standard & Poor’s Ratings Services Global Financial Literacy Survey (S&P Global FinLit Survey) provides this information across a wide array of countries. It builds on early initiatives by the International Network on Financial Education (INFE) of the Organization for Economic Co-operation and Development (OECD), the World Bank’s Financial Capability and Household Surveys, the Financial Literacy around the World (FLAT World) project, and numerous national survey initiatives that collect information on financial literacy. The survey complements these efforts by delivering the first and most comprehensive global gauge of financial literacy to date.
Hispanic Personal Finances: Financial Literacy and Decisionmaking Among College-Educated Hispanics
Carlo de Bassa Scheresberg, Annamaria Lusardi, and Paul Yakoboski
TIAA-CREF Institute | May 2015
Summary: This report examines the personal finances—assets, liabilities, planning behaviors, financial vulnerability and financial literacy—of college-educated Hispanics, i.e., those with high school degrees who report at least “some college” as their highest level of educational attainment. Many college-educated Hispanics are, in various ways, in a tenuous financial state characterized by financial fragility and broad use of expensive credit card behaviors or alternative financial services. Moreover, their financial literacy is consistently low, despite high confidence about their decision-making abilities. These low levels of financial literacy are associated with the other financial challenges faced by college-educated Hispanics that are outlined in this report.
APEC Guidebook on Financial and Economic Literacy in Basic Education
Annamaria Lusardi et al.
APEC | November 2014
Summary: This is a joint initiative, that means, it is based on the efforts, knowledge and wisdom of experts from all the APEC economies and at the same time it is hoped to benefit all the economies in the APEC region in the long run. By distilling lessons from the APEC region and sharing best practices, we hope to make a contribution to laying a solid foundation for employability and productivity of the workforce in economies in the APEC region through education in economic and financial literacy, especially for developing economies, in the changing economic circumstances.
FINANCIAL CAPABILITY NEAR RETIREMENT: A PROFILE OF PRE-RETIREES
Carlo de Bassa Scheresberg and Annamaria Lusardi
Filene Research Institute | October 2014
Summary: This report shows how pre-retirees—those between 51 and 61 years of age—face a number of financial challenges. Authors Carlo de Bassa Scheresberg and Annamaria Lusardi use financial capability data from the 2012 National Financial Capability Study to highlight the troubling prevalence of long-term debt among individuals who are close to retirement. In addition, the data show that many pre-retirees use expensive credit card borrowing, lack both short-term and long-term financial management and planning, and use financial advice only sparingly
WORKING WOMEN’S FINANCIAL CAPABILITY: AN ANALYSIS ACROSS FAMILY STATUS AND CAREER STAGES
Carlo de Bassa Scheresberg, Annamaria Lusardi, and Paul J. Yakoboski
TIAA-CREF Institute | May 2014
Summary: This study increases our understanding of the unique financial needs of working women by examining key factors associated with their personal finances and identifying issues that are critical to their financial future. The study provides an overview of working women’s financial capability and documents how personal financial needs and financial behaviors vary by family status and career stage. The study concludes with a list of actions that would help to better serve working women’s financial needs.
GEN Y PERSONAL FINANCES: A CRISIS OF CONFIDENCE AND CAPABILITY
Carlo de Bassa Scheresberg and Annamaria Lusardi
Filene Research Institute | May 2014
Summary: Generation Y will leave a lasting imprint on American history. The largest, most diverse generation America has seen, Generation Y comprises millions who were born between the late 1970s and the mid-1990s. While this generation is confident, they face financial pressures that will jeopardize and limit their economic opportunities. A fragile economy, student debt, and an unstable job market are a few of the hurdles they face. Looking at the data from the most recent National Financial Capability Study (NFCS), we are concerned about their unprecedented levels of student debt and their overconfidence in financial matters. Despite encouraging signs in terms of their assets, the analysis reveals that Millennials are deeply indebted and struggle to meet payments on both short- and long-term obligations. Even though most Gen Yers feel good about their financial knowledge, data show that they lack the basic skills needed to make savvy financial decisions.
COLLEGE-EDUCATED MILLENNIALS: AN OVERVIEW OF THEIR PERSONAL FINANCES
Carlo de Bassa Scheresberg, Annamaria Lusardi, and Paul J. Yakoboski
TIAA-CREF Institute | February 2014
Summary: This study has used new data from the NFCS to analyze salient issues related to college-educated Millennials’ financial capability, practices, and status, and in the process identify key financial challenges they face. The results suggest that the promotion of financial literacy—through financial education—is needed. In particular, there is a need for improved knowledge and understanding regarding debt and debt management. Policies aimed at improving financial literacy could help Gen Y minimize the costs incurred in managing debt, improve personal financial safety nets, and fortify both short-term and long-term financial stability and security. The gap between the financial responsibilities of Gen Y and their ability to manage financial decisions and take advantage of financial opportunities has both individual and societal implications if it remains unaddressed.
PROCEEDINGS OF THE OECD/INFE/GFLEC GLOBAL POLICY RESEARCH SYMPOSIUM TO ADVANCE FINANCIAL LITERACY
OECD | October 31, 2013
Summary: This document collects the contributions of the four main speakers of the OECD/INFE/GFLEC Global Policy Research Symposium to Advance Financial Literacy, held in Paris on 31 October 2013. The conference was co-organised with the Global Financial Literacy Excellence Center (GFLEC) at the George Washington School of Business, Washington, DC. These proceedings benefited from the support of VISA Europe.