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The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index)

The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index)

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. The P-Fin Index 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.

Highlights from the 2020 P-Fin Index

  • The index provides a glimpse into the economic strength and preparedness of Americans going into the crisis and their ability to best navigate a recovery. The survey, conducted before the coronavirus pandemic, found that individuals with greater financial literacy are more likely to be able to cope with a financial shock. If an unexpected need arose, 77 percent of individuals with a high level of literacy would be able to come up with $2,000 versus just 21 percent of individuals with a low level of literacy.
  • Financial literacy is slowly increasing since the inaugural survey in 2017. While many Americans lack personal finance knowledge that enables sound financial decision making—U.S. adults correctly answered only 52% of the P-Fin Index questions, on average—the percentage of index questions answered correctly has increased 1 percentage point each year since the inaugural survey.
  • Many do not know what they do know. While borrowing is the functional area of greatest financial knowledge among U.S. adults, only a small proportion rate themselves most knowledgeable on this topic; consuming and earning are where most adults rate their knowledge as being highest.
  • Many do not know what they do not know. While comprehending risk is the area of lowest financial knowledge among U.S. adults, investing is where most people think they know the least, indicating yet again a mismatch in what people think they know and what they actually know.
  • The P-Fin Index shows a strong link between financial literacy and time spent on money management problems. Workers with low financial literacy spend six hours of work time per week, on average, dealing with financial issues compared with one hour per week among workers with high financial literacy. Among all adults, those with low financial literacy spend an average of 12 hours per week dealing with personal finance issues; those with high financial literacy spend 3 hours per week.
  • Financial literacy is notably lower among Gen Z compared with Gen X, Gen Y and baby boomers; Gen Z correctly answered 41% of the index questions on average. Financial literacy in each functional area is lowest among Gen Z, with the gap being statistically significant for six of the eight functional areas. The Gen Z gap is greatest in the area of insuring. Moreover, comprehending risk is a particular weakness common among the four generations.

Even before the Covid-19 pandemic hit the economy, there were signs of financial fragility and financial distress. This report reminds us that just as sailing knowledge clearly shows its worth during a storm, financial literacy does so during a financial crisis. Going forward, it will be even more important that individuals have the skills and knowledge necessary to build financial resilience.

— Annamaria Lusardi

Information about the survey

The initial wave of the survey was fielded online in September 2016 to a nationally representative sample of U.S. adults, ages 18 and older. Each year, the survey oversamples a particular demographic group to better understand the financial literacy levels and financial behaviors of that group. Because the P-Fin Index is 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.